Hackers break into bitcoin exchange site Bitcoinica, steal $90,000 in bitcoins

Hackers stole 18,547 bitcoins and the user database from bitcoin exchange site Bitcoinica

Bitcoin exchange site Bitcoinica suspended its operations on Friday after hackers managed to steal 18,547 bitcoins -- valued at about US$90,000 -- from its online wallet.

The user database probably was compromised as well, Bitcoinica's administrators said in an announcement posted on the site's home page. The information stored in the database included usernames, email addresses and account histories.

Account passwords were encrypted in a way that makes it extremely unlikely for them to be cracked, the Bitcoinica team said. However, to be on the safe side, the team advised users to change their passwords on other websites where they might have used them.

The compromised user information can be used to launch phishing attacks, as has happened in the past after many data breaches that exposed user email addresses.

Users should be suspicious of any messages received on their email addresses registered with Bitcoinica, the site's administrators said. "It is always a best practice to never click an email link to login to any online service."

Bitcoin is a cash-like digital currency that can be exchanged directly by users without the need for a central payment service. It uses the peer-to-peer model for synchronizing transaction records between users.

Bitcoinica noted that the stolen bitcoins belonged to the exchange, not the users, and said it will honor any withdrawal request. However, it's not clear when or if the website will resume operations.

"It's more serious than we thought," said Bitcoinica founder Zhou Tong, in a post on the Bitcointalk forum on Saturday. "Likely we will either shut down the platform or re-develop entirely (which will take months instead of days)."

The company needs more time to come up with a plan to compensate users for the downtime and other issues resulting from this security incident, Zhou said.

In a separate post on Sunday, Zhou revealed that he sold Bitcoinica to an undisclosed investor back in November 2011 and stayed with the company as an employee in charge of daily operations until a new team took over two weeks ago. He also announced that he plans to retire from all bitcoin-related projects after this incident is resolved.

Security breaches at bitcoin exchanges don't only affect the users of those exchanges, but the entire bitcoin community, because they negatively affect the value of the virtual currency. In June 2011, bitcoin prices plummeted after news broke that the largest bitcoin exchange, Mt.Gox, was compromised.

This is not the first time that Bitcoinica has lost a large number of bitcoins to hackers. Back in March, attackers managed to steal 43,000 bitcoins from the exchange after they compromised the servers of Web hosting provider Linode.

"It seems Bitcoin has the same problem(s) that other web applications possess: vulnerabilities, such as SQL injections, that make it susceptible to data theft," Rob Rachwald, director of security strategy at security firm Imperva, said via email. "In the early days of legitimate online banking, when one breach hit a bank, the whole industry's brand took a hit. Ironically, the same dynamic could play out in black market banking."

Bitcoin exchanges need code reviews, vulnerability assessments and Web application firewalls, Rachwald said. However, the question is whether honest security vendors would sell to such organizations, giving bitcoin's association with cybercriminal activity, he said.

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