Bitcoin History Part 7: The First Major Hack

[Ozark]

Hacks and heists have been a threat for as long as bitcoin has been worth stealing. By 2011, as Bitcoin was easing into its second year of life and its first bubble, early cryptocurrency exchanges were bringing liquidity and price discovery to the nascent ecosystem. At the same time, they were providing an outlet for thieves to offload stolen coins, which they proceeded to do by the thousands

No One Remembers the First Major Bitcoin Hack

Certain hacks have gone down in Bitcoin history on account of their magnitude and notoriety. Exchanges such as Mt. Gox and Coincheck are synonymous today with the record-breaking sums stolen from them, which ran into the hundreds of millions of dollars. Others, such as Bitstamp and Bitfinex, have suffered their own well-document heists, the memories of which still burn bright. The first major hack in Bitcoin’s history, however, occurred long before Bitfinex was a thing, and indeed long before most people had even heard of Bitcoin.

On June 13, 2011, Bitcointalk forum user “allinvain” posted a frantic message titled “I just got hacked.” In it, he wrote: “I am totally devastated today. I just woke up to see a very large chunk of my bitcoin balance gone.” He went on to explain: “The theft occurred right after someone broke into my slush’s pool account. In a moment of sheer stupidity I did not think that maybe my whole system was compromised. I merely thought that someone brute forced my slush’s pool password.”

25,000 BTC Gone in an Instant

Blockchain records attest to the veracity of allinvain’s claim, with the majority of the stolen coins extracted in 50 BTC increments, showing that they had been minted as coinbase rewards. The 25K BTC stolen was worth $480,000 at the time, a small fortune for a miner, even by 2011’s standards. Today, that haul of coins would be worth $94 million. Monitoring the movement of the stolen coins in the wake of the hack proved difficult because the only block explorer available at the time kept crashing.

The transaction that saw 25,000 BTC stolen in June 2011.

It appears that the thief sent the stolen BTC over to Mt. Gox to try and cash out. Anticipating the slippage of 25,000 BTC being dumped in 2011’s illiquid market, allinvain wrote: “It would suck if bitcoin price tanked because of me. God, that would be double worse for me and for everyone else.” Whoever allinvain’s hacker may have been, he was certainly prolific. “Same hacker got to my mtgox account, he converted the USD i had to bitcoins and transferred them to the same address,” complained another forum user.

Many of the opsec suggestions that forum users submitted to allinvain still hold true today. “One thing that I would advise for anyone with a large amount of BTC … is to split it up across multiple wallets, the majority of them completely offline and stored in physically secure locations,” read one recommendation.

History Repeats

“I’m an idiot for keeping a wallet.dat file with so much money on my day to day machine – especially one running windows,” rued allinvain. “This story is going to happen over and over. I guarantee that,” predicted one forum user. They were right. While the sophistication of bitcoin wallets has increased over the years, so has that of the hackers intent on plundering them. Techniques such as social engineering and SIM swapping, which weren’t widely used attack vectors in Bitcoin’s early days, have now become the norm.

Though allinvain would have had no way of knowing it at the time, for just $2,500, he could have rebought enough BTC to recoup his half a million dollar loss today, based on current prices. Victims of modern-day hacks can take solace from knowing that a simple buy and hold strategy has been empirically shown to restore the dollar value of even the most devastating of bitcoin hacks.

SOURCE

Read Bitcoin History Part 6 here.