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10 scary facts about Bitcoin

Before diving into Bitcoin, make sure you know the facts.

By , Network World
June 07, 2013 12:03 PM ET

Network World - Bitcoin's trajectory over the past few years is nothing short of impressive. A peer-to-peer alternative currency whose creator remains anonymous five years later, Bitcoin sounds like something out of a science fiction novel.

However, Bitcoin has paid off for many of its early adopters, and is moving too quickly to be ignored.

[BITCOIN: 7 reasons to be wary]

While many in the Bitcoin community discredit much of the subjective criticism against the currency, no interested party should dive into a Bitcoin engagement without knowing the facts.

10. Digital Bitcoin wallets are stored unencrypted by default.

Many in the current Bitcoin community are well-versed in technology, and would opt in to encrypt their wallets as soon as they register. However, Bitcoin in the past six months has turned the corner into the mainstream, and will only continue to attract more attention from those who may not be as tech-savvy as its early adopters, and may be less likely to even consider encrypting their wallets.

Consider Florida, where high rates of retirees and senior citizens who are unfamiliar with safe online behavior have made the state the national leader in identity theft, at a rate of 361 cases per 100,000 residents. That’s almost twice the No. 2 state, neighboring Georgia, which has 194 reported cases per 100,000 residents.

As more people begin to invest in Bitcoin, default encryption will become more important. Whether that becomes a reality remains to be seen.

9. Bitcoin thefts have occurred, sometimes in large quantities.

In June 2011, one user in the Bitcoin forum claimed that 25,000 Bitcoins, the equivalent of $375,000, was stolen from his wallet.
Although that was difficult to confirm, it wasn’t an isolated incident. Just a few days after that reported theft, Mt. Gox, the exchange where users can buy and sell Bitcoins for U.S. dollars, leaked 60,000 user names, password hashes and email addresses. Mt. Gox later reversed the trades and fixed the problem, but the leak led to the theft of Bitcoins from about 600 users who used the same user names and passwords for their MyBitcoin accounts. One user reported losing more than 2,000 Bitcoins.

In March 2012, a security breach at a web hosting company would lead to the theft of 50,000 Bitcoins, the largest in the currency’s history.

8. Old wallets, and their contents, can be retrieved pretty easily.

Another potential issue for those who are less educated on technology is what “changing the password” means for an eWallet. From the Bitcoin Wiki on “weaknesses”:

“An old copy of a wallet with its old password is often easily retrievable via an existing backup facility (particularly Apple Time-Machine): draining that old wallet, with its old password, drains the current wallet with the current password -- this is contrary to most non-technical users’ expectation of what 'change the password on your wallet' should mean following password compromise.”

Essentially, users who want to create a new wallet must know that they need to send their existing sums to new accounts with new passwords. It’s not as easy as many would assume.

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