Bitcoinica Linode Web Host Hack
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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.
This exchange or platform is based in New Zealand, or the incident targeted people primarily in New Zealand.[1][2][3][4][5][6][7][8][9][10]
About Bitcoinica
This exchange platform was based in New Zealand.
About Linode
Linode was a web hosting provider[11] located in New Jersey[12].
The Reality
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").
- 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
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.
| 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. |
| 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
"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.”
Amount Lost:
| Source | Amount | Date | |
|---|---|---|---|
| Bitcoin Magazine | 43,000 BTC and then another 18,457 BTC | March 1st, 2012 | |
| Bitcoin.com | 43,000 BTC | Spring 2012 |
The total amount lost has been estimated at $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?
Immediate Reactions
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
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[11], and the Bitcoin Exchange Guide[13].
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
There do not appear to have been any funds recovered in this case.
What funds were recovered? What funds were reimbursed for those affected users?
Ongoing Developments
What parts of this case are still remaining to be concluded?
General 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.
Individual Prevention Policies
No specific policies for individual prevention have yet been identified in this case.
For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.
Platform Prevention Policies
Policies for platforms to take to prevent this situation have not yet been selected in this case.
For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.
Regulatory Prevention Policies
No specific regulatory policies have yet been identified in this case.
For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.
References
- ↑ 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 Users sue Bitcoin exchange over $460k in missing funds - FinExtra (Feb 3, 2020)
- ↑ List of Major Bitcoin Heists, Thefts, Hacks, Scams, and Losses [Old] - BitcoinTalk (Jan 28, 2020)
- ↑ Bitcoinica: An Obituary - Bitcoin Magazine (Feb 4, 2020)
- ↑ Bitcoinica - Bitcoin Wiki (Feb 4, 2020)
- ↑ Bitcoins worth $228,000 stolen from customers of hacked Webhost - Arstechnica (Feb 4, 2020)
- ↑ 100 Crypto Thefts: A Timeline of Hacks, Glitches, Exit Scams, and other Lost Cryptocurrency Incidents (Jan 25, 2020)
- ↑ List of Major Bitcoin Heists, Thefts, Hacks, Scams, and Losses - BitcoinTalk (Feb 15, 2020)
- ↑ SlowMist Hacked - SlowMist Zone (Jun 26, 2021)
- ↑ security - What is the story behind the "Linode problem"? - Bitcoin Stack Exchange (Mar 14, 2022)
- ↑ Brian Cartmell et al vs Bitcoinica LP - Scribd (Accessed Feb 27, 2024)
- ↑ 11.0 11.1 11.2 Infographic: An Overview of Compromised Bitcoin Exchange Events - Bitcoin Magazine (Jan 30, 2020)
- ↑ 12.0 12.1 12.2 12.3 12.4 12.5 12.6 The Bitcoin Exchange Thefts You May Have Forgotten - Bitcoin.com (Jan 29, 2020)
- ↑ Bitcoin Scams and Cryptocurrency Hacks List - BitcoinExchangeGuide.com (Mar 5, 2020)