When thieves strike, cryptocurrency investors tremble
Cryptocurrency Ethereum has emerged from the shadow of its better-known rival Bitcoin thanks to its skyrocketing price -- that has also made it a tempting target for hackers.
Thieves earlier this month stole $10 million from an electronic wallet provide by Coindash, a company that specializes in the kind of blockchain technology used in digital currencies. Another $32 million recently went missing after hackers exploited a vulnerability in an e-wallet from startup Parity.
The price of Ethereum slumped following news of the heists, tumbling more than 15 percent from $258.52 on July 18 to $218.82 on Friday, according to CoinMarket Cap.
Coindash, which was using a so-called initial coin offering to raise funds, plans to compensate victims of the hack. To help stabilize the price of Ethereum, it will also offer bonuses to anyone who holds it for at least six months. According to Parity, there were three accounts compromised in the attack and that the thief is attempting to launder the money through exchanges.
"If anything, it makes people more aware of the pitfalls of coding," said Luis Cuende, CEO of Aragon, an Ethereum-based corporate management tool, adding that the underlying code that powers the cryptocurrency wasn't affected by the attack.
The concept behind Ethereum was initially described by computer programmer Vitalik Buterin in 2013 based on his research on Bitcoin. A year later he joined forces with another programmer to create Ethereum, now the second-most popular cryptocurrency after Bitcoin.
New investors in Ethereum may not be aware of the risks of losing their funds to hackers, said Simon Yu, CEO of CakeCodes, which offers cryptocurrency rewards to computer game players. He said accounts should be secured with private keys whose combinations are known only to the account holders.
Cryptocurrencies have long been dogged by concerns about their security, particularly after the collapse of Bitcoin exchange Mt. Gox in 2014. The company's former CEO, Mark Karpales, is currently on trial in Japan, where the corporation was based, on embezzlement and data manipulation charges. Karpales has blamed the company's collapse on hackers.
South Korea's largest Ethereum and Bitcoin exchange was breached in late June in a theft estimated at 1.2 billion won ($1.07 million). A Pennsylvania man also recently confessed to stealing $40 million worth of Bitcoin.
Despite the risks, investors continue to have faith in digital currencies even as their prices fluctuate wildly. Ethereum, which started the year valued at $8.17, has in a matter of months soared 2,600 percent. Over the same period, Bitcoin prices have surged from $1,027 to $2,638, a gain of more than 150 percent.
The S&P 500, the stock market index most closely tracked by professional money managers, has this year posted a gain of 10.3 percent.