Originally published on February 26, 2014
Mt. Gox, the world’s biggest bitcoin exchange, stopped trading on Monday after losing a large amount of the virtual currency in apparent hacking attacks that went unnoticed for years.
Users can generate bitcoin transaction requests using computers or mobile devices. Every request enters the blockchain, a public ledger of sorts. The transaction is then confirmed by the other computers on the bitcoin network, usually within 10 minutes.
Just like any other currency, users must trade their fiat currencies via exchanges like Mt. Gox to get bitcoins. However, in the case of certain exchanges like Mt Gox, these transactions are not verified on the bitcoin network, which can make the exchange vulnerable to hacking.
Exchanges, including Mt. Gox, have a hot wallet that works like an ATM machine, or “cash float”, in a register to pay customers. Mt. Gox used offline “cold storage” as a safe to deposit bitcoin reserves.
The Japan-based exchange is believed to have been hit by repeated hacking attacks over the past few years, which eventually wiped out its entire cold storage.
Citing a leaked document, Wired reported that the exchange had a leak in the link between its hot wallet and cold storage reserves, which are only online at limited times to transfer bitcoins between the two systems. The hacker reportedly used a known bug in the bitcoin protocol that had been fixed in the past, but Mt. Gox failed to update its own software running the exchange, which allowed the hacker to empty its entire cold storage.
According to the New York Times, Mt. Gox has lost 744,000 bitcoins, worth around $418,400,000 at the current exchange rate, which constituted 6 percent of all bitcoins in circulation.
Mt. Gox has received a subpoena from federal prosecutors in New York. Japanese authorities have also launched an investigation into the alleged theft.
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