Bitcoin exchange Bitstamp suspends service after security breach

In a notice posted on the Bitstamp website, the operators said that "some of Bitstamp’s operational wallets were compromised" on Sunday, but that fewer than 19,000 bitcoins had been taken. They said that the "overwhelming majority" of the bitcoins in Bitstamp's "reserves" are "held in secure offline cold storage systems". One bitcoin is currently worth approximately £181, or $275.

Bitstamp said it takes the security and soundness of its service "very seriously".

"Upon learning of the breach, we immediately notified all customers that they should no longer make deposits to previously issued bitcoin deposit addresses," Bitstamp said. "As an additional security measure, we suspended our systems while we fully investigate the incident and actively engage with law enforcement officials."

A number of financial services industry bodies across the world have highlighted both the opportunities and threats presented to the financial system if trading in, and transacting with, digital currencies become more mainstream. The European Banking Authority previously warned that there is a risk that virtual currency can be stolen by hackers, or that platforms consumers use to store the digital assets are closed down as a result of illegal activity.

Last year, Singapore decided to regulate virtual currencies in an effort to combat money laundering and terrorism, becoming only the second country in the world to set such rules. Financial services compliance expert Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com, said that he expects virtual currencies to be placed subject to new regulatory frameworks elsewhere in the world in future. The UK Treasury is currently considering whether to regulate digital currencies.

"It is clear that virtual currency of some type will be here for a long time to come, whether this be in the guise of bitcoin or alternative currencies," Ruck said. "The risks of trading in such currency have been illustrated on a number of occasions, including the potential for hackers to steal the currency, technological difficulties relating to the trading platforms and the fluctuation in valuation of the currency."

"These risks will likely be addressed to some extent over time through technological advances and the increasing cultural acceptance of virtual currency. Whilst the advantages of virtual currency, including its speed and low cost, will result in an increase in the use of such currency this must be balanced with the risks. This will almost inevitably lead to a regulatory framework being created around the use of virtual currency."

"Whilst the international use of such a singular currency would appear to lend itself to a global regulator, the practicalities of creating such a regulator are likely insurmountable. This leads to the likely outcome of various regulators taking responsibility for trading platforms based within their geographical areas," Ruck said.

The expert said that the cost of complying with regulatory frameworks could hit trading platforms but that the upside of tighter controls could be that it would bolster "public confidence in the use of virtual currency".

"Such regulation will likely include solvency or insurance requirements, in particular to ensure that any trading platform subject to hacking has the ability to make good any losses suffered by investors or customers, as well as an authorisation and approval process for firms and individuals, codes of conduct and a focus upon cyber security," Ruck said. "Much will depend upon the ability of a regulator to illustrate its understanding of the virtual currency market, the technological challenges and how it can enhance the market without having a significant negative impact on the financial viability of the trading platforms."