The Latest Bitcoin Hack Highlights a Major Problem

To bring the currency into the mainstream, investors need insurance against their money vanishing

| July 5, 2017 @ 4:56 PM

Bitcoin

For investors, the regulations for popular cryptocurrencies like Bitcoin and Ethereum mirrors the law-and-order of the Wild West — as in, there’s still plenty of safeguards that need to be put in place.

This was evident with the latest Bitcoin hacking scandal earlier this week, where 30,000 customers of Bithumb — the largest Bitcoin exchange in the world — had their data compromised. The South Korea-based exchange reported the heist to the country’s Internet and Security Agency after billions of won — an amount of the South Korean currency equal to a few million dollars — had been stolen from its customers.

This pales in comparison to other Bitcoin hacks — $450 million vanished during the infamous downfall of the Mt. Gox exchange in 2014 — but still adds another blemish to the budding industry.

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In a statement following the breach, Bithumb said it would pay hacked users ₩100,000 — or about $90 (hat tip to Google Translate). The company added “as soon as the amount of damages is confirmed, we will reimburse the entire amount.”

While it remains to be seen if Bithumb will be able to repay all of the victims, the incident shined a light on a glaring issue holding cryptocurrency back: the lack of widespread insurance against evaporating investments. Several of the largest Bitcoin exchanges don’t have a repayment policy, and there is no equivalent to the Federal Deposit Insurance Corporation, which backs US bank deposits up to $250,000.

Many Bitcoin users welcome this — the lack of regulation is part of the appeal cryptocurrencies have for many users. And to be sure, the FDIC doesn’t insure investments, and Bitcoin is just like investing in the stock market. But for Bitcoin to continue its climb, the currency needs to be ubiquitous, and this is difficult to achieve without the confidence investments are safe.

Also Read: Inside Bitcoin's Crazy Run: 4 Reasons the Digital Currency Has Surged 40 Percent in 10 Days

Major exchanges like San Francisco-based Coinbase realize this, and have put in place insurance policies to assuage its investors. For Bitcoin to truly go mainstream, more exchanges will need to implement similar policies for their hacking victims.

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