Bitomat Loses Data and MyBitCoin Shuts down -- New Bitcoin Crisis?

Poland-based bitcoin escrow service Bitomat has lost all wallet data -- meaning people's bitcoins -- due to a system failure July 26 and is now up for sale for 17K bitcoins, Bitomat founder Bartek Shabbat revealed on Sunday. In addition, bitcoin wallet site mybitcoin.com became inaccessible July 29 and appears to have disappeared, taking user's bitcoins with it.

There are no estimates as to how many bitcoins, an open-source, virtual currency that has no central authority, may have been lost on each site (more background on bitcoin in this LAUNCH article).

In a translation from Polish posted to Hacker News, Bartek says, "On 26 July 2011 at about 23:00, I noticed that absorbs all Bitcoin server machine resources, and probably not used for making. So there was need to increase the amount of RAM in the server. As a result of that procedure - suddenly the whole virtual machine has been erased, all data stored on the server has been lost."

Comments on Hacker News have noted that Bartek likely caused the failure due to a lack of understanding and is seeking a third party to blame. Bitomat was a one-man operation that launched in April 2011 according to the bitcoin wiki.

Numerous people complained about MyBitCoin over the last month in the Bitcoin Forum saying the site had stolen small amounts of bitcoins from them and appeared to be "sketchy." The site is registered to a "Tom Williams" at a P.O. box in St. Kitts and Nevis.

The value of bitcoins dropped dramatically June 19 after bitcoin exchange MtGox confirmed that a hacker had broken into its database and attempted to convert stolen bitcoins into dollars.

Gavin Andresen, founder and CEO of Clearwing Software and a Bitcoin project developer, said by email that he had a few bitcoins stored at MyBitCoin. "I hope they are just temporarily unavailable and not permanently lost."

Gavin said bitcoins need better regulation mechanisms and better technology for securing them but both will take time. "Bitcoin needs time to grow up, which is why I have been consistent in saying that you should treat any money or time you invest in bitcoin like you would any other high-tech startup-- it is risky. Trusting third-party services that are also startups is doubly risky."

Amir Taaki of Bitcoin Consultancy, the largest U.K. bitcoin exchange, said by email their site has not suffered a major attack or problem "beyond minor human error." He added that his company is working with the U.K. Financial Services Authority to have the business regulated.

Amir told LAUNCH, "Bitcoin exchanges cannot continue running on the black market what with all the scandals we've been seeing. This needs to be an operation run by real organizations working full-time with the expertise."

As of July 31, 1 bitcoin was valued at $13.35 on MtGox.


FURTHER READING

1. Bitcoin will recover from hack losses, claims developer (ComputerWeekly, June 22, 2011)

2. Bitcoin episode of This Week in Startups (May 10, 2011)