A Chinese cryptocurrency exchange, BTER, has reportedly suffered a loss of 7,170 bitcoins due to a hacked cold wallet. That’s roughly $1.75 million at current exchange rates. The service’s website has been replaced with a simple landing page that describes the situation. The text provides a link to the bitcoin transaction in which the coins were stolen and mentions a bounty of about 10% for anyone who can help get the money returned.
The idea of a cold wallet hack raises some interesting questions. While the term “cold wallet” has numerous definitions, it generally refers to a wallet that has never and will never be connected to the internet. Theoretically, then, a thief should not be able to remotely steal money from a cold wallet. Instead, he would have to gain physical access to the hardware containing the wallet. No word yet on whether the wallet was actually offline or how the attackers succeeded.
Bitcoin is only one of many cryptocurrencies handled by BTER. Before this hack, the exchange provided markets for nearly 200 currency pairs. According to the current landing page, “All wallets have been shut down and withdrawals of the unaffected coins will be arranged later.” In a social media post, the administrators stated that they were working with law enforcement.
Events like this should serve as a reminder of the importance of Bitcoin security. While we often find it convenient to store our coins in an exchange or some other online wallet, that is not usually the safest practice. Unless you initially created and continue to control your private keys, you do not really hold your coins. Rather, you are trusting someone else to keep them for you.
This is not necessarily a bad thing, but the risk always needs to be assessed. Even a completely honest and trustworthy exchange could have insufficient security measures that lead to a hack. Some might shy away from bitcoin for reasons like this, but remember that banks for fiat currency can be hacked too.
A tagline often used for bitcoin is “Be your own bank.” With bitcoin, we don’t need to trust anyone else with our money because we are able to send any amount, anywhere, for an incredibly low cost, even from our own computers. That said, no system is immune to every kind of failure. Threats include hacks, lost passwords, and even natural disasters, so it’s probably wise to diversify your bitcoin across a variety of wallets.
Daniel Brown is the editor-in-chief of You, Me, and BTC. There, he co-hosts the planet’s most entertaining Bitcoin podcast and writes about various crypto topics. He also works for Liberty.me, preparing content pages, bug testing, and doing anything else that needs to be done.