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Why Bitcoin owners should expect to get ripped off again and again

February 27th, 2014 at 4:32 PM
Mt. Gox Bitcoin Fraud

This has been a rough week for many Bitcoin owners who have lost substantial amounts of money due to the collapse of Mt. Gox, which had been the world’s largest Bitcoin exchange. However, Bitcoin owners who escaped the fraud that took down Mt. Gox shouldn’t rest too easy: This is likely just the end of the beginning of a burgeoning Bitcoin fraud wave. In fact, American Banker has taken a look at the early history of online payment platform PayPal and has concluded that Bitcoin’s immediate future can be boiled down to just two words: “More fraud.”

“If Bitcoin is to continue growing as an alternative currency, it is likely to face all of the same types of fraud that hit PayPal,” American Banker writes. “While Bitcoin does not have the same credit card chargeback risk, a hypothetical evolution into a widely accepted payment option would expose the payment system to increased risk of transaction fraud, given the inevitability of buyer/seller disputes. Theft of private keys will certainly grow as Bitcoin users become increasing targets for phishers; encryption security is no guarantee against users being tricked. And as for organized crime getting involved, Mt. Gox’s demise suggests that this is already happening.”

Indeed, it seems that Bitcoin’s cryptographic design is something that has made it very attractive to criminals since it can help them conceal the nature of their illicit dealings. From this perspective, it shouldn’t be surprising that criminals aren’t just using Bitcoins to get illegal goods and services, but are also using illegal means to get more Bitcoins.

And sure enough, Forbes reports that researchers from Dell SecureWorks have found that there are now about 150 different kinds of malware that are designed specifically to steal Bitcoins. The researchers unsurprisingly found that Bitcoin-related malware grew significantly in the wake of major Bitcoin price increases as more and more hackers looked for ways to cash in on the shiny digital currency.

That said, anyone who thinks that all these setbacks will be the death of Bitcoin is sorely mistaken. Just like faeries in Peter Pan, currencies will exist as long as enough people believe in them. And given the religious fervor that many Bitcoin owners have for the currency, it’s unlikely that they’ll ever abandon it, no matter how many times they get ripped off.

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