Bitcoinica Hot Wallet Hack
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This shows a definite need for hot wallet insurance. Reduction in the level of funds stored in hot wallets would reduce the risk.
This exchange or platform is based in New Zealand, or the incident targeted people primarily in New Zealand.[1][2][3][4][5]
About Bitcoinica
The Bitcoinica exchange platform was based in New Zealand, and founded by Zhou Tong[2].
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.”[2]
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 |
|---|---|---|
| May 6th, 2012 | Hot Wallet Hack Announced | “On May 6, 2012, bitcoin exchange Bitcoinica announced that their hot wallet had been hacked.” |
| May 12, 2012, 11:19:00 AM | BitcoinTalk Reported Time | The blockchain timestamp of the theft reported by BitcoinTalk, without any timezone being specified[1]. |
| May 12, 2012 | Bitcoin.com Date Reported | "On May 12, 2012, a hacker breached the Bitcoinica Rackspace server, according to the now-defunct exchange’s founder Zhou Tong."[6] |
| August 13th, 2012 11:18:00 AM MDT | Lawsuit Files Against Platform | FinExtra reports that Bitcoinica faces a lawsuit from four former users who claim they are owed nearly $460,000 in missing funds and damages[7]. Founded by teenager Zhou Tong, Bitcoinica suffered two hacking incidents earlier this year, resulting in the theft of thousands of Bitcoins worth tens of thousands of dollars. Despite assurances from Bitcoinica that the stolen funds were from the exchange itself, not customers, and promises to honor withdrawal requests, users allege only half of their money would be returned. With suspicions circulating that Tong might be involved in the hacks, the plaintiffs have filed a complaint in San Francisco against Bitcoinica, Intersango, and associated individuals, accusing them of conspiring to hinder and deprive the plaintiffs of their rights to the missing funds[7]. |
| December 21st, 2012 | BitMarket.eu Funds Announced | "On December 21, 2012, it was discovered that BitMarket.eu lost a large portion of customer funds which were stored on Bitcoinica. These customers were reportedly unaware that their funds were stored on Bitcoinica. Return of a portion of these funds is still possible, pending the outcome of liquidation."[1] |
| February 3rd, 2017 10:00:04 AM MST | Bitcoin.com Article | The incident is included with specific mention in a list of bitcoin thefts which you may have forgotten about, published by news site Bitcoin.com[6]. |
Total Amount Lost
There are three different estimates of the amount lost in this case.
The first value of 18547.66867623 comes from the blockchain transaction[8]. This is included on some sites such as BitcoinTalk[1].
BitMarket.eu had a liquidation, and in the legal paperwork, they reported about 19980 bitcoins[1].
BitcoinTalk reported a total amount affected reported to be at least 38527 bitcoin[1]. This is very similar to an estimate on Bitcoin.com, which reported that the exchange lost over 38,000 BTC during the spring incident, which refers to an event that breached Bitcoinica's rackspace servers on May 12th, 2012[6].
The total amount lost has been estimated at $91,000 USD.
Immediate Reactions
“On May 6, 2012, bitcoin exchange Bitcoinica announced that their hot wallet had been hacked. The exchange told users that they had “discovered a suspicious bitcoin transaction that doesn’t seem to be initiated by any one of the company owners.” The hot wallet hack was initially suspected to be linked to Bitcoinica owner A. Vinnik, leading some to suspect it was an exit scam.”
"Today, we have discovered a suspicious Bitcoin transaction that doesn't seem to be initiated by any one of the company owners..." speculation has been that A. Vinnik was involved (same as Mt Gox, BTC-e)
Ultimate Outcome
What was the end result? Was any investigation done? Were any individuals prosecuted? Was there a lawsuit? Was any tracing done?
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[7]. 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. 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. 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. 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[7].
Inclusion In Incident Lists
This incident was included in many sources, including:
- a Bitcoin Magazine infographic[9] (along with another Bitcoinica theft).
- Bitcoin.news lists this as one of the most controversial in the industry[6].
- Bitcoin Exchange Guide[10].
- Slowmist[11].
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 List of Major Bitcoin Heists, Thefts, Hacks, Scams, and Losses [Old] - BitcoinTalk (Jan 28, 2020)
- ↑ 2.0 2.1 2.2 Bitcoinica: An Obituary - Bitcoin Magazine (Accessed Feb 4, 2020)
- ↑ Bitcoinica - Bitcoin Wiki (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 (Feb 15, 2020)
- ↑ 6.0 6.1 6.2 6.3 The Bitcoin Exchange Thefts You May Have Forgotten - Bitcoin.com (Jan 29, 2020)
- ↑ 7.0 7.1 7.2 7.3 Users sue Bitcoin exchange over $460k in missing funds - FinExtra (Feb 3, 2020)
- ↑ Bitcoinica Theft Transaction - Blockchain.com (Accessed Apr 1, 2024)
- ↑ Infographic: An Overview of Compromised Bitcoin Exchange Events (Jan 30, 2020)
- ↑ Bitcoin Scams and Cryptocurrency Hacks List - BitcoinExchangeGuide.com (Mar 5, 2020)
- ↑ SlowMist Hacked - SlowMist Zone (Jun 26, 2021)