Second Bitcoin bank folds after hackers steal virtual cash from online vault

Digital currency comes under increasing pressure as second bank says it has closed following the theft of its bitcoin reserves

PUBLISHED : Wednesday, 05 March, 2014, 9:52am
UPDATED : Wednesday, 05 March, 2014, 10:51am

A Canada-based bank specialising in bitcoins says it has closed after computer hackers stole its digital currency.

The closure of the Flexcoin bank comes just a week after the collapse of Mt Gox, a major bitcoin exchange. Tokyo-based Mt Gox also linked its demise to an electronic heist.

The twin failures of Mt Gox and Flexcoin will probably raise more doubts about bitcoin’s ability to establish itself as an alternative currency.

In a notice on Tuesday, Flexcoin says 896 bitcoins were stolen from its online vault. That translates into a loss of about US$600,000, based on bitcoin’s current trading value.

Unlike banks dealing in government-backed currencies, Flexcoin’s losses aren’t covered by deposit insurance. The Alberta, Canada, bank says it can’t recover from the setback.

Flexcoin says bitcoins stored offline remain secure.

Mt Gox, which at one time reportedly processed 80 per cent of global bitcoin transactions, sought bankruptcy protection from the Tokyo District Court earlier this month and admitted that it had lost half a billion US dollars worth of the digital currency.

A company lawyer for Mt Gox said 750,000 bitcoins belonging to customers had gone missing, along with the company’s own store of around 100,000 units. That number of bitcoins would be worth around US$575 million.

The collapse of Flexcoin comes as regulators around the world grapple with the cryptocurrency, which is generated by complex chains of interaction among a huge network of computers.

US Federal Reserve head Janet Yellen has said the Fed has no powers over a currency that only exists virtually and has no central authority behind it.

Several countries, including Russia and China, have already heavily restricted how bitcoins can be used.

The global virtual currency community was shaken by the closure of Mt Gox, which had frozen withdrawals in early February because of what the firm said was a bug in the software underpinning bitcoin that allowed hackers to pilfer them.

Supporters rallied round, insisting bitcoin itself was sound and the problems were with Mt Gox, which they said was badly managed and unable to cope with the burgeoning popularity of the young currency.

Mt Gox’s woes depressed the global value of bitcoin and the collapse of Flexcoin is likely to further undermine it.

Watch: Bitcoin user protests in front of MtGox