Bitcoin is the digital world’s most popular virtual currency, with millions in circulation.
The study is the first empirical study of its kind. Vasek and Moore found that hucksters used four different types of schemes through authentic-looking web-based investment and banking outlets to lure customers and heist deposits.
Vasek explained to CoinDesk journalist Joon Ian Wong how the researchers extracted Bitcoin addresses linked to the frauds, enabling them to look at transactions from victims to fraudsters recorded on the transaction addresses.
By Joon Ian Wong
CoinDesk
Scams promising bitcoin riches have netted swindlers at least $11m in the last four years, researchers have found.
Some 13,000 victims handed over their money unwittingly in 42 different scams over that time period, their data suggests.
However, the total amount of funds cheated from victims over this period is almost certainly higher than the estimated $11m the research identified.
A co-author of the research, Marie Vasek, said:
“There are a lot of scams that we couldn’t measure at all. There were scams we couldn’t find or verify … We think presenting our findings as they are, a lower bound, makes a lot of room for us and others to further quantify scams in this space.”
Vasek, who researches computer security at Southern Methodist University, co-wrote the paper with Tyler Moore, an assistant professor in computer science at the same institution.
Painstaking search
The paper, titled There’s No Free Lunch, Even Using Bitcoin: Tracking the Popularity and Profits of Virtual Currency Scams, has been presented at the Financial Cryptography and Data Security conference taking place in Puerto Rico this week.
Vasek and Moore combed online repositories of scam accusations, including a mega-thread of scams, hacks and heists on the Bitcointalk forum that has been maintained since 2012, as well as the subreddit r/bitcoin, BadBitcoin.org and CryptoHYIPs.com.
This process required the researchers to painstakingly go through forum threads post by post, even translating messages that were written in languages other then English, as well as visiting the websites that scammers created to publicise themselves.
“We went through every single post to determine if the scheme was a scam, any associated bitcoin addresses with the scheme, and any associated scams,” Vasek said.
Using this method they found 349 scams, which were then whittled down to 192 deceptions after excluding phishing, malware and pay-for-click websites, which fall outside the scope of the study.
SMU is a nationally ranked private university in Dallas founded 100 years ago. Today, SMU enrolls nearly 11,000 students who benefit from the academic opportunities and international reach of seven degree-granting schools. For more information see www.smu.edu.
SMU has an uplink facility located on campus for live TV, radio, or online interviews. To speak with an SMU expert or book an SMU guest in the studio, call SMU News & Communications at 214-768-7650.
First empirical study of its kind identifies fraud on seemingly legitimate web sites purposely designed to steal customers’ funds
Fraudulent schemes have scammed at least $11 million in Bitcoin deposits from unsuspecting cyber customers over the past four years, according to new cyber security research from Southern Methodist University, Dallas.
Bitcoin is the digital world’s most popular virtual currency, with millions in circulation.
In the first empirical study of its kind, SMU researchers found that hucksters used four different types of schemes through authentic-looking web-based investment and banking outlets to lure customers and heist deposits, said computer security expert Marie Vasek, lead researcher on the study.
Book a live interview
To book a live or taped interview with Marie Vasek or Dr. Tyler Moore in the SMU Broadcast Studio call SMU News at 214-768-7650 or email news@smu.edu.
“Our calculation of $11 million is almost certainly at the low-end,” said Vasek. “The amount of Bitcoin that depositors have lost to these scams is probably many millions more.”
Typically the scams succeed by exploiting not only people’s greed, but also the urge to “get rich quick,” coupled with the inability to judge the legitimacy of web services to decide which financial sites are good or bad, said Bitcoin and cyber security expert Tyler W. Moore, co-researcher on the study.
“Because the complete history of Bitcoin transactions are made public, we have been able to inspect, for the first time, the money flowing in and out of fraudulent schemes in great detail. It’s like having access to all of Bernie Madoff’s books for many of these scams,” said Moore, director of the Economics and Social Sciences program of the Darwin Deason Institute for Cyber Security in SMU’s Lyle School of Engineering.
13,000 victims and counting in four different kinds of scams
The researchers identified 41 scams occurring between 2011 and 2014, in which fraudulent sites stole Bitcoin from at least 13,000 victims, and most certainly more.
“We found that the most successful scams draw the vast majority of their revenue from a few victims,” Vasek said.
The researchers were only able to track revenues for about 21 percent of the scams, which would indicate that the amount of Bitcoin actually stolen most likely far exceeds $11 million.
The findings emerged when the researchers ran a Structured Query Language database dump of all relevant Bitcoin transactions, then analyzed Bitcoin addresses (the account numbers) of both victims and the siphoning transactions of scammers.
“The amount of fraud being attracted by Bitcoin is a testament to the fact the virtual currency is gaining in legitimacy,” said Moore. “But scams that successfully hijack funds from depositors may end up scaring away consumers who will fear using Bitcoin for their legitimate digital transactions.”
There are 13.7 million Bitcoin in circulation, according to blockchain.info. The number of Bitcoin transactions exceeds 100,000 per day.
The research was partially funded by the U.S. Department of Homeland Security’s Science and Technology Directorate, Cyber Security Division, and the Government of Australia and SPAWAR Systems Center Pacific.
Four scams, each with varying lifespans, strategies and success
Vasek and Moore identified four common scams by tracking forum discussions, where scams are often initially advertised and later exposed, and by tracking web sites.
High-yield investment programs, otherwise known as online Ponzi schemes, which promise investors outlandish interest rates on deposits. The scammers lure both unsuspecting victims as well as those fully aware it’s a Ponzi scheme who hope to cash out in time. Of all the scams, this type has taken in the lion’s share of money from victims. The biggest of these scammers was Bitcoin Savings & Trust, formerly First Pirate Savings & Trust. When such schemes collapse, as they eventually do, and often within about 37 days, they’re replaced with a new program, often run by the same criminals, say the researchers. These scammers consistently pay out to their investors far less than they take in.
Mining investment scams are classic advanced-fee fraud, taking orders and money from customers but never delivering any mining equipment — specialized computer processors and electronic devices for mining Bitcoin. These retailers typically endure for 145 days, much longer than Ponzi schemes. Vasek and Moore looked at Labcoin, Active Mining Corp., AsicMiningEuipment.com and Dragon-Miner.com.
Victims make deposits into scam wallets under the promise the service offers greater transaction anonymity. If the deposit is small, scammers leave the money, but if it rises above a threshold, scammers move the money into their wallet. Services such as Onion Wallet, Easy Coin and Bitcoinwallet.in each surfaced with transfers from victims siphoned to one address held by a scammer.
Exchange scams, such as BTC Promo, CoinOpend and Ubitex, offer PayPal and credit card processing, but at a better exchange rate than competitors. Customers soon find out, however, they never get Bitcoin or cash after making payment. Longer-lived exchange scams survived about three months. Wallet and exchange scams exploit the difficulty in judging the legitimacy of web services.
The study is not a comprehensive review, the researchers note, as they were limited to those scams for which they could determine a minimum estimate of the prevalence and criminal profits of the scams after analyzing the public ledger of all Bitcoin transactions ever executed.
The researchers conservatively estimate that $11 million has been taken by scams, while only $4 million has ever been returned. Most of the successful scams catch a few “big fish,” say the researchers, who pay the bulk of the money into the scam.
“Bitcoin scams pose a problem for more than the victims who directly lose money,” Moore said. “They threaten to undermine trust in this promising technology, and cast a chilling effect on those interested in trying out new services. By mining the public record for fraudulent transactions, we hope to deter would-be scammers and assist law enforcement in cracking down on the bad actors.” — Margaret Allen
SMU is a nationally ranked private university in Dallas founded 100 years ago. Today, SMU enrolls nearly 11,000 students who benefit from the academic opportunities and international reach of seven degree-granting schools. For more information see www.smu.edu.
SMU has an uplink facility located on campus for live TV, radio, or online interviews. To speak with an SMU expert or book an SMU guest in the studio, call SMU News & Communications at 214-768-7650.
“It’s like any other digital commodity in that it finds its value in the people who use it…” — Tyler Moore
KERA Public Radio journalist Justin Martin tapped the expertise of SMU Bitcoin and cybersecurity expert Tyler W. Moore, an assistant professor of computer science in the Lyle School of Engineering.
An expert on the digital currency Bitcoin, Moore’s expertise draws in part on his research surrounding Bitcoin, the exchanges that trade in the currency and patterns of online usage. One of Moore’s studies found that online money exchanges that trade hard currency for the rapidly emerging cyber money have a 45 percent chance of failing — often taking their customers’ money with them.
The finding is from a computer science study in which Moore applied survival analysis to examine the factors that prompt Bitcoin currency exchanges to close.
Book a live interview
To book a live or taped interview with Dr. Tyler Moore in the SMU Broadcast Studio call News and Communications at 214-768-7650 or email news@smu.edu.
By Justin Martin
KERA
Fans of bitcoin tout the digital currency as secure, anonymous and efficient. But wildly fluctuating exchange rates and charges recently in an alleged bitcoin Ponzi scheme in North Texas have put a spotlight on bitcoin’s risks.
Tyler Moore is an assistant professor of computer science and engineering at Southern Methodist University and he joins KERA’s Justin Martin for a conversation on bitcoin.
Interview Highlights: Tyler Moore …
… On bitcoin and cryptocurrency:
“Bitcoin is a currency just like dollars or euros or pounds, but it’s completely digital so there’s no paper equivalent. To do that, you need to have some rules in place so that people can’t willy-nilly copy the bits and steal each other’s bitcoins – so that’s where the crypto comes in – you have some cryptography to protect against double spending and sort of enforce the rules of the system.”
… On how to acquire bitcoin:
“So there’s two main ways – the more esoteric way is to mine bitcoins, but if you’re new to bitcoin the most common way is to go to a currency exchange, just like you would when you enter a new country, go the airport, go to the exchange, and provide your dollars and get whatever currency you’d like. You can get to an online currency exchange and pay your dollars and whatever the current market rate is they’ll give you the equivalent in bitcoin.”
… On bitcoin’s value:
“It’s like any other digital commodity in that it finds its value in the people who use it. Which is one reason we see these huge fluctuations in that there can be wildly differing demands for the currency at a given time.”
SMU is a nationally ranked private university in Dallas founded 100 years ago. Today, SMU enrolls nearly 11,000 students who benefit from the academic opportunities and international reach of seven degree-granting schools. For more information see www.smu.edu.
SMU has an uplink facility located on campus for live TV, radio, or online interviews. To speak with an SMU expert or book an SMU guest in the studio, call SMU News & Communications at 214-768-7650.
“The bitcoin ecosystem is in need of regulatory oversight and reform.” — bitcoin expert Tyler Moore, SMU assistant professor
Journalist Will Deener with The Dallas Morning News tapped the expertise of SMU Bitcoin and cybersecurity expert Tyler W. Moore, an assistant professor of computer science in the Lyle School of Engineering.
Moore’s expertise draws in part on his research that found that online money exchanges that trade hard currency for the rapidly emerging cyber money known as Bitcoin have a 45 percent chance of failing — often taking their customers’ money with them.
The finding is from a computer science study in which Moore applied survival analysis to examine the factors that prompt Bitcoin currency exchanges to close.
Book a live interview
To book a live or taped interview with Dr. Tyler Moore in the SMU Broadcast Studio call News and Communications at 214-768-7650 or email news@smu.edu.
By Will Deener
Dallas Morning News
Bitcoin was a dream come true for computer geeks, libertarians and big government paranoids.
Just imagine a digital currency untethered from government regulators, existing only in the virtual world of computer code and cheaper to use than credit cards.
But the recent collapse of a leading bitcoin exchange, Mt. Gox, has raised concerns about the legitimacy of this virtual currency.
A $470 million digital heist last month at the Tokyo-based exchange pushed the company into bankruptcy and left many bitcoin investors empty-handed with little recourse.
Mt. Gox chief executive Mark Karpeles offered some hollow condolences during a late February press conference in Tokyo. He basically said, oops, there was a bug in the bitcoin software, which allowed thieves to hack their way into the system and fraudulently withdraw bit coin.
And to think this was supposedly the precursor to a digital Utopia.
Investors in traditional currencies — U.S. dollar, Japanese yen or Swiss franc — need a cast iron stomach, a savvy trading strategy and a fat wallet because big losses are inevitable.
Breaking news in these markets is like waving a biscuit at a mad dog. It comes fast, and it ain’t pretty.
But at least sovereign governments and regulatory authorities stand behind and monitor traditional currencies. While Bitcoin’s exchange rate is even more volatile than traditional currencies, there is no oversight from the FDIC, Federal Reserve or U.S. Treasury.
Tyler Moore, an SMU assistant professor in computer science and engineering, said he doesn’t believe the Mt. Gox fiasco will spell the demise of bitcoin, but regulatory safeguards are needed. Moore co-authored a research report last year in which he examined the risks of investing in bit coin.
“The bitcoin ecosystem is in need of regulatory oversight and reform,” he wrote in an email response to my questions. “Bitcoin currency exchanges act like de facto banks. Many customers leave the bitcoins in accounts at the exchanges, but there are no capital requirements as there are for traditional banks.”
SMU is a nationally ranked private university in Dallas founded 100 years ago. Today, SMU enrolls nearly 11,000 students who benefit from the academic opportunities and international reach of seven degree-granting schools. For more information see www.smu.edu.
SMU has an uplink facility located on campus for live TV, radio, or online interviews. To speak with an SMU expert or book an SMU guest in the studio, call SMU News & Communications at 214-768-7650.
“The currency that is supposedly beyond state control is actually still within the grip of governments …” — Tyler Moore
Journalists Alistair Barr and Kim Hjelmgaard with USA Today tapped the expertise of SMU Bitcoin and cybersecurity expert Tyler W. Moore, an assistant professor of computer science in the Lyle School of Engineering.
Moore’s expertise draws in part on his research that found that online money exchanges that trade hard currency for the rapidly emerging cyber money known as Bitcoin have a 45 percent chance of failing — often taking their customers’ money with them.
The finding is from a computer science study in which Moore applied survival analysis to examine the factors that prompt Bitcoin currency exchanges to close.
Book a live interview
To book a live or taped interview with Dr. Tyler Moore in the SMU Broadcast Studio call News and Communications at 214-768-7650 or email news@smu.edu.
By Alistair Barr and Kim Hjelmgaard USA Today Bitcoin was supposed to be beyond the reach of governments, but investors in the virtual currency are realizing that is not the case.
The price of a Bitcoin slumped Wednesday after China’s largest exchange for the virtual currency said it would stop accepting deposits in yuan — China’s local currency.
The much-ballyhooed Bitcoin currency has lost more than half its value since hitting records above $1,100 at the end of November. On Wednesday, the price of a Bitcoin fell 18% to $558 and traded as low as $422.50 earlier in the day, according to an index run by CoinDesk, a website focused on digital currencies.
The exchange, BTC China, had to “temporarily stop its yuan account recharging functions,” according to comments it made on Weibo, a popular Chinese micro-blogging service similar to Twitter.
“Bitcoin is inherently volatile, but the decision by this large exchange has played a role,” said Tyler Moore, a Southern Methodist University assistant professor in computer science who has studied Bitcoin. “Stopping new deposits prevents new Chinese investors from piling more yuan into Bitcoin, eliminating some of the demand.”
Bitcoin is a digital currency and payment method that is not regulated by any government. Instead, software controls how many Bitcoins are produced, leaving it less prone to the whims of central banks, some of which have caused inflation in the past by printing too much paper currency.
The Bitcoin software first emerged in 2009 via a person or group using the name Satoshi Nakamoto. Since then, many other developers have jumped on board to support the currency and make it more accessible to consumers and investors.
SMU is a nationally ranked private university in Dallas founded 100 years ago. Today, SMU enrolls nearly 11,000 students who benefit from the academic opportunities and international reach of seven degree-granting schools. For more information see www.smu.edu.
SMU has an uplink facility located on campus for live TV, radio, or online interviews. To speak with an SMU expert or book an SMU guest in the studio, call SMU News & Communications at 214-768-7650.
The financial news web site MoneyNews published a Reuters article that covers the Bitcoin research of SMU cybersecurity expert Tyler W. Moore, an assistant professor of computer science in the Lyle School of Engineering.
Moore’s research found that online exchanges that trade hard currency for the rapidly emerging cyber money known as Bitcoin have a 45 percent chance of failing — often taking their customers’ money with them.
The finding is from a new computer science study that applied survival analysis to examine the factors that prompt Bitcoin currency exchanges to close.
Reuters
Money News
Three months after a team of international law enforcement officials raided the digital currency firm Liberty Reserve, cyber experts say criminals are increasingly turning to another online currency called Perfect Money.
Idan Aharoni, the head of cyber intelligence at EMC Corp.’s RSA security division, said that some online scam artists and thieves are using Perfect Money’s digital currency to launder money and conceal profits in much the same way they allegedly did with Liberty Reserve’s currency.
On behalf of their clients, which include major financial institutions, Aharoni and his team monitor Internet forums that hackers use to sell stolen credit card information. After Liberty Reserve was taken down in May, activity on these forums initially slowed and then picked up again, with some hackers saying they would accept Perfect Money for payments, he said.
“We expected a large migration to another e-currency, and that has happened,” said Aharoni, whose RSA unit sells security services to 30,000 corporations and government agencies, including the popular Secure ID tokens that protect access to computer systems.
Perfect Money, which has been in operation since at least 2007, could not be reached for comment. A request submitted through its website failed to elicit a response, and the company does not list a phone number for its offices or identify any management or employees. [ … ]
[ … ] A Reuters review of postings on Internet message boards for digital currencies found hackers offering to sell stolen credit cards are open about accepting Perfect Money as payment.
“If it was expected at first that the Liberty Reserve takedown would have a long-lasting, substantial effect on the level of fraud, that’s not true,” Aharoni said.
Tyler Moore, an assistant professor at Southern Methodist University, said a 2011 study he conducted with two other academics found that Liberty Reserve and Perfect Money were two of the most widely accepted digital currencies for online Ponzi schemes. Of 1,000 websites that linked to Perfect Money, they found 70 percent that were Ponzi schemes.
“Perfect Money seems to be a very popular choice among this subculture,” Moore said.
SMU is a nationally ranked private university in Dallas founded 100 years ago. Today, SMU enrolls nearly 11,000 students who benefit from the academic opportunities and international reach of seven degree-granting schools. For more information see www.smu.edu.
SMU has an uplink facility located on campus for live TV, radio, or online interviews. To speak with an SMU expert or book an SMU guest in the studio, call SMU News & Communications at 214-768-7650.
Said one Minnesota fan of the digital money: “Right now I wouldn’t call it investing, I would call it gambling.”
Business writer Jennifer Bjorhus with the Minneapolis Star Tribune newspaper covered the Bitcoin research of SMU cybersecurity expert Tyler W. Moore, an assistant professor of computer science in the Lyle School of Engineering.
Moore’s research found that online exchanges that trade hard currency for the rapidly emerging cyber money known as Bitcoin have a 45 percent chance of failing — often taking their customers’ money with them.
The finding is from a new computer science study that applied survival analysis to examine the factors that prompt Bitcoin currency exchanges to close. Moore carried out the research with Nicolas Christin, with the Information Networking Institute and Carnegie Mellon CyLab at Carnegie Mellon University.
Book a live interview
To book a live or taped interview with Dr. Tyler Moore in the SMU Broadcast Studio call News and Communications at 214-768-7650 or email news@smu.edu.
Jennifer Bjorhus
StarTribune
Bitcoin has shot up and crashed at least twice now.
Exchanges where the fast-rising new digital currency trades have been hacked, and so have individual accounts. It’s been linked to illegal activity in underground cyber haunts such as Silk Road, and sparked a move by the U.S. government to halt unregulated use.
And Bitcoin persists.
Heck, CNBC has a Bitcoin ticker on its website.
In its fourth year of circulation now, the decentralized online-only form of money has evolved from a libertarian-styled geek curiosity to a contender for becoming the first digital currency to go truly mainstream. There are now more than 11 million “coins” created worth more than $1 billion. Lumpy and volatile as it is, the math-based cash is one of the fastest rising alternative currencies in a world filled with them.
Tyler Moore, who studies alternative currencies, said he still isn’t sure why.
“It’s one part luck, one part decentralization and one part this design that carries appeal for people that don’t like inflation,” said Moore, an assistant professor of computer science and engineering at Southern Methodist University in Dallas. “The timing of it was really good.”
Bitcoin slipped onto the scene in 2009, as trust in established banks crumbled and inflation fears rose. It’s not managed by anyone. There’s no central bank. It’s based on open-source encryption technology.
In fact, the digital cash can be created by anyone with the hefty computer power required to solve specified algorithms that secure the network. Bitcoins are rewards for effort. The system takes banks out of the picture completely as individuals pay each other directly. Transactions are private but because there’s a public ledger of them it’s unlikely they are perfectly anonymous.
SMU is a nationally ranked private university in Dallas founded 100 years ago. Today, SMU enrolls nearly 11,000 students who benefit from the academic opportunities and international reach of seven degree-granting schools. For more information see www.smu.edu.
SMU has an uplink facility located on campus for live TV, radio, or online interviews. To speak with an SMU expert or book an SMU guest in the studio, call SMU News & Communications at 214-768-7650.
Technology reporter Matt Twomey with Business Insider covered the Bitcoin research of SMU cybersecurity expert Tyler W. Moore, an assistant professor of computer science in the Lyle School of Engineering.
Moore’s research found that online exchanges that trade hard currency for the rapidly emerging cyber money known as Bitcoin have a 45 percent chance of failing — often taking their customers’ money with them.
The finding is from a new computer science study that applied survival analysis to examine the factors that prompt Bitcoin currency exchanges to close.
Book a live interview
To book a live or taped interview with Dr. Tyler Moore in the SMU Broadcast Studio call News and Communications at 214-768-7650 or email news@smu.edu.
Matt Twomey
Business Insider
It’s been a wild couple months for digital currencies. This past week saw the bust of Liberty Reserve for its alleged role in billions of dollars of illicit transactions, and two days later the largest bitcoin exchange said it would now require all accounts to be verified.
For the digital currency to survive, must it sacrifice its soul? Can it thrive if it does?
To be sure, there are important differences between bitcoin and Liberty Reserve. Where Liberty was effectively a black box for transactions, controlled by a single entity, bitcoins are traded on a peer-to-peer network independent of any central authority. (Bitcoin did have its own law-enforcement episode on May 17, when the Department of Homeland Security froze the accounts of two U.S.-based bitcoin processors. The alleged misdeed: failing to properly register.)
In the Liberty Reserve case, the illegalities were brash, according to U.S. officials. One million users across the world—one-fifth of them Americans—made 55 million transactions over seven years to the tune of $6 billion, with few questions asked while Costa Rica-based Liberty collected 1 percent, investigators said. The network is thought to have been employed in the $45 million ATM heist for which eight people were arrested in May.
Chicago-based investment fraud attorney Andrew Stoltmann said bitcoin holders should be spooked, because the digital exchanges have been used by criminals for money laundering as well.
But Peter Vessenes, chairman and executive director of the Bitcoin Foundation, was unfazed by the Liberty Reserve crackdown.
“The U.S. put out guidance recently through the Financial Crimes Enforcement Network, and we’ve been following up on that guidance and crushing bad actors,” he said in an interview with CNBC Asia. “We’re seeing a bit of a sweep right now,” he said.
“There’s nothing to indicate that good players who are working hard to stay regulated have anything to worry about.”
And there’s the rub: The techno-libertarian fantasy of an unfettered digital currency is losing its veil of anonymity and is dependent upon ensuring the appeasement of government regulators. It’s enough to make a cryptotarian anarchist blanch.
SMU is a nationally ranked private university in Dallas founded 100 years ago. Today, SMU enrolls nearly 11,000 students who benefit from the academic opportunities and international reach of seven degree-granting schools. For more information see www.smu.edu.
SMU has an uplink facility located on campus for live TV, radio, or online interviews. To speak with an SMU expert or book an SMU guest in the studio, call SMU News & Communications at 214-768-7650.
Technology reporter Brad Reed with BGR News covered the Bitcoin research of SMU cybersecurity expert Tyler W. Moore, an assistant professor of computer science in the Lyle School of Engineering.
Moore’s research found that online exchanges that trade hard currency for the rapidly emerging cyber money known as Bitcoin have a 45 percent chance of failing — often taking their customers’ money with them.
The finding is from a new computer science study that applied survival analysis to examine the factors that prompt Bitcoin currency exchanges to close.
Book a live interview
To book a live or taped interview with Dr. Tyler Moore in the SMU Broadcast Studio call News and Communications at 214-768-7650 or email news@smu.edu.
Brad Reed
Yahoo! News
Imagine a world where the Nasdaq, the Nikkei and the FTSE all failed within the span of a week and you have an idea how crazy the world of virtual currency trading has become. Wired reports that a new study from computer scientists Tyler Moore of the Southern Methodist University in Dallas and Nicolas Christin of Carnegie Mellon University has found that 45% of Bitcoin exchanges end up shutting their virtual doors while leaving their users’ money in limbo. However, this doesn’t mean that the Bitcoin exchanges that have survived so far are safe havens, since the study also shows that they’re under constant assault from cybercriminals who are working around the clock to hack users’ transactions.
SMU is a nationally ranked private university in Dallas founded 100 years ago. Today, SMU enrolls nearly 11,000 students who benefit from the academic opportunities and international reach of seven degree-granting schools. For more information see www.smu.edu.
SMU has an uplink facility located on campus for live TV, radio, or online interviews. To speak with an SMU expert or book an SMU guest in the studio, call SMU News & Communications at 214-768-7650.
Technology writer Ian Steadman with Wired in the United Kingdom covered the Bitcoin research of SMU cybersecurity expert Tyler W. Moore, an assistant professor of computer science in the Lyle School of Engineering.
Moore’s research found that online exchanges that trade hard currency for the rapidly emerging cyber money known as Bitcoin have a 45 percent chance of failing — often taking their customers’ money with them.
The finding is from a new computer science study that applied survival analysis to examine the factors that prompt Bitcoin currency exchanges to close.
Book a live interview
To book a live or taped interview with Dr. Tyler Moore in the SMU Broadcast Studio call News and Communications at 214-768-7650 or email news@smu.edu.
Ian Steadman
Wired
A study of the Bitcoin exchange industry has found that 45 percent of exchanges fail, taking their users’ money with them. Those that survive are the ones that handle the most traffic — but they are also the exchanges that suffer the greatest number of cyber attacks.
Computer scientists Tyler Moore (from the Southern Methodist University, Dallas) and Nicolas Christin (of Carnegie Mellon University) found 40 exchanges on the web which offered a service of changing bitcoins into other fiat currencies or back again. Of those 40, 18 have gone out of business — 13 closing without warning, and five closing after suffering security breaches that forced them to close. Four other exchanges have suffered serious attacks but remain open.
One of those is Mt Gox, the largest Bitcoin exchange, with Moore and Christin stating that at its peak it handles more than 40,000 Bitcoin transactions a day, compared to a mean average of 1,716. It has been the victim of a huge number of distributed denial-of-service (DDoS) attacks over the past month during the peak of the Bitcoin bubble (and its subsequent bursting — though the price now appears to be rising again). Its latest statement, dealing with the attack it suffered on 21 April, is long and comprehensive, seeking to assuage the fears of Bitcoin users who feel that Mt Gox is becoming a weak chain in Bitcoin’s infrastructure.
SMU is a nationally ranked private university in Dallas founded 100 years ago. Today, SMU enrolls nearly 11,000 students who benefit from the academic opportunities and international reach of seven degree-granting schools. For more information see www.smu.edu.
SMU has an uplink facility located on campus for live TV, radio, or online interviews. To speak with an SMU expert or book an SMU guest in the studio, call SMU News & Communications at 214-768-7650.
Technology reporter Peter Suciu with redOrbit covered the Bitcoin research of SMU cybersecurity expert Tyler W. Moore, an assistant professor of computer science in the Lyle School of Engineering.
Moore’s research found that online exchanges that trade hard currency for the rapidly emerging cyber money known as Bitcoin have a 45 percent chance of failing — often taking their customers’ money with them.
The finding is from a new computer science study that applied survival analysis to examine the factors that prompt Bitcoin currency exchanges to close.
Book a live interview
To book a live or taped interview with Dr. Tyler Moore in the SMU Broadcast Studio call News and Communications at 214-768-7650 or email news@smu.edu.
Peter Suciu
redOrbit
The bank failures that resulted from the 1929 stock market crash took many people’s life savings with it, and some say the same thing could happen – a albeit on a much smaller scale at least – to those who invest heavily in Bitcoins.
According to a new study from Southern Methodist University in Dallas and Carnegie Mellon University in Pittsburgh, the virtual cyber currency known as Bitcoin could have as much as a 45 percent chance of failing. This could occur if an exchange center that held the currency – much as a bank holds real money – closed, losing customers their Bitcoins and any hard money paid for them.
Bitcoin received a boost in interest this week when PayPal president David Marcus noted that the online payment center would consider making Bitcoin a funding instrument. Many still believe that the sophisticated cyber currency still holds promise for becoming a major international medium of exchange.
Moreover the SMU-CMU study also found that currency exchanges that buy and sell a higher volume of Bitcoins are less likely to shut down. That’s the good news. The bad news is that these transactions are more likely to suffer a security breach.
The encrypted digital currency has been in the spotlight this week, as 87 percent of the nation’s top economists think that the Bitcoin only has “limited usefulness,” reported TechCrunch. This is according to a recent University of Chicago Initiative on Global Markets (IGM) poll of the 38 of the world’s top economists.
“A bitcoin’s value derives solely from the belief that others will want to use it for trade, which implies that its purchasing power is likely to fluctuate over time to a degree that will limit its usefulness,” the IGM findings noted – a general statement that, though intended to downplay the stability of Bitcoin, is actually true of all forms of currency.
Bitcoin exchanges work two ways. In the first, purchasers can go through an online exchange and pay for the virtual currency with hard currency, typically with a credit card. The exchange then transfers the purchased Bitcoins to the buyer’s account. The second way is for Bitcoins to be purchased from local dealers, where the parties meet in person and the buyer pays in cash.
SMU is a nationally ranked private university in Dallas founded 100 years ago. Today, SMU enrolls nearly 11,000 students who benefit from the academic opportunities and international reach of seven degree-granting schools. For more information see www.smu.edu.
SMU has an uplink facility located on campus for live TV, radio, or online interviews. To speak with an SMU expert or book an SMU guest in the studio, call SMU News & Communications at 214-768-7650.
Empirical computer science study finds consumers face risk of losing money on Bitcoin currency exchanges, many of which close
Online exchanges that trade hard currency for the rapidly emerging cyber money known as Bitcoin have a 45 percent chance of failing — often taking their customers’ money with them.
The finding is from a new computer science study that applied survival analysis to examine the factors that prompt Bitcoin currency exchanges to close.
Results showed also that currency exchanges that buy and sell a higher volume of Bitcoins are less likely to shut down, but more likely to suffer a security breach.
As of April 2013, Bitcoin’s market capitalization had soared to more than $1 billion, making it a frequent target of fraudsters. Bitcoins are encrypted virtual money created by computer programmers and not backed by any country or government.
A traceable form of cyber money, Bitcoins can be purchased and used much like hard currency to pay for goods and services, mostly over the Internet. Part of Bitcoins’ attraction is its potential to reduce transaction fees for online purchases, as well as its mathematically-enforced protections against inflation.
Study authors Moore and Christin identified 40 Bitcoin exchanges worldwide that convert the cyber money into 33 hard currencies. Of those 40, 18 have gone out of business. Nine of the 40 experienced security breaches from hackers or other criminal activity, forcing five of them to subsequently close. Another 13 closed without any publicly announced breach, according to Moore and Christin.
From their study, the researchers found the failure rate of Bitcoin exchanges is 45 percent. The median lifetime of an exchange is just over one year, 381 days.
Of the 18 Bitcoin exchanges that closed, in 11 of those cases the authors were able to find evidence of whether or not the customers were reimbursed their money. Five exchanges didn’t reimburse their customers. Six claim to have done so.
While various so-called crypto-currencies have been introduced in the past few years, Bitcoin is the first to be so widely adopted. Besides being open source, Bitcoin’s attraction includes real-time peer-to-peer transactions, worldwide acceptance and low or no processing fees.
Crypto-currencies are intended to eliminate reliance on brick-and-mortar middlemen such as banks, exchanges, credit card conglomerates and other financial intermediaries. Despite that, and as a result of Bitcoin’s booming popularity, a wide variety of middlemen have sprung up around the cyber currency. Those range from currency exchanges and online wallets to mining pools and legitimate or Ponzi scheme investment services, the authors said.
Moore and Christin focused their study on currency exchanges to examine the risk Bitcoin holders face from exchange failures.
Middlemen rise up in a system specifically meant to avoid middlemen
“Bitcoin is expressly designed to be completely decentralized with no single points of control,” Moore said. “Yet currency exchanges have become de facto central authorities, and their success or failure drives Bitcoin’s success or failure.”
Recent wild fluctuations in the exchange rate of Bitcoins can be traced in part to the role of digital middlemen, he said, including the emergence of the currency exchanges that buy and sell Bitcoins.
Bitcoin’s trading value at the start of the year was around $10 per Bitcoin. But its price soared as high as $260 earlier in April, then recently took a nosedive and is now hovering around $68, explained Moore.
“Much of that can be attributed to the Mt. Gox exchange temporarily shutting down because of heavy trading that overwhelmed the exchange,” Moore said. “Studying why these exchanges fail helps us better understand the risks of Bitcoin.”
Mt. Gox, https://mtgox.com/, based in Tokyo, is the most popular of the exchanges, with average daily transactions totaling more than 50,000 Bitcoins. Other high-volume exchanges include btc-e.com and Intersango.
Of the 40 exchanges Moore and Christin studied, the median for daily transactions carried out is 290. The mean is 1,716. Some 25 percent of exchanges process under 25 Bitcoins each day on average.
The findings of the study leave Bitcoin buyers in a dilemma: According to the study’s empirical analysis, “Mt. Gox and Intersango are less likely to close than other exchanges” because of their high volume, the authors write.
But the study’s logistic regression model yielded the result that the higher the transaction volume, the more likely a security breach by hackers. “More than 43,000 Bitcoins were stolen from the Bitcoinica trading platform in March 2012,” the authors write, and “in September 2012, $250,000 worth of Bitcoins were pilfered from the Bitfloor currency exchange.” Moreover, Mt. Gox has been breached multiple times.
Holding money at Bitcoin exchanges is risky
There are two ways to buy Bitcoins. Purchasers go online through an exchange such as Mt. Gox. They pay hard currency such as U.S. dollars at the market exchange rate, typically funded by a credit card. The exchange transfers the purchased Bitcoins to the buyer’s Bitcoin address or the money remains in an online account maintained by the exchange.
“In the latter case, customers are at risk of losing their Bitcoins if the exchange suddenly closes,” Moore said. “Believe it or not, many people — if not most —choose to leave the Bitcoins in the exchange account, thinking that their Bitcoins are better protected there and with faster access to convert back to hard currencies.”
Bitcoins also can be purchased from local dealers found on web sites such as https://localbitcoins.com/. Buyers meet up with the dealer online or in person and pay cash for the Bitcoins, which are then transferred to the Bitcoin address provided.
Data for the study included daily trade volumes, average weighted daily price for conversions to other currencies, the lifetime of each exchange, whether investors were repaid following an exchange’s closure, and whether the country where the exchange is based complies with the World Bank’s regulations for Anti-Money-Laundering and Combating the Financing of Terrorism. — Margaret Allen
SMU is a nationally ranked private university in Dallas founded 100 years ago. Today, SMU enrolls nearly 11,000 students who benefit from the academic opportunities and international reach of seven degree-granting schools. For more information see www.smu.edu.
SMU has an uplink facility located on campus for live TV, radio, or online interviews. To speak with an SMU expert or book an SMU guest in the studio, call SMU News & Communications at 214-768-7650.
Technology reporter Jacob Aron with New Scientist covered the Bitcoin research of SMU cybersecurity expert Tyler W. Moore, an assistant professor of computer science in the Lyle School of Engineering.
Moore’s research found that online exchanges that trade hard currency for the rapidly emerging cyber money known as Bitcoin have a 45 percent chance of failing — often taking their customers’ money with them.
The finding is from a new computer science study that applied survival analysis to examine the factors that prompt Bitcoin currency exchanges to close.
Book a live interview
To book a live or taped interview with Dr. Tyler Moore in the SMU Broadcast Studio call News and Communications at 214-768-7650 or email news@smu.edu.
Jacob Aron
New Scientist
Online currency Bitcoin hit yet another record high today as it smashed through the $200 barrier, but a new analysis of Bitcoin exchanges shows that swapping real-world cash for its virtual equivalent can be a risky business.
The stratospheric rise of Bitcoin in recent days – it was at $70 just two weeks ago and less than $10 when we first wrote about it – has left many wishing they had got in on the currency when it was much cheaper. But it is easy to forget that Bitcoin exchanges, where many users store their cash, have a history of being hacked or even folding altogether.
Tracking the fortunes of 40 such exchanges over the past three years, Tyler Moore of Southern Methodist University in Dallas, Texas, and Nicolas Christin of Carnegie Mellon University in Pittsburgh, Pennsylvania, discovered that 18 have closed. Of these, five failed to reimburse their customers, while six claimed they did. The pair were unable to confirm either way for the remaining seven exchanges.
The pair also used mathematical modelling to predict the general behaviour of Bitcoin exchanges, and found that there is a 30 per cent chance of an exchange folding within one year of opening, increasing to nearly 80 per cent after two years.
Unsurprisingly, the larger exchanges such as Mt.Gox are much less likely to implode, but the findings suggest these popular money-swappers are also at greater risk of hack attacks. “The continued operation of an exchange depends on running a high transaction volume, which makes the exchange a more valuable target to thieves,” say the pair in a paper presented at the Financial Cryptography conference in Okinawa, Japan, last week.
So, jump on the Bitcoin bandwagon by all means – but as with all investments, don’t risk anything you aren’t prepared to lose.
SMU is a nationally ranked private university in Dallas founded 100 years ago. Today, SMU enrolls nearly 11,000 students who benefit from the academic opportunities and international reach of seven degree-granting schools. For more information see www.smu.edu.
SMU has an uplink facility located on campus for live TV, radio, or online interviews. To speak with an SMU expert or book an SMU guest in the studio, call SMU News & Communications at 214-768-7650.
To book a live or taped interview with Marie Vasek or Dr. Tyler Moore in the SMU Broadcast Studio call SMU News at 214-768-7650 or email news@smu.edu.
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To book a live or taped interview with Dr. Tyler Moore in the SMU Broadcast Studio call News and Communications at 214-768-7650 or email news@smu.edu.
To book a live or taped interview with Dr. Tyler Moore in the SMU Broadcast Studio call News and Communications at 214-768-7650 or email news@smu.edu.
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