Security firm Symantec is warning that more people may end up like Bitcoin user "Allinvain" and find their Bitcoin digital wallets pilfered by malicious hackers.

Symantec recently discovered a Trojan called Infostealer.Coinbit lurking on the Internet that locates your Bitcoin digital wallet and e-mails its contents to the bad guys: http://www.symantec.com/connect/blogs/all-your-bitcoins-are-ours
With the information contained in your Bitcoin's wallet.dat file, online thieves can easily steal your Bitcoins. And considering that, at the time of this writing, you could sell one Bitcoin for $16.39, Bitcoin thieves stand to make a tidy profit from their illegal activities.

Bitcoin (BTC) is an online digital currency traded over a peer-to-peer network. The currency uses a system of private and public keys to verify the authenticity of each transaction and transfer Bitcoin balances between users. Similar to the way e-mail encryption works, as long as someone doesn't have your private key (usually a long string of letters and numbers) no one can steal your Bitcoins.

The weak point in the system is that your Bitcoin wallet contains your private key. So once someone has your digital wallet, they also have control of your Bitcoins and can easily transfer the digital money from your account to theirs.

The worst part is you'll have to watch the thieves transfer your money to an identifiable account number, knowing there is nothing you can do about it and that you will probably never know who the thieves are. That's the nightmare scenario early Bitcoin user Allinvain recently described claiming that thieves stole 25,000 BTC (more than $400,000 based on June 17 rates) from him: http://forum.bitcoin.org/index.php?topic=16457.0
It's not clear how hackers were able to steal Allinvain's Bitcoins or if malware was used.

Bitcoins are big business right now; the network is designed to let you mint new virtual coins by having your computer solve an encryption problem. If your computer is the first to solve it, you get 50 BTC (more than $800 at June 17 rates) for your trouble. This system has sparked a virtual gold rush with reports of some users designing large numbers of computers optimized for solving Bitcoin problems. There are also mining pools where groups of people work on Bitcoin problems separately but split newly minted Bitcoins among pool members. The Bitcoin network is designed to keep generating new Bitcoins until 2040.


Stay Safe

If you're a Bitcoin user, Symantec advises you to use the option to encrypt your Bitcoin wallet. You should also use a strong password when encrypting to prevent attackers from brute forcing (guessing) your password. For details on securing your Bitcoin wallet check out the Bitcoin wiki: https://en.bitcoin.it/wiki/Securing_your_wallet

There's a lot of controversy circling around Bitcoin from its reported use as an online form of money laundering for the illicit drug trade to questions about Bitcoin's legality: http://www.observer.com/2011/06/bit-omoney-whos-behind-the-bitcoin-bubble/
Regardless, there's a lot of money to be made in trading and generating Bitcoins right now, and it looks like malicious hackers are starting to take notice.

(PCW)