Malware Theft of Bitcoins a False Flag to Discredit Revolutionary Currency?

Breaking News! A man leaves wallet unattended, it gets stolen. Senate to ban wallets to protect citizens from theft.

This is the boring story of some dude who got jacked because he forgot to lock his door. The interesting part has to do with what got stolen and who, besides the thief, may benefit from such an event. I’m referring to the recently hyped Bitcoin heist of $500K-worth of BTC by malware that reportedly harvests private passwords in personal computers.

I don’t mean to be callous to the victim. I have little doubt that this was a genuine robbery to a well-meaning guy. The victim is a long-time contributor and passionate early promoter of Bitcoins on its official forum where he announced the “hack” with devastation and regret:

I am totally devastated today. I just woke up to see a very large chunk of my bitcoin balance gone to the following address…

If only the wallet file was encrypted on the HD. I do feel like this is my fault for not moving that money to a separate non windows computer. I backed up my wallet.dat file religiously and encrypted it but that does not do me much good when someone or some trojan or something had direct access to my computer somehow.

The threat was confirmed by Symantec, operator of Norton AntiVirus, who tracked down the malware code that was used and claimed we can expect more hackers will get in on the action because of Bitcoin’s growing popularity and value:

“We expect that code similar to the techniques described above will find a way into other malware considering the amount of attention this sort of attack is currently receiving and with the amount of Bitcoins currently available for purchase.”

It’s not the validity of the event that I question, it’s the curious timing in an ominous news cycle for Bitcoin. What was once a fringe “underground” currency only known to open-source geeks has now stormed the mainstream media in dramatic fashion, not least because of extensive coverage by the alternative media. What’s interesting about the coverage of the Bitcoin is its rapid decent from clear and sunny to treacherously cloudy in the blink of an eye. Well, more like three weeks, but breathtakingly fast nonetheless.

Bitcoin was introduced somewhat slowly with a sudden surge in interest coming in late May. It’s construct of peer-to-peer anonymous trade quickly became glorified as “revolutionary.” So much so that it prompted an immediate response from some U.S. Senators seeking to “crack down” on it. Next came reports of wild fluctuations in value to expose Bitcoin’s vulnerabilities. And, finally, the mother of all bombs, there’s a confirmed hack attack on the supposedly impenetrable Bitcoin technology causing a “collapse” of one Bitcoin exchange. Below is a selection from the numerous recent articles to illustrate how quickly the storm clouds gathered around Bitcoin:

Date — Title — Source

May 19th — What is Bitcoin? — Gizmodo

May 25th — What Bitcoin Is, and Why It Matters — MIT’s Technology Review

May 26th — BitCoin Digital Currency: Financial Revolution or Doomed to Fail? — 40Tech
June 1st — The Underground Website Where You Can Buy Any Drug Imaginable — Gawker
June 1st — Bitcoin and The End of State-Controlled Money (Video) — ReasonTV
June 3rd — Decentralized Currency Stimulating Underground Barter Economy — Activist Post
June 8th — Max Keiser: Is Bitcoin the Resistance Currency? — Max Keiser
June 9th — Senators seek crackdown on “Bitcoin” currency — Reuters
June 10th — Bitcoin Triples Again — Smart Money
June 10th — Digital Black Friday: First Bitcoin “Depression” Hits — Daily Tech
June 16th — New Malware Steals Your Bitcoin — Wired
June 20th — Bitcoin Exchange Collapses Due to Compromised Account — TechCrunch

In short, Bitcoin went from being introduced to the public, to hailed as a savior of failed centralized banking and debt-based money, to being thoroughly discredited in less than a month. Does that seem strange to anyone but me? It seems that just the idea of peer-to-peer anonymous digital currency — if as advertised by MIT and others — is potentially a major threat to the banskter’s monopoly on money and the state’s ability to vampire the taxes from online transactions.

To qualify my paranoia, I have no doubt that your everyday thief has plenty of motivation for scoring a big payday, yet there is also enough evidence to speculate that very powerful interests have a vested interest in discrediting the Bitcoin. And this high-profile theft has certainly crippled Bitcoin’s credibility; and the person least likely to benefit is the guy who just stole a half-a-million dollar’s worth of it. Therefore, the thief had to know his booty would lose tremendous value in light of the security compromise. Hence, the stronger motivation has prevailed; the message being that Bitcoin — or anything like it — is not to be trusted.

Yet, as mentioned above, the victim admitted in his own words that he regretfully forgot to lock his door. Not that the house is not secure. In fact, Symantec labeled the malware a “Risk Level 1: Very Low,” and suggested the following simple recommendation to protect Bitcoin wallets against such attacks:

If you use Bitcoins, you have the option to encrypt your wallet and we recommend that you choose a strong password for this in the event that an attacker is attempting to brute-force your wallet open.

So, ultimately, this story is much ado about nothing, but it appears to have carried the desired impact of collapsing the public’s interest in Bitcoin. The opponents of Bitcoin will now argue that “anonymity” is a problem, because it can’t track the perpetrator, while they also may have solved their “decentralized” problem. Die-hard Bitcoin supporters will now likely be more inclined to store their wallet in a “secure” central location online like InstaWallet or MyBitcoin, which will probably be bought up by Goldman Sachs when all the sheep have been corralled.

However, I’m still hopeful that as the world awakens to their servitude to the criminal central bankers and seeks to innovate alternatives, coupled with the appeal of a decentralized anonymous currency armed with an open-source code, more impregnable advancements in such mediums of exchange will become available. But in the meantime, it appears there will be manufactured roadblocks on the path to freedom.