Bitfinex hack could shake faith in bitcoin

Bitfinex hack could scare away future investors
Bitfinex hack could scare away future investors

The hack and cybertheft of nearly 120,000 bitcoins from the exchange platform Bitfinex could scare away future investors in the cryptocurrency, experts warn.

Bitfinex announced that it had suspended trading on the platform Tuesday and that it had discovered a security breach. In all, 119,756 bitcoins were reportedly stolen, worth $72.3 million at the price when Bitfinex suspended trade.

Bitcoin prices have plunged on the news, going as low as $514 per bitcoin. The cryptocurrency's value has risen back to $576, but this is still well below July prices.

The day after the hack, Bitfinex restored some of the platform's function, allowing users to determine their losses. However, key functions, such as trading and withdrawing bitcoins, are still disabled.

This is the latest high-profile hack to affect bitcoin. In April, around $230,000 was stolen from the trading platform ShapeShift, while Hong-Kong based Gatecoin lost more than $2 million of cryptocurrency in May. The biggest ever hack was in 2014, when Tokyo-based exchange Mt. Gox revealed $450 million worth of bitcoin was stolen.

A man talks on a mobile phone in a shop displaying a bitcoin sign in Hong Kong.
Philippe Lopez | AFP | Getty Images

Hacks such as these are likely to scare away new investment in the virtual currency.

"The core fundamental cryptographic strengths behind bitcoin remain strong but naturally events of this nature will spook potential investors," Charles Hayter, Chief Executive and Founder of cryptocurrency comparison website CryptoCompare, told CNBC via email.

"It's a reminder of the fragility of the infrastructure in such a nascent industry."

The hack also illustrates one of the main problems with investing in bitcoin; issues with security.

"Ask someone else to look after your bitcoins (through a virtual wallet) and you're trusting them like a bank. Banks spend billions on security. Stolen fiat currency leaves a trail that's hard to cover up. How much can a Bitcoin exchange spend on security?" James Lynn, U.K. managing director of blockchain payment company Billon Group, told CNBC via email.

Lynn warned that we are likely to see more bitcoin hacks, which may further undermine trust in the cryptocurrency.

"The fundamental bitcoin technology remains sound. But hackers target the weakest links - the applications on top of it. MTGox, DAO, Bitfinex. I fear we're only seeing the start of this trend, which could rock the very foundations of bitcoin value," he said.

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