Bitcoins, if you’re not familiar with them yet, are a new form of virtual money that is being used around the world in order to avoid the pitfalls of governments, taxes and banks. While this may be the case, the big question is simply this; are they safer than “regular” money?
The fact is, just like someone can pick your pocket on the street, a hacker can steal any type of virtual money that you have and Bitcoins are completely virtual. Not only that but they are relatively anonymous and, if a hacker knows what they’re doing, law enforcement will be hard-pressed to track them once they make off with your virtual cash. Add to that the fact that Bitcoin transactions are not reversible and you have the setup for a situation that can leave someone virtually, and genuinely, broke.
If a person’s “virtual wallet” is, for example, accidentally deleted from their computer, their laptop or tablet is severely damaged or they simply forget the password, in most cases the wallet and Bitcoins can be recovered. But if the virtual wallet is actually stolen by a hacker the problem becomes much more difficult.
A Bitcoin tracing service was recently introduced by a company called SyTech but, since exchanges usually only have limited information, even their service is not always 100% guaranteed to recover a person’s lost virtual money. In terms of tracking a hacker, the most valuable information is the IP address used but, since making IP addresses untraceable is a common skill among online thieves, even that isn’t always enough.
As with all currencies, there are federal regulations being established that will set up a regulatory framework around Bitcoins as well as law enforcement capabilities.
The problem, of course, is that as long as this virtual money can actually be converted into “real” money, there will always be a strong incentive for criminals to figure out ways to steal it. (Actually, once Bitcoins are converted into currency they become slightly easier to track.)
Another problem is that most Bitcoin theft is done in small, individual amounts and doesn’t get the attention that a large theft would garner.
Experts say that virtual wallets being kept on centralized, cloud-based services are typically more susceptible to theft than those that are stored on a local drive. The reason is not because of the lack of security but just because the amount of virtual money is substantially higher. The people who use these services are also more likely to fall prey to malware and “phishing” emails that somehow trick them into giving up the password to their virtual wallet.
Experts suggest that the best way to protect your Bitcoins and other virtual money is to set up a 2-factor authentication process. Phone apps like Google Authenticator actually change your code every 20 seconds and send the code to a user’s phone via an SMS text message. This makes it much harder for someone to actually access their password.
One bit coin exchange, Tradehill, recently announced that they have plans to bring their Bitcoin accounts to the Internet Archive Federal Credit Union, something that will add an extra layer of protection and security for their members.
One thing’s for sure; as bit coins become more valuable (and the total value now stands at roughly $122. per Bitcoin) people who use this new virtual currency are definitely going to have to protect themselves better from theft.