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{{Imported Case Study|source=https://www.quadrigainitiative.com/casestudy/bitcoinicalinodewebhosthack.php}}
{{Case Study Under Construction}}{{Unattributed Sources}}[[File:Bitcoinica.jpg|thumb|Bitcoinica Logo/Homepage]]In the early days of bitcoin, security was often a secondary concern. Many people stored wallets online and accessible, including the popular cryptocurrency exchange Bitcoinica. After being hacked for 43,000 bitcoins, Bitcoinica promised to compensate all users for their losses. The platform would go on to be attacked two more times before shutting down.


In the early days of bitcoin, security was often a secondary concern. Many people stored wallets online and accessible, including the cryptocurrency exchange Bitcoinica. These types of exploits are easy to avoid by using proper multi-signature cold storage.
<ref name="finextra-13" /><ref name="bitcointalklistold-20" /><ref name="bitcoinwiki-24" /><ref name="arstechnica-25" /><ref name="kylegibson-86" /><ref name="bitcointalklist-87" /><ref name="slowmisthacked-1160" /><ref name="bitcoinstackexchange-7171" /><ref>[https://www.scribd.com/doc/102576821/Brian-Cartmell-et-al-vs-Bitcoinica-LP Brian Cartmell et al vs Bitcoinica LP - Scribd] (Accessed Feb 27, 2024)</ref>


This exchange or platform is based in New Zealand, or the incident targeted people primarily in New Zealand.
== About Bitcoinica ==
The Bitcoinica exchange platform was based in New Zealand, and founded by Zhou Tong<ref name="bitcoinmagazine-23" />.<blockquote>Despite his position as the creator of a financial speculation service and his strong belief in libertarian capitalist ideals, Bitcoinica to him has never been about the profit. “Bitcoinica is not a money making machine,” he writes. “It’s just a product that sets a high standard for the Bitcoin community.”<ref name="bitcoinmagazine-23" /></blockquote>


== About Bitcoinica ==
== About Linode ==
"Online bandits made off with at least $228,000 worth of the virtual currency known as Bitcoin after exploiting a vulnerability in a widely used Webhost that gave unfettered access to eight victims' digital wallets." “On March 2, 2012, a hacker was able to obtain customer support privileges for Linode, giving the hacker a unique level of access to customer information. The hacker was able to find out which customers were holding bitcoin wallets. Using that information, the thief logged into individual accounts using a weakness in the Linode manager, a platform customers were using to configure their virtual machines. The hacker rebooted the virtual machines to change the root passwords, giving the hacker access to any account and the bitcoins inside. A total of 46,703 BTC was stolen, worth $228,000 at the time.”
Linode was a web hosting provider<ref name="bitcoinmagazine-6" /> located in New Jersey<ref name="newsdotbitcoin-7" />.


This exchange or platform is based in New Zealand, or the incident targeted people primarily in New Zealand.
== The Reality ==
The Bitcoinica platform was to suffer from a series of vulnerabilities.


The background of the exchange platform, service, or individuals involved, as it would have been seen or understood at the time of the events.
== What Happened ==
On March 1st, an attacker managed to gain access to 43,554 bitcoins from the Bitcoinica exchange by exploiting a vulnerability in the Linode web hosting provider.
{| class="wikitable"
|+Key Event Timeline - Bitcoinica Linode Web Host Hack
!Date
!Event
!Description
|-
|March 1st, 2012
|Hacking Event
|The platform server is restarted as part of a root password reset process, and the attacker then helps themselves to all the bitcoin in the wallet.
|-
|March 1st, 2012 8:37:39 PM MST
|BitcoinTalk Thread Started
|Bitcoinica CEO Zhou Tong posts on BitcoinTalk about the hacking which happened<ref name=":0">[https://bitcointalk.org/index.php?topic=66979.0 Bitcoinica lost 43,554 BTC from Linode compromise, suspicious TXIDs publicized - BitcoinTalk] (Accessed Mar 1, 2023)</ref>. Zhou Tong confirms that Bitcoinica has enough historical profit to cover the losses and pledges to implement additional security measures to prevent future incidents<ref name=":0">[https://bitcointalk.org/index.php?topic=66979.0 Bitcoinica lost 43,554 BTC from Linode compromise, suspicious TXIDs publicized - BitcoinTalk] (Accessed Mar 1, 2023)</ref>.
|-
|May 14th, 2012 6:12:46 AM MDT
|Bitcoin Magazine Obituary
|Bitcoin Magazine publishes an obituary of the Bitcoinica exchange, written by Vitalik Buterin<ref name="bitcoinmagazine-23" />. The significant thefts from Bitcoinica's reserves are described as causing the platform's immediate shutdown due to financial strain<ref name="bitcoinmagazine-23" />. However, reassurances were given that users with balances on the platform would be compensated, with Intersango taking over Bitcoinica's operations<ref name="bitcoinmagazine-23" />. Bitcoinica's founder Zhou Tong decided to depart from the Bitcoin sphere<ref name="bitcoinmagazine-23" />. Despite accusations against Zhou, his actions were interpreted as those of a young entrepreneur exploring opportunities rather than deliberate malfeasance<ref name="bitcoinmagazine-23" />. The episode underscored the importance of failure as part of the learning process and the Bitcoin community's commitment to innovation<ref name="bitcoinmagazine-23" />.
|-
|August 13th, 2012 11:18:00 AM MDT
|Finextra Lawsuit Article
|Finextra reports that four former users of Bitcoinica have filed a lawsuit alleging that they are owed nearly half a million dollars in missing funds, as well as damages. Bitcoinica, once a successful exchange created by teenager Zhou Tong, suffered two major hacking incidents earlier this year, resulting in the theft of thousands of Bitcoins<ref name="finextra-13" />. Despite assurances from Bitcoinica that the stolen funds were from the exchange itself and not customers, the site has remained offline, leaving users uncertain about the fate of their investments<ref name="finextra-13" />. Additionally, Bitcoinica had initially promised to honor all withdrawal requests but later informed users that only half of their funds would be returned, prompting speculation about the exchange's integrity<ref name="finextra-13" />. Amidst rumors implicating Tong in the hacks, the plaintiffs filed a complaint in San Francisco alleging that Bitcoinica, its successor Intersango, and associated individuals conspired to deprive them of their rights regarding the missing funds<ref name="finextra-13" />.
|-
|February 3rd, 2017 10:00:04 AM MST
|Bitcoin.com Forgotten Theft List Published
|Bitcoin.com publishes the attack on a list of Bitcoin Exchange Thefts you may have forgotten about<ref name="newsdotbitcoin-7" />.
|}


Include:
== Technical Details ==
“On March 2, 2012, a hacker was able to obtain customer support privileges for Linode, giving the hacker a unique level of access to customer information. The hacker was able to find out which customers were holding bitcoin wallets. Using that information, the thief logged into individual accounts using a weakness in the Linode manager, a platform customers were using to configure their virtual machines. The hacker rebooted the virtual machines to change the root passwords, giving the hacker access to any account and the bitcoins inside.”


* Known history of when and how the service was started.
The attacker reportedly got into Bitcoinica along with 8 other bitcoin businesses by exploiting the New-Jersey based Linode hosting service<ref name="newsdotbitcoin-7" />. Bitcoinica was the largest of the breaches<ref name="newsdotbitcoin-7" />.
* What problems does the company or service claim to solve?
* What marketing materials were used by the firm or business?
* Audits performed, and excerpts that may have been included.
* Business registration documents shown (fake or legitimate).
* How were people recruited to participate?
* Public warnings and announcements prior to the event.


Don't Include:
== Total Amount Lost ==
Sources have generally placed the amount lost at 43,000 BTC<ref name="bitcoinmagazine-6" /><ref name="newsdotbitcoin-7" /><ref name=":1">[https://bitcoinmagazine.com/business/the-bitcoinica-linode-theft-and-what-it-means-for-bitcoin-1330805009 The Bitcoinica Linode Theft and What it Means for Bitcoin - Bitcoin Magazine] (Accessed Mar 1, 2024)</ref>, while the original number from BitcoinTalk was 43,554 BTC<ref name=":0" /> and one source stated that 46,703 BTC was stolen. Some sources have grouped the multiple attacks that Bitcoinica suffered together<ref name="bitcoinmagazine-6" />.


* Any wording which directly states or implies that the business is/was illegitimate, or that a vulnerability existed.
The amount lost is typically translated to $228,000.
* Anything that wasn't reasonably knowable at the time of the event.
There could be more than one section here. If the same platform is involved with multiple incidents, then it can be linked to a main article page.


== The Reality ==
"Online bandits made off with at least $228,000 worth of the virtual currency known as Bitcoin after exploiting a vulnerability in a widely used Webhost that gave unfettered access to eight victims' digital wallets."
This sections is included if a case involved deception or information that was unknown at the time. Examples include:


* When the service was actually started (if different than the "official story").
“A total of 46,703 BTC was stolen, worth $228,000 at the time.”
* Who actually ran a service and their own personal history.
* How the service was structured behind the scenes. (For example, there was no "trading bot".)
* Details of what audits reported and how vulnerabilities were missed during auditing.


== What Happened ==
Table Of Amount Lost:
The specific events of the loss and how it came about. What actually happened to cause the loss and some of the events leading up to it.
{| class="wikitable"
{| class="wikitable"
|+Key Event Timeline - [Case Name]
|+Amount Lost By Source
!Source
!Amount
!Date
!Date
!Event
!
!Description
|-
|-
|March 1st, 2012 12:00:07 AM
|BitcoinTalk<ref name=":0" />
|First Event
|43,554 BTC
|This is an expanded description of what happened and the impact. If multiple lines are necessary, add them here.
|March 1st, 2012
|
|-
|-
|
|
|
|
|
|
|
|-
|-
|Bitcoin Magazine<ref name=":1" />
|43,000 BTC
|March 1st, 2012
|
|
|
|-
|Bitcoin.com
|43,000 BTC
|Spring 2012
|
|
|}
|}
The total amount lost has been estimated at $228,000 USD.
== Immediate Reactions ==
The incident was initially reported on BitcoinTalk before being subsequently reported in other news media.
=== BitcoinTalk Thread And Reactions ===
The incident was initially reported on BitcoinTalk, which describes a significant security breach that resulted in the loss of 43,554 BTC from Bitcoinica due to a compromise of Linode servers<ref name=":0" />. Zhou Tong, Bitcoinica's founder, acknowledges the incident and assures users that they will be fully reimbursed for their losses. Despite initial concerns about the feasibility of such reimbursement, Zhou Tong confirms that Bitcoinica has enough historical profit to cover the losses and pledges to implement additional security measures to prevent future incidents<ref name=":0" />.


== Total Amount Lost ==
The community reacts with shock and concern over the extent of the breach and the potential implications for Bitcoin security. Some speculate about the involvement of Linode employees in the attack, while others express sympathy for Bitcoinica and its users. Discussions also revolve around the security practices of Bitcoin-related services and the need for stronger safeguards, such as encryption and reduced hot wallet sizes<ref name=":0" />.
$228 000 USD
 
How much was lost and how was it calculated? If there are conflicting reports, which are accurate and where does the discrepancy lie?
Meanwhile, questions are raised about Linode's responsibility and accountability in the matter, prompting calls for the company to address the situation transparently and provide compensation<ref name=":0" />. Suggestions are made for cooperation between affected Bitcoin services like Bitcoinica and larger platforms like MtGox to track and intercept stolen funds if they are used for trading<ref name=":0" />.
 
Throughout the thread, there is a mix of concern, frustration, and solidarity within the Bitcoin community, as members grapple with the implications of the security breach and strive to support affected parties while advocating for improved security practices across the industry<ref name=":0" />.
 
 
 
The Bitcoin community faced a significant setback on March 1 when Linode's servers were hacked, resulting in the theft of 43,000 BTC from Bitcoinica, among other losses<ref name=":1" />. This incident, along with previous Bitcoin thefts, raised concerns about the security of Bitcoin and its lack of reversibility and effective audit trails<ref name=":1" />. However, it's important to approach the issue with a rational perspective rather than succumbing to hysteria<ref name=":1" />. Despite the severity of the theft, there are reasons to believe that it is less consequential than it appears at first glance<ref name=":1" />.
 
Bitcoin's security measures have improved over time and will continue to do so in the future. While the theft was substantial, Bitcoinica managed to reimburse all its customers and remain operational<ref name=":1" />. Moreover, advancements like multi-signature transactions promise to enhance security further. Additionally, while the value of the stolen bitcoins is significant, it's worth noting that other businesses, such as Sony and Stratfor, have faced more substantial losses due to data breaches<ref name=":1" />.


== Immediate Reactions ==
Bitcoinica's situation underscores the risks inherent in financial services businesses, which must navigate such challenges differently from other industries<ref name=":1" />. Despite the risks, Bitcoinica's ability to remain solvent demonstrates a level of resilience<ref name=":1" />. Importantly, individual Bitcoin users were not directly affected by the theft, highlighting the security of Bitcoin for the average user. This aligns with one of Bitcoin's core principles: the ability to choose between self-custody and third-party services, providing users with freedom and flexibility in managing their assets<ref name=":1" />. As Bitcoin adoption grows, more options for secure storage and financial services are expected to emerge, catering to users' varying needs and preferences<ref name=":1" />. Ultimately, the incident emphasizes the importance of maintaining a balanced perspective on Bitcoin's security challenges and its potential for continued innovation and adoption<ref name=":1" />.
How did the various parties involved (firm, platform, management, and/or affected individual(s)) deal with the events? Were services shut down? Were announcements made? Were groups formed?


== Ultimate Outcome ==
== Ultimate Outcome ==
What was the end result? Was any investigation done? Were any individuals prosecuted? Was there a lawsuit? Was any tracing done?
The event was included in lists put together by Bitcoin Magazine<ref name="bitcoinmagazine-23" /><ref name="bitcoinmagazine-6" />, and the Bitcoin Exchange Guide<ref name="bitcoinexchangeguide-218" />.
 
=== Lawsuit Against Platform ===
Finextra reports that four former users of Bitcoinica have filed a lawsuit alleging that they are owed nearly half a million dollars in missing funds, as well as damages<ref name="finextra-13" />. Bitcoinica, once a successful exchange created by teenager Zhou Tong, suffered two major hacking incidents earlier this year, resulting in the theft of thousands of Bitcoins<ref name="finextra-13" />. Despite assurances from Bitcoinica that the stolen funds were from the exchange itself and not customers, the site has remained offline, leaving users uncertain about the fate of their investments<ref name="finextra-13" />. Additionally, Bitcoinica had initially promised to honor all withdrawal requests but later informed users that only half of their funds would be returned, prompting speculation about the exchange's integrity<ref name="finextra-13" />. Amidst rumors implicating Tong in the hacks, the plaintiffs filed a complaint in San Francisco alleging that Bitcoinica, its successor Intersango, and associated individuals conspired to deprive them of their rights regarding the missing funds<ref name="finextra-13" />.
 


== Total Amount Recovered ==
$0 USD
What funds were recovered? What funds were reimbursed for those affected users?


== Ongoing Developments ==
It's reported that the thief involved in these attacks is unknown<ref name="newsdotbitcoin-7" />. One potential theory is that it was a Linode employee<ref name="newsdotbitcoin-7" />.
What parts of this case are still remaining to be concluded?


== Prevention Policies ==
Some sources claim that this attack led to the ultimate demise of the Bitcoinica platform<ref name="bitcoinmagazine-6" />, however Bitcoinica would go on to be hacked 2 more times in 2012<ref name="newsdotbitcoin-7" />.
This is a case where simply knowing who's holding the funds and storing them properly offline with multiple signatures would have avoided the issues.


== References ==
== Total Amount Recovered ==
[https://bitcoinmagazine.com/articles/infographic-overview-compromised-bitcoin-exchange-events Infographic: An Overview of Compromised Bitcoin Exchange Events] (Jan 29)
While users were assured that they would be compensated multiple times<ref name=":0" />, a lawsuit suggests that the losses suffered by users were still very substantial<ref name="finextra-13" />.


[https://news.bitcoin.com/bitcoin-exchange-thefts-forgotten/ The Bitcoin Exchange Thefts You May Have Forgotten | Featured Bitcoin News] (Jan 28)
== Ongoing Developments ==
The Bitcoinica exchange ultimately shut down and hasn't come back. It's unclear if any investigation is underway into where the stolen funds ended up.
== Individual Prevention Policies ==
{{Prevention:Individuals:Avoid Third Party Custodians}}


[https://www.finextra.com/newsarticle/23973/users-sue-bitcoin-exchange-over-460k-in-missing-funds Users sue Bitcoin exchange over $460k in missing funds] (Feb 2)
{{Prevention:Individuals:Store Funds Offline}}


[https://bitcointalk.org/index.php?topic=83794.msg923918#post_toc_27 List of Major Bitcoin Heists, Thefts, Hacks, Scams, and Losses [Old]] (Jan 27)
{{Prevention:Individuals:End}}


[https://bitcoinmagazine.com/articles/bitcoinica_an_obituary-1336979566 Bitcoinica: An Obituary] (Feb 3)
== Platform Prevention Policies ==
This is a case where simply knowing who's holding the funds and storing them properly offline with multiple signatures would have avoided the issues.


[https://en.bitcoin.it/wiki/Bitcoinica Bitcoinica - Bitcoin Wiki] (Feb 3)
{{Prevention:Platforms:Implement Multi-Signature}}


[https://arstechnica.com/information-technology/2012/03/bitcoins-worth-228000-stolen-from-customers-of-hacked-webhost/ Bitcoins worth $228,000 stolen from customers of hacked Webhost] (Feb 3)
{{Prevention:Platforms:Regular Audit Procedures}}


[https://medium.com/@kylegibson/100-crypto-thefts-a-timeline-of-hacks-glitches-exit-scams-and-other-lost-cryptocurrency-873c87fd5522 100 Crypto Thefts: A Timeline of Hacks, Glitches, Exit Scams, and other Lost Cryptocurrency Incidents] (Jan 24)
{{Prevention:Platforms:End}}


[https://bitcointalk.org/index.php?topic=576337 List of Major Bitcoin Heists, Thefts, Hacks, Scams, and Losses] (Feb 14)
== Regulatory Prevention Policies ==
{{Prevention:Regulators:Platform Security Assessments}}


[https://bitcoinexchangeguide.com/bitcoin/scams-hacks/ Bitcoin Scams and Cryptocurrency Hacks List - BitcoinExchangeGuide.com] (Mar 4)
{{Prevention:Regulators:Establish Industry Insurance Fund}}


[https://hacked.slowmist.io/en/?c=Exchange SlowMist Hacked - SlowMist Zone] (Jun 25)
{{Prevention:Regulators:End}}


[https://bitcoin.stackexchange.com/questions/3629/what-is-the-story-behind-the-linode-problem security - What is the story behind the "Linode problem"? - Bitcoin Stack Exchange] (Mar 14)
== References ==
<references>
<ref name="bitcoinmagazine-6">[https://bitcoinmagazine.com/articles/infographic-overview-compromised-bitcoin-exchange-events Infographic: An Overview of Compromised Bitcoin Exchange Events - Bitcoin Magazine] (Jan 30, 2020)</ref>
<ref name="newsdotbitcoin-7">[https://news.bitcoin.com/bitcoin-exchange-thefts-forgotten/ The Bitcoin Exchange Thefts You May Have Forgotten - Bitcoin.com] (Jan 29, 2020)</ref>
<ref name="finextra-13">[https://www.finextra.com/newsarticle/23973/users-sue-bitcoin-exchange-over-460k-in-missing-funds Users sue Bitcoin exchange over $460k in missing funds - FinExtra] (Feb 3, 2020)</ref>
<ref name="bitcointalklistold-20">[https://bitcointalk.org/index.php?topic=83794.msg923918#post_toc_27 <nowiki>List of Major Bitcoin Heists, Thefts, Hacks, Scams, and Losses [Old] - BitcoinTalk</nowiki>] (Jan 28, 2020)</ref>
<ref name="bitcoinmagazine-23">[https://bitcoinmagazine.com/articles/bitcoinica_an_obituary-1336979566 Bitcoinica: An Obituary - Bitcoin Magazine] (Feb 4, 2020)</ref>
<ref name="bitcoinwiki-24">[https://en.bitcoin.it/wiki/Bitcoinica Bitcoinica - Bitcoin Wiki] (Feb 4, 2020)</ref>
<ref name="arstechnica-25">[https://arstechnica.com/information-technology/2012/03/bitcoins-worth-228000-stolen-from-customers-of-hacked-webhost/ Bitcoins worth $228,000 stolen from customers of hacked Webhost - Arstechnica] (Feb 4, 2020)</ref>
<ref name="kylegibson-86">[https://medium.com/@kylegibson/100-crypto-thefts-a-timeline-of-hacks-glitches-exit-scams-and-other-lost-cryptocurrency-873c87fd5522 100 Crypto Thefts: A Timeline of Hacks, Glitches, Exit Scams, and other Lost Cryptocurrency Incidents] (Jan 25, 2020)</ref>
<ref name="bitcointalklist-87">[https://bitcointalk.org/index.php?topic=576337 List of Major Bitcoin Heists, Thefts, Hacks, Scams, and Losses - BitcoinTalk] (Feb 15, 2020)</ref>
<ref name="bitcoinexchangeguide-218">[https://bitcoinexchangeguide.com/bitcoin/scams-hacks/ Bitcoin Scams and Cryptocurrency Hacks List - BitcoinExchangeGuide.com] (Mar 5, 2020)</ref>
<ref name="slowmisthacked-1160">[https://hacked.slowmist.io/en/?c=Exchange SlowMist Hacked - SlowMist Zone] (Jun 26, 2021)</ref>
<ref name="bitcoinstackexchange-7171">[https://bitcoin.stackexchange.com/questions/3629/what-is-the-story-behind-the-linode-problem security - What is the story behind the "Linode problem"? - Bitcoin Stack Exchange] (Mar 14, 2022)</ref>
</references>

Latest revision as of 14:34, 1 April 2024

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Bitcoinica Logo/Homepage

In the early days of bitcoin, security was often a secondary concern. Many people stored wallets online and accessible, including the popular cryptocurrency exchange Bitcoinica. After being hacked for 43,000 bitcoins, Bitcoinica promised to compensate all users for their losses. The platform would go on to be attacked two more times before shutting down.

[1][2][3][4][5][6][7][8][9]

About Bitcoinica

The Bitcoinica exchange platform was based in New Zealand, and founded by Zhou Tong[10].

Despite his position as the creator of a financial speculation service and his strong belief in libertarian capitalist ideals, Bitcoinica to him has never been about the profit. “Bitcoinica is not a money making machine,” he writes. “It’s just a product that sets a high standard for the Bitcoin community.”[10]

About Linode

Linode was a web hosting provider[11] located in New Jersey[12].

The Reality

The Bitcoinica platform was to suffer from a series of vulnerabilities.

What Happened

On March 1st, an attacker managed to gain access to 43,554 bitcoins from the Bitcoinica exchange by exploiting a vulnerability in the Linode web hosting provider.

Key Event Timeline - Bitcoinica Linode Web Host Hack
Date Event Description
March 1st, 2012 Hacking Event The platform server is restarted as part of a root password reset process, and the attacker then helps themselves to all the bitcoin in the wallet.
March 1st, 2012 8:37:39 PM MST BitcoinTalk Thread Started Bitcoinica CEO Zhou Tong posts on BitcoinTalk about the hacking which happened[13]. Zhou Tong confirms that Bitcoinica has enough historical profit to cover the losses and pledges to implement additional security measures to prevent future incidents[13].
May 14th, 2012 6:12:46 AM MDT Bitcoin Magazine Obituary Bitcoin Magazine publishes an obituary of the Bitcoinica exchange, written by Vitalik Buterin[10]. The significant thefts from Bitcoinica's reserves are described as causing the platform's immediate shutdown due to financial strain[10]. However, reassurances were given that users with balances on the platform would be compensated, with Intersango taking over Bitcoinica's operations[10]. Bitcoinica's founder Zhou Tong decided to depart from the Bitcoin sphere[10]. Despite accusations against Zhou, his actions were interpreted as those of a young entrepreneur exploring opportunities rather than deliberate malfeasance[10]. The episode underscored the importance of failure as part of the learning process and the Bitcoin community's commitment to innovation[10].
August 13th, 2012 11:18:00 AM MDT Finextra Lawsuit Article Finextra reports that four former users of Bitcoinica have filed a lawsuit alleging that they are owed nearly half a million dollars in missing funds, as well as damages. Bitcoinica, once a successful exchange created by teenager Zhou Tong, suffered two major hacking incidents earlier this year, resulting in the theft of thousands of Bitcoins[1]. Despite assurances from Bitcoinica that the stolen funds were from the exchange itself and not customers, the site has remained offline, leaving users uncertain about the fate of their investments[1]. Additionally, Bitcoinica had initially promised to honor all withdrawal requests but later informed users that only half of their funds would be returned, prompting speculation about the exchange's integrity[1]. Amidst rumors implicating Tong in the hacks, the plaintiffs filed a complaint in San Francisco alleging that Bitcoinica, its successor Intersango, and associated individuals conspired to deprive them of their rights regarding the missing funds[1].
February 3rd, 2017 10:00:04 AM MST Bitcoin.com Forgotten Theft List Published Bitcoin.com publishes the attack on a list of Bitcoin Exchange Thefts you may have forgotten about[12].

Technical Details

“On March 2, 2012, a hacker was able to obtain customer support privileges for Linode, giving the hacker a unique level of access to customer information. The hacker was able to find out which customers were holding bitcoin wallets. Using that information, the thief logged into individual accounts using a weakness in the Linode manager, a platform customers were using to configure their virtual machines. The hacker rebooted the virtual machines to change the root passwords, giving the hacker access to any account and the bitcoins inside.”

The attacker reportedly got into Bitcoinica along with 8 other bitcoin businesses by exploiting the New-Jersey based Linode hosting service[12]. Bitcoinica was the largest of the breaches[12].

Total Amount Lost

Sources have generally placed the amount lost at 43,000 BTC[11][12][14], while the original number from BitcoinTalk was 43,554 BTC[13] and one source stated that 46,703 BTC was stolen. Some sources have grouped the multiple attacks that Bitcoinica suffered together[11].

The amount lost is typically translated to $228,000.

"Online bandits made off with at least $228,000 worth of the virtual currency known as Bitcoin after exploiting a vulnerability in a widely used Webhost that gave unfettered access to eight victims' digital wallets."

“A total of 46,703 BTC was stolen, worth $228,000 at the time.”

Table Of Amount Lost:

Amount Lost By Source
Source Amount Date
BitcoinTalk[13] 43,554 BTC March 1st, 2012
Bitcoin Magazine[14] 43,000 BTC March 1st, 2012
Bitcoin.com 43,000 BTC Spring 2012

The total amount lost has been estimated at $228,000 USD.

Immediate Reactions

The incident was initially reported on BitcoinTalk before being subsequently reported in other news media.

BitcoinTalk Thread And Reactions

The incident was initially reported on BitcoinTalk, which describes a significant security breach that resulted in the loss of 43,554 BTC from Bitcoinica due to a compromise of Linode servers[13]. Zhou Tong, Bitcoinica's founder, acknowledges the incident and assures users that they will be fully reimbursed for their losses. Despite initial concerns about the feasibility of such reimbursement, Zhou Tong confirms that Bitcoinica has enough historical profit to cover the losses and pledges to implement additional security measures to prevent future incidents[13].

The community reacts with shock and concern over the extent of the breach and the potential implications for Bitcoin security. Some speculate about the involvement of Linode employees in the attack, while others express sympathy for Bitcoinica and its users. Discussions also revolve around the security practices of Bitcoin-related services and the need for stronger safeguards, such as encryption and reduced hot wallet sizes[13].

Meanwhile, questions are raised about Linode's responsibility and accountability in the matter, prompting calls for the company to address the situation transparently and provide compensation[13]. Suggestions are made for cooperation between affected Bitcoin services like Bitcoinica and larger platforms like MtGox to track and intercept stolen funds if they are used for trading[13].

Throughout the thread, there is a mix of concern, frustration, and solidarity within the Bitcoin community, as members grapple with the implications of the security breach and strive to support affected parties while advocating for improved security practices across the industry[13].


The Bitcoin community faced a significant setback on March 1 when Linode's servers were hacked, resulting in the theft of 43,000 BTC from Bitcoinica, among other losses[14]. This incident, along with previous Bitcoin thefts, raised concerns about the security of Bitcoin and its lack of reversibility and effective audit trails[14]. However, it's important to approach the issue with a rational perspective rather than succumbing to hysteria[14]. Despite the severity of the theft, there are reasons to believe that it is less consequential than it appears at first glance[14].

Bitcoin's security measures have improved over time and will continue to do so in the future. While the theft was substantial, Bitcoinica managed to reimburse all its customers and remain operational[14]. Moreover, advancements like multi-signature transactions promise to enhance security further. Additionally, while the value of the stolen bitcoins is significant, it's worth noting that other businesses, such as Sony and Stratfor, have faced more substantial losses due to data breaches[14].

Bitcoinica's situation underscores the risks inherent in financial services businesses, which must navigate such challenges differently from other industries[14]. Despite the risks, Bitcoinica's ability to remain solvent demonstrates a level of resilience[14]. Importantly, individual Bitcoin users were not directly affected by the theft, highlighting the security of Bitcoin for the average user. This aligns with one of Bitcoin's core principles: the ability to choose between self-custody and third-party services, providing users with freedom and flexibility in managing their assets[14]. As Bitcoin adoption grows, more options for secure storage and financial services are expected to emerge, catering to users' varying needs and preferences[14]. Ultimately, the incident emphasizes the importance of maintaining a balanced perspective on Bitcoin's security challenges and its potential for continued innovation and adoption[14].

Ultimate Outcome

The event was included in lists put together by Bitcoin Magazine[10][11], and the Bitcoin Exchange Guide[15].

Lawsuit Against Platform

Finextra reports that four former users of Bitcoinica have filed a lawsuit alleging that they are owed nearly half a million dollars in missing funds, as well as damages[1]. Bitcoinica, once a successful exchange created by teenager Zhou Tong, suffered two major hacking incidents earlier this year, resulting in the theft of thousands of Bitcoins[1]. Despite assurances from Bitcoinica that the stolen funds were from the exchange itself and not customers, the site has remained offline, leaving users uncertain about the fate of their investments[1]. Additionally, Bitcoinica had initially promised to honor all withdrawal requests but later informed users that only half of their funds would be returned, prompting speculation about the exchange's integrity[1]. Amidst rumors implicating Tong in the hacks, the plaintiffs filed a complaint in San Francisco alleging that Bitcoinica, its successor Intersango, and associated individuals conspired to deprive them of their rights regarding the missing funds[1].


It's reported that the thief involved in these attacks is unknown[12]. One potential theory is that it was a Linode employee[12].

Some sources claim that this attack led to the ultimate demise of the Bitcoinica platform[11], however Bitcoinica would go on to be hacked 2 more times in 2012[12].

Total Amount Recovered

While users were assured that they would be compensated multiple times[13], a lawsuit suggests that the losses suffered by users were still very substantial[1].

Ongoing Developments

The Bitcoinica exchange ultimately shut down and hasn't come back. It's unclear if any investigation is underway into where the stolen funds ended up.

Individual Prevention Policies

When using any third party custodial platform (such as for trading), it is important to verify that the platform has a full backing of all assets, and that assets have been secured in a proper multi-signature wallet held by several trusted and trained individuals. If this can't be validated, then users should avoid using that platform. Unfortunately, most centralized platforms today still do not provide the level of transparency and third party validation which would be necessary to ensure that assets have been kept secure and properly backed. Therefore, the most effective strategy at present remains to learn proper self custody practices and avoid using any third party custodial platforms whenever possible.

Store the majority of funds offline. By offline, it means that the private key and/or seed phrase is exclusively held by you and not connected to any networked device. Examples of offline storage include paper wallets (seed phrase or key written down and deleted from all electronic media), hardware wallets, steel wallet devices, etc...

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

This is a case where simply knowing who's holding the funds and storing them properly offline with multiple signatures would have avoided the issues.

All wallets, minting functions, and critical infrastructure should be implemented with a multi-signature requirement, with a recommended minimum of 3 signatures required. This means that making important changes or approving spending will require the keys held by at least 3 separate individuals within the organization to approve. The multi-signature should be implemented at the lowest layer possible, all key holders should have security training, and all key holders should be empowered and encouraged to exercise diligence.

All aspects of any platform should undergo a regular validation/inspection by experts. This validation should include a security audit of any smart contracts, reporting any risks to the backing (of any customer assets, ensuring treasuries or minting functions are properly secured under the control of a multi-signature wallet, and finding any inadequacies in the level of training or integrity of the team. The recommended interval is twice prior to launch or significant system upgrade, once after 3 months, and every 6 months thereafter. It is recommended that the third party performing the inspection not be repeated within a 14 month period.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

All platforms should undergo published security and risk assessments by independent third parties. Two assessments are required at founding or major upgrade, one after 3 months, and one every 6 months thereafter. The third parties must not repeat within the past 14 months. A risk assessment needs to include what assets back customer deposits and the risk of default from any third parties being lent to. The security assessment must include ensuring a proper multi-signature wallet, and that all signatories are properly trained. Assessments must be performed on social media, databases, and DNS security.

Set up a multi-signature wallet with private keys held separately by delegate signatories from seven prominent platforms and services within the industry. Establish requirements for contributions by all platforms and services within the country, designed to be affordable for small platforms yet large enough to cover anticipated breach events. Any breach event can be brought forth by a member platform or a petition of 100 signatures for consideration by the delegate signatories. A vote of 4 or more delegate signatures is required to release any funds, which could partially or fully restore lost funds based on their assessment.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.

References

  1. ↑ 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 Users sue Bitcoin exchange over $460k in missing funds - FinExtra (Feb 3, 2020)
  2. ↑ List of Major Bitcoin Heists, Thefts, Hacks, Scams, and Losses [Old] - BitcoinTalk (Jan 28, 2020)
  3. ↑ Bitcoinica - Bitcoin Wiki (Feb 4, 2020)
  4. ↑ Bitcoins worth $228,000 stolen from customers of hacked Webhost - Arstechnica (Feb 4, 2020)
  5. ↑ 100 Crypto Thefts: A Timeline of Hacks, Glitches, Exit Scams, and other Lost Cryptocurrency Incidents (Jan 25, 2020)
  6. ↑ List of Major Bitcoin Heists, Thefts, Hacks, Scams, and Losses - BitcoinTalk (Feb 15, 2020)
  7. ↑ SlowMist Hacked - SlowMist Zone (Jun 26, 2021)
  8. ↑ security - What is the story behind the "Linode problem"? - Bitcoin Stack Exchange (Mar 14, 2022)
  9. ↑ Brian Cartmell et al vs Bitcoinica LP - Scribd (Accessed Feb 27, 2024)
  10. ↑ 10.0 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 Bitcoinica: An Obituary - Bitcoin Magazine (Feb 4, 2020)
  11. ↑ 11.0 11.1 11.2 11.3 11.4 Infographic: An Overview of Compromised Bitcoin Exchange Events - Bitcoin Magazine (Jan 30, 2020)
  12. ↑ 12.0 12.1 12.2 12.3 12.4 12.5 12.6 12.7 The Bitcoin Exchange Thefts You May Have Forgotten - Bitcoin.com (Jan 29, 2020)
  13. ↑ 13.00 13.01 13.02 13.03 13.04 13.05 13.06 13.07 13.08 13.09 13.10 Bitcoinica lost 43,554 BTC from Linode compromise, suspicious TXIDs publicized - BitcoinTalk (Accessed Mar 1, 2023)
  14. ↑ 14.00 14.01 14.02 14.03 14.04 14.05 14.06 14.07 14.08 14.09 14.10 14.11 14.12 The Bitcoinica Linode Theft and What it Means for Bitcoin - Bitcoin Magazine (Accessed Mar 1, 2024)
  15. ↑ Bitcoin Scams and Cryptocurrency Hacks List - BitcoinExchangeGuide.com (Mar 5, 2020)
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