Million-dollar robbery rocks Bitcoin exchange

Bitcoin Internet Payment Services, a Denmark-based exchange billing itself as Europe's biggest, was robbed of bitcoins worth more than $1 million in a theft that took place over the course of the past several days.

Bitcoins are a decentralized digital currency generated by computers "mining" for the solutions to complex math problems, and authenticated on a peer-to-peer basis not by a central banking authority. It's the third major heist this month about $1.4 million worth was stolen several weeks ago from an anonymous Australian who ran an online wallet service known as Inputs.io, and a Chinese exchange abruptly vanished two weeks ago, taking more than $4 million with it.

[MORE BITCOIN:Online gaming company settles complaint over secret bitcoin mining]

Smaller thefts, which affected consumer exchanges in the Czech Republic and Poland, have also taken place this month.

In the latest incident, BIPS was apparently targeted by a distributed denial-of-service attack earlier this month. A follow-up attack, according to bitcoin news site Coindesk, subsequently knocked out key security systems and allowed the thieves to make off with 1,295 BTC.

In response to the incident, BIPS said in a statement that it was forced to pull the consumer payments functionality of its services off-line, and warned users that they would have to transfer any balances to a different wallet service.

"BIPS will temporarily close down the wallet initiative to focus on real-time merchant processing business which does not include storing of Bitcoins," the statement said, adding that BIPS will attempt to re-open its consumer wallet service with improved security measures in the future.

BIPS customers aren't happy with the exchange's response to the incident. Many have taken to the Bitcointalk forums to accuse BIPS' leadership of carelessness and, in several cases, hinted at actual malfeasance. One user, who says he or she lost 90 BTC (about $71,000, at the time of this writing), has created an online form so that others can sign up to be part of possible legal action against BIPS.

Bitcoins, thanks to their general anonymity and lack of centralized regulation, have become popular among illegal users, who can use it as a convenient medium of exchange for illicit goods or services. Huge price spikes have driven the value of a bitcoin to more than $750, making the crypto-currency an attractive target for unscrupulous hackers.

Email Jon Gold at jgold@nww.com and follow him on Twitter at @NWWJonGold.

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