Would you keep $500k of untraceable cash in your bedroom?

Probably not, but reportedly a user of Bitcoin kept about half a million dollars worth of the new decentralized cryptographic currency on their Windows laptop, and somebody stole it.

Misappropriated Bitcoins are, by design, difficult to trace, and with appropriate precautions, almost impossible.

To steal your Bitcoins, all someone needs is access to your “Bitcoin wallet”, a small file that by default, will be stored unprotected on your hard disk by the official Bitcoin software. ¬†Having a backup of your wallet doesn’t help, anyone that can read your wallet can empty it. ¬†They don’t even need to modify your wallet file to do this.

If someone gains access to your wallet, your only defense is to empty it before they do.

Even simple precautions, like storing your Bitcoin wallet in an encrypted disk, will be scant defense against someone who can gain physical or digital access to your computer (as they can use a keylogger to discover your passwords). Worse, with the large dollar values we’re talking about, extortion also becomes a real threat.

Indeed, the ease with which someone can steal something so valuable, with so little threat of getting caught, is almost unmatched. The very things that make Bitcoins such a powerful concept, are the very things that make it a tempting target for smart thieves.

Additionally, as the value of Bitcoins has skyrocketed since the online currency’s initial creation 2 years ago, many early adopters now own hundreds of thousands, even millions of dollars worth of Bitcoins. Many of these people probably have nothing like the kind of protection that would be employed to protect any other commodity of this value.

At this point it is difficult to know what to do, except perhaps rely on safety in numbers.

So if you are one of the “Bitcoin wealthy”, don’t tell ANYONE!

p.s. Oh and unfortunately for me I’m not one of those people, honest!

12 thoughts on “Would you keep $500k of untraceable cash in your bedroom?

    1. ian Post author

      Matt, no – there is no way to “flag” coins as stolen in Bitcoin. Yes, you could probably trace their path through the network to a point, but this becomes increasingly difficult the more the coins are moved around.

      Reply
  1. Marc Authier

    Anything that can be created or zapped out of existence by a computer key stroke, is crap, including bank accounts by the way. I don’t see the big deal, except it is an excellent vehicule for money launderers, arms traffikers, dishonest politicians stealing their country like Papandreou and his brother, drug traffickers, pimps, to steal some more without leaving a trace of their rape and plunder. So much for the revolution. Buy physical silver that you can hold in your hand.

    Reply
  2. Al

    What if the guy had a backup, could he restore the wallet and there would be twice as much bitcoins out there? Or would it just be a race to spend his before the thief spent it?

    Reply
  3. Astraea Sahw

    Surely, if he has access to any computer he has access to he “wallet” and therefore can get at his bitcoins?

    I do not see why it is that important if his laptop was stolen.

    Reply
  4. Ikke

    @AI:

    The one who spends the first will get money. If he has a backup of his wallet (which I hope he does, but don’t think he has), I would send the money as soon as possible to a new address.

    Reply
  5. Bob

    I got some free bitcoins from the bitcoin faucet about a year ago (no longer works btw). I didn’t think it would take off so I forgot about them, then reformatted my hardrive. Now they are worth like $20 each. Do’h!

    Reply
  6. Hairy Herry

    Ikke is correct! Whomever finds the bitcoins and spends them first is the WINNER in this one. The Bitcoin network was designed in that regard where double-spending is likely not possible. To conclude; there is no bad or good guy in this contest of electronic quickdraw.

    Reply
  7. JacobInnopay

    So you can lose a lot of bitcoins, just like you can lose a lot of cash. The parallels are that you could buy a safe. For bitcoins: store a large part of your BTC in a seperate account that you securely encrypt, or put the .dat file on a (encrypted) USB stick and put that in the safe.
    Difference between cash and bitcoins is that you could lose cash to a ‘natural disaster’ such as a fire, whereas if you lose your primary bitcoin wallet to a harddrive crash/fire then you could still restore from a backup. BTC may be ‘easily’ lost, but are also easily restored if they haven’t been spent yet by someone else.
    Interesting question here: is there a market for 3rd party company who will securely store your bitcoin balance for you and guarantee their safety? If so, that would effectively create a ‘Bitcoin bank’, created for the same reasons banks came into existence in the real world several centuries ago.

    Reply

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