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New Silk Road hit with $2.6 million heist due to known Bitcoin flaw

"Transaction malleability," which worried Mt. Gox and Bitstamp, strikes again.

Not only are Bitcoin trading sites like Bitstamp and Mt. Gox susceptible to the recent accleration of the "transaction malleability" problem, but apparently the Silk Road—or at least its newest incarnation—is too.

Is this the end for Bitcoin as we know it?
Posted by JamieBeeston.
Published 10:25, Mon 17 Feb 2014.
Viewed 127 times.
Remember that wave of fraudulent attacks sweeping the Bitcoin exchanges? It’s still going on, and this time the attackers pilfered an estimated $2.6 million worth of bitcoins from Silk Road 2, the second incarnation of the venerable online drugs-and-hitmen marketplace.

In a “I am sweating as I write this” message to the platform’s denizens, Silk Road admin Defcon conceded that everyone’s cash was gone. “I should have taken MtGox and Bitstamp’s lead and disabled withdrawals as soon as the malleability issue was reported,” he sweated. So much for escrow.

On Thursday "Defcon," one of the anonymous administrators of the Silk Road, declared ominously: "We have been hacked." (The message was later reposted in full to reddit.)
According to rough estimates by Nicholas Weaver, a computer security researcher at the International Computer Science Institute in Berkeley, California, the exploit has resulted in the site losing approximately 4,400 bitcoins, presently worth around $2.6 million, that were taken from Silk Road’s escrow account.

Weaver told Ars that he came up with that figure by writing a script that looked at all the published Bitcoin wallet addresses and transaction IDs (TXID) that Defcon published, and added up the total value.

As Defcon wrote:

Nobody is in danger, no information has been leaked, and server access was never obtained by the attacker.

Our initial investigations indicate that a vendor exploited a recently discovered vulnerability in the Bitcoin protocol known as "transaction malleability" to repeatedly withdraw coins from our system until it was completely empty.

Despite our hardening and pen-testing procedures, this attack vector was outside of penetration testing scope due to being rooted in the Bitcoin protocol itself.
A feature and a bug?

While this vulnerability has been long known since 2011, it has only recently become a notable threat to Bitcoin exchanges and sites like Silk Road that have large shared pools of transactions.
"I think that it’s not a vulnerability in Bitcoin, it’s an interaction between a mal feature in Bitcoin and how people have implemented withdrawal systems in Bitcoin," Nicholas Weaver told the Ars.

"They have a model where when you do a withdrawal it monitors the blockchain and if it doesn’t go through after a certain time it tries again. Rather than looking for the contents of the transaction it looks for the transaction ID. What the person does is they see the transaction posted and modified it slightly so the ID is different, and they broadcast that widely. They’re not fake transactions. It’s broadcasting a version of the same transactions but with a different transaction ID number. Otherwise they are identical."

"It’s the accounting system that effectively has a bug in it. Part of the reason that the transaction ID is not protected by the signature is so I could say pay 100 bitcoins to this address, and other people can add in. That’s the reason why transaction ID are not cryptographically protected. It is a feature, not necessarily a bug. I have no idea [why it’s accelerated now], apart from attacker imagination," Weaver added. "A week ago nobody thought, 'The accounting IDs may be busted, I should try changing transaction IDs and seeing if it works.' [The way to fix this is] to have automated accounting systems look to transactions not the transactions ID, then you can prevent this problem."
Source Link: gigaom.com
Comments on this
  • Pure BS... Either this SR2 site is run by utter buffoons that have no idea how to write even semi decent code or someone has used this FUD (MtGox attempt at staving off insolvency by blaming bitcoin for their own inadequacies) as cover to effectively steal all the BTC they held in their wallet. Certainly not the end of bitcoin, but perhaps the start of people taking better care of their bitcoins and avoiding sending them to anonymous 3rd parties that will only ever rip them off. Or then again, perhaps not.. idiots usually continue being idiots I guess.
    ••• Mark Castle •••
    16:23, Mon 17 Feb 2014
  • It's a real issue but I thought the timeline was SR2 was the first attack attempt before it hit MtGox. When MtGox hit, they stopped all withdrawals of Bitcoin to prevent the exploit working. The unfortunate side-effect is that it helped precipitated the biggest sell-off in Bitcoin's history.

    www.openitc.co.uk - We create, we host, we connect - Fully Managed VPS & Dedicated Hosting
    17:46, Tue 18 Feb 2014
  • Suggested further reading: http://spectrum.ieee.org/tech-talk/computing/networks/what-you-need-to-know-about-mt-gox-and-the-bitcoin-software-flaw

    I stand by what I said about you've got to have been an idiot to have allowed this issue to let all bitcoins drain away from your service without even basic checks and balances.... or more likely you stole the coins yourself and walked away with a big wedge of customers bitcoins - the latter is more likely I would suggest where SR2 is concerned.

    As for Gox.. well... lets all see come Thursday then shall we... could well be meltdown day if the re-enable withdrawals. I guess it will be with very big restrictions to avoid a "run"
    ••• Mark Castle •••
    18:03, Tue 18 Feb 2014
  • I'm not arguing against any of your points - I agree, you'd have to be pretty stupid to be paying out without checks and balances in place.

    As for whether fraud was the real reason for SR2, I'm not so sure. I can imagine the person who set it up was either going to make a long term investment out of it or they had planned to defraud everyone from the start so the exploit was just a convenience.

    www.openitc.co.uk - We create, we host, we connect - Fully Managed VPS & Dedicated Hosting
    23:26, Tue 18 Feb 2014
  • Well, this is not a 'new flaw' but a well known issue, and any organisation relying on TXID's (or anything potentially reusable/resendable) for handling a 3rd-parties' money is clearly deliberately negligent.

    As to whether SR2 really has been 'done' or as is more-often the case in Anonymous Bitcoin services, simply 'done-a-runner' with all the money is debatable ...

    The coinlenders 'hack' was simple theft by the operator
    The inputs.io 'hack' was theft by the operator
    And dozens of others on bitcointalk claiming 'hack' have all just been theft by the operators
    This SR2 issue sounds like more-of-the-same

    Whether anyone who lost out learns to look after their cash better remains to be seen, as all the evidence points to Darwin being incorrect !
    02:26, Wed 19 Feb 2014
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