There’s no shortage of money being thrown at digital currency Bitcoin. Last week, Bitcoin wallet startup Coinbase scored $5 million in funding. And this week, both Boost.VC and Liberty City Ventures allocated more funding for Bitcoin-focused startups.

Now relatively young Bitcoin startup BitPay has announced it has raised $2 million more in funding to lead the market in Bitcoin payment processing. This follows a $510,000 seed round it raised in January.

BitPay specializes in e-commerce, B2B, and enterprise solutions for Bitcoin, and it claims processing fees as low as 1 percent with no setup fees. It signed up more than 1,900 new merchants in April, and it claims to sign up about 100 new merchants per day at this point.

The new funding was led by Founders Fund, the fund behind the so-called “PayPal Mafia.”

“We were not looking to raise any capital until later this year, but we could not ignore the opportunity to have Founders Fund involved with BitPay,” BitPay CEO and cofounder Tony Gallippi said in a statement. “There’s no single investment firm we would rather have on our team right now than Founders Fund.”

Also on the round is Max Keiser’s fund Heisenberg Capital, a London-based fund targeting Bitcoin-focused companies.

Bitcoin artwork via Deviantart

Back in late February, top Bitcoin exchange Mt. Gox struck a deal to let Seattle startup CoinLab handle its U.S. operations. But now what looked like it would be a beautiful friendship has turned into an ugly mess.

CoinLab is suing Mt. Gox for $75 million over failure to give CoinLab exclusive access to Bitcoin account information and to maintain an exclusive partnership. “Defendants have breached the exclusivity provisions of the Agreement by directly servicing customers in the United States and Canada since the Agreement took effect,” the lawsuit says.

The original purpose of the partnership was to give Japan-based Mt. Gox better reach into the United States market. With backing from Silicon Valley Bank, CoinLab planned to give institutional investors and wealthy individuals a way to buy and sell large amounts of Bitcoin on a platform that was safer than any other.

CoinLab CEO Peter Vessenes said in an open letter that Bitcoin buyers have lost a lot of money due to Mt. Gox’s technical difficulties and other issues in the Bitcoin system. He’s been extremely frustrated and even told us a few weeks ago that technical stability couldn’t come to Mt. Gox “soon enough.”

While these technical difficulties have frustrated him, what forced his hand was that Mt. Gox had not delivered passwords, Yubikeys, administrative logins, and other security information that was needed to facilitate U.S.-based transactions. Vessenes writes in his letter:

When we spun up our initial alpha customers, they included companies that from one perspective could reasonably be deemed to be our competitors, some of the best companies in our space. We worked extremely hard to provide them great service, because I want to build our ecosystem; I want a robust economy and a broad base of service and product for everyone.

What tipped us into filing was our complete inability to get Mt. Gox to deliver on the few simple things left that were needed for customers to move over en-masse; we were often left just apologizing to our alpha customers while their own businesses suffered. I’m just not willing to put any of our customers in that position — if we can’t do a good job for you, I won’t promise that we can.

What I hope is that Mt. Gox has this same interest in the good of Bitcoin, and Bitcoiners, and finds a way to work this out.

Check out the lawsuit documents below via Gawker.

Bitcoin screenshot via Duncan Elms/Vimeo

Players cheat all the time in online video games. To prevent that, some join semi-professional e-sports leagues, like the E-sports Entertainment Association (ESEA). The ESEA is a centralized league that forces all players to install its proprietary software that prevents players from cheating in popular competitive titles like Counter-Strike and League of Legends.

The ESEA is the referees of the Internet. Ah, but who referees the referees?

That question came up when one member of the ESEA discovered that one of the company’s employees covertly installed software to mine Bitcoins, as PC Games N reported earlier today. That player, Enjoy ESEA Sheep, reported to other members that he discovered ESEA’s software was using his GPU to run intense programs even when he wasn’t playing games.

“On April 13, 2013, after the initial tests, ESEA informed those involved in the test that we were killing the project and they should stop using the beta test,” ESEA co-founder C.L. Torbull said in a statement to members. It came to our attention last night, however, that an employee who was involved in the test has been using the test code for his own personal gain since April 13, 2013.”

Torbull says this employee acted alone without authorization from the company but using company assets.

“We are extremely disappointed and concerned by the unauthorized actions of this individual,” wrote Torbull. “As of this morning, ESEA has made sure that all Bitcoin mining has stopped. ESEA is also in the process of taking all necessary steps internally to ensure that nothing like this ever happens again.”

Bitcoins are a virtual currency that some online merchants accept as payment. It’s more like gold than cash, since its designers created Bitcoins with a finite number of units. That makes each Bitcoin extremely valuable. Currently, one Bitcoin trades for nearly $140.

Bitcoin transactions require confirmation. That means each person trying to pay for something in Bitcoins must pay a transaction fee to outside individuals that run Bitcoin server nodes, often referred to as Bitcoin miners. This authentication process requires those servers to decode an incredibly complex mathematical encryption. These encryptions require serious processing power, but the more a person decrypts, the more Bitcoins they stand to earn.

The company mined a total of $3,713.55 worth of Bitcoins before players noticed what was going on.

Earlier this afternoon, the ESEA posted a statement about the fiasco. The company admitted it was testing Bitcoin mining as a potential new product for its members. As part of those tests, it installed the code on to two admin accounts. Eventually, ESEA executives decided against implementing the code on a wide scale.

This sort of networked Bitcoin mining happens legitimately all the time. Many people can network their PCs together to decode the Bitcoin data, and then they all share the digital spoils. The ESEA was covertly worming this software on its customers’ computers, which is a major breach of trust.

In an effort to make amends with its community, ESEA will donate $7,427.10 to the American Cancer Society. That includes the $3,713.55 from the Bitcoin funds and a matching contribution from the ESEA itself. Additionally, the company will also increase the prize pot for its upcoming competitive season by $3,713.55.

This is all very different from what ESEA’s other co-founder, Eric Thunberg, was telling users last night. He wrote on the  company’s forums that the Bitcoin mining software started as a joke.

“Back toward the end of march, as [Bitcoin] was skyrocketing, [fellow ESEA employee Sean "Jaguar" H.] and I were talking about how cool it would be if we could use massive amounts of GPUs logged into the client to mine [Bitcoins],” he wrote. “We went back and forth about it, considered doing something for April Fools’ — didn’t get it done in time — and eventually elected to put some test code in the client and try it on a few admin accounts, ours included.”

Thunberg said they decided to pull the plug on the idea to avoid the “drama. He guessed that the code must have accidentally slipped out during a server restart. He promised to add the acquired money to the upcoming tournament, but he didn’t say much else.

Angry ESEA members didn’t let it go. Some even claimed that the mining program kept their GPUs running at dangerous temperatures for days. Many are claiming their video cards are now suffering errors due to heat damage.

Thunberg didn’t respond to those claims, but Torbull invited anyone who experienced physical damage to open a support ticket.

We’ve reached out to Torbull, who seems in charge of the situation, about who it was that initiated the Bitcoin-mining tool and whether he plans to press charges. We will update with his response.

As for the future of the ESEA, it’s clear this situation had the potential to do a lot of damage to the company’s reputation. Torbull seems to finally be getting out in front of it.

“As a team, we work hard to create cool things and we’ve worked even harder to consistently do things the right way,” wrote Torbull. “While it’s incredibly disturbing and disappointing that this happened, we’re committed to improving ourselves and rebuilding trust with our community.”

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Prominent entrepreneur and Andreessen Horowitz investor Chris Dixon is known for being ahead of the curve, and he recently attracted headlines for investing in 3D-printing startup Shapeways. Another upcoming area he thinks will be big: Startups focused on the virtual currency Bitcoin.

“You had a first wave of Bitcoin startups,” Dixon said today on stage at TechCrunch Disrupt NY. “Now what we’re seeing is that some of the best startup guys are looking at it. There will be a second wave.”

Dixon likes Bitcoin so much because the virtual currency lowers the friction of payments, especially on an international scale. Another reason is that, in some regards, it philosophically matches the early promise of an anonymous Internet.

“You can pay someone without them trusting you,” Dixon said. “The exciting thing about these new currency schemes is you have an anonymous payment system grafted on to an anonymous network.”

The first wave of Bitcoin startups are companies like Coinbase, Coinlab, and Tradehill. These types of companies are focused on helping people trade Bitcoins and exchange them for cash.

Dixon has only been a partner at Andreessen Horowitz for five months, but it’s easy to imagine him and his firm investing in the next wave of Bitcoin startups.

“A lot of people in California are so excited about Bitcoin because there has been a lot of frustration around finance,” Dixon said. “You see what happens on Wall St. It’s very corrupt. … Finally something interesting is happening in financial tech stuff.”

Photo via Sean Ludwig/VentureBeat

For the third time this month, Bitcoin exchange Mt. Gox fell to distributed denial of service attacks (DDoS) today. Some people just aren’t down with alternative currencies, it seems.

The company wrote on its Facebook:

This again appears to be another strong DDoS attack. We are working hard to overcome it and will update when possible. It’s currently 2am in Japan so please forgive us if our Facebook/Twitter updates are not as quick, though the team is certainly not taking any breaks.

Bitcoin is a decentralized Internet currency that has earned much more legitimacy in the last year. Mt. Gox acts as the main marketplace for Bitcoin, but the exchange has been known for its hiccups in times of heavy traffic. Indeed, Bitcoin’s price often fluctuates after Mt. Gox performance issues. Most recently Bitcoins fell 40 percent from $260 per Bitcoin when Mt. Gox went silent in a previous DDoS attack.

It seems the attacks started around 7:40 this morning Pacific time. The company says it is trying to implement stronger protections against these attacks. At the time of writing this post, Mt. Gox looks to be up and functional, though no further updates have come from the company.

Bitcoin’s relevancy may be more influenced by Mt. Gox than we think, says VentureBeat’s Sean Ludwig. Mt. Gox will need to get stronger and more reliable before Bitcoins can really make their place in the world.

hat tip The Next Web; Bitcoin image via zcopley/Flickr

Bitcoin users are probably the last people who would be into online dating — but don’t tell that to OkCupid.

The online dating site has become the latest company to accept the controversial digital currency, which users can use to pay for OkCupid’s $10 per-month A-List service. And it doesn’t make much sense.

Think of it this way: So far, one of Bitcoin’s most oft-praised features is its ability to be used to pay for things — both legal and not — anonymously.

Bitcoin + OkCupid = ????

But folks willing to do their dating online fall on the complete opposite end of the spectrum, privacy-wise.

Cognitive dissonance aside, OkCupid’s adoption of Bitcoin is yet another sign that the currency is reaching a critical mass. Companies like Expensify, Reddit, and WordPress are already accepting Bitcoin, so it doesn’t seem as if it will be particularly long until we’re able to use the currency to pay for just about everything.

That’s OkCupid co-founder Sam Yagan’s take on the matter.

“All of the OkCupid founders, including myself, believe that a digital currency will become mainstream at some point, and we want to be one of the first companies that accept Bitcoin when it is no longer a niche concept, but a standard transactional process,” he told VentureBeat via email.

Let’s just hope Bitcoin doesn’t completely tank before that happens.

After wild swings during the past week, prices for virtual currency Bitcoin appear to have finally stabilized at about $100 per Bitcoin on top exchange Mt. Gox.

Bitcoin is a virtual, decentralized currency that has seen a lot of attention in recent months. The price of a single Bitcoin hit about $260 early on Wednesday but dropped by more than $100 in a matter of hours that same day. After that, the market has been chaotic, with people trying to sell their holdings and others trying to scoop up Bitcoins at lower prices. Mt. Gox even halted trading Thursday to upgrade its servers and let the market “cool down.”

Now prices have settled at about $100 over the past few days. This is a far cry from the $260 high, but it could be an attractive price for anyone who believes in Bitcoin’s long-term legitimacy.

As we wrote Thursday, Mt. Gox is now the largest hurdle for Bitcoin’s legitimacy. Mt. Gox facilitates around 70 percent of Bitcoin trades, but it has not been able to meet the demand of users suddenly interested in Bitcoin. Significant issues with lag on Mt. Gox and distributed-denial-of-service (DDoS) attacks on the exchange contributed to the massive price drop this past week.

“The core architecture of Bitcoin has proved resilient,” ConvergEx Group chief market strategist Nicholas Colas told us Thursday. “That core works fine. The periphery is not so sound. Exchanges [like Mt. Gox] and wallets fall into that category.”

Check out prices on Mt. Gox during the past few days in the chart below.

Smooth sailing picture via marinart1/Shutterstock
Bitcoin chart via BitcoinCharts.com

Leading Bitcoin exchange Mt. Gox has been knocked offline in another distributed-denial-of-service (DDoS) attack just hours after the exchange re-opened following a huge Bitcoin price decline.

“We are experiencing a stronger than usual DDoS,” Mt. Gox wrote on its Facebook page. “We are working [on] it.”

Mt. Gox is vital to the Bitcoin ecosystem, but it is also currently the biggest hurdle to Bitcoin’s legitimacy. About 70 percent of Bitcoin trades are processed by Mt. Gox, and Bitcoin prices are mostly measured from Mt. Gox’s market price. More than 20,000 new accounts are now signing up for Mt. Gox accounts daily. Yet it has trouble processing trades during high-activity periods.

The exchange voluntarily shut down for 12 hours on Thursday after a particularly bad Wednesday, when the price of Bitcoin collapsed more than 40 percent in six hours. Mt. Gox said it would use this downtime to add more servers that would better handle traffic and reduce transaction lag time. It also wanted the downtime to serve as a period of “cool off” for investors who might have been panicked from the stunning price drops.

Mt. Gox has been the subject of crippling DDoS attacks before and just last week a DDoS attack took the site offline, which helped push prices downward. Bitcoin prices did eventually recover last week, but those gains were wiped out with Wednesday’s massive decline.

Hacker image via ollyy/Shutterstock

Interest in the virtual currency Bitcoin has surged in recent months, and the price has been rising rapidly to match the chatter. But yesterday, a trap door opened, and many Bitcoin investors fell through, with prices dropping more than 40 percent in just six hours.

Many Bitcoin holders blame the price drop on Mt. Gox, the largest Bitcoin exchange. Mt. Gox facilitates about 70 percent of trades for Bitcoin, and as such, it plays an important role in the market. But yesterday, Mt. Gox suffered serious lags in trading — as much as two hours could go by before it processed a trade — and the market collapsed from fear, miscommunication, and speculators looking to get out before the price went down too much. The price of one Bitcoin is now $120 on Mt. Gox, a galaxy away from yesterday’s high of $260.

Mt. Gox announced earlier today that it would halt trading for 12 hours, and the market should reopen at 7 p.m. Pacific tonight. During these 12 hours, the exchange said it would install additional servers to make trading more fluid and reduce lag time.

But let’s step back before today’s developments. Where the heck did Mt. Gox come from, how did it become so important, and why is it getting so much blame?

What is Mt. Gox?

Mt. Gox originally stood for “Magic: The Gathering Online eXchange,” and as you might guess, yes, Mt. Gox was first an online marketplace for the buying and selling of Magic: The Gathering cards. But that business didn’t last long, and it pivoted to a marketplace for buying and selling of Bitcoins in July 2010. Then, in March 2011, the founder sold the company to Japan’s Tibanne Co., which still operates Mt. Gox.

People sign up for accounts on Mt. Gox and move money from their bank accounts to the service. After the money goes through, they can use their credit on Gox to buy and sell Bitcoins. More than 20,000 new accounts are being created a day, and Mt. Gox said that in the past few days, the number of transactions it processes has “tripled.”

Tibanne has a data center in Japan that processes all Mt. Gox trades. The company is adding more servers as of this writing to give the trading platform more bandwidth.

Mt. Gox has partners that will eventually take some of the server load. CoinLab, a Seattle-based startup, recently announced that it had struck a deal to be the largest North American partner for Mt. Gox and eventually would handle all U.S. transactions. CoinLab CEO Peter Vessenes told me that the initial plan was to have the transition completed in two years, but he “hopes” it will be sooner than that.

Why is Mt. Gox so important?

Mt. Gox is incredibly important to the Bitcoin economy because it serves as one of most reliable ways to buy and sell your Bitcoin holdings. It is also the most reliable place to look if you want to know the price of a single Bitcoin.

“Think of it as an interface for Bitcoin between the virtual world and the real world,” ConvergEx Group chief market strategist Nicholas Colas told me. “In many ways, Gox is the ATM of the Bitcoin system.”

Once people have Bitcoins, you can do a lot with them: digitally pay friends without fees that you’d find on PayPal, purchase illegal drugs, or buy pizza. Legitimate businesses including Reddit, Expensify, and Heyzap all recently added Bitcoin support, so there is promising movement to make Bitcoin more than an Internet fad.

That’s fine and dandy, but much of the Bitcoin market is about speculation. There are a finite amount of Bitcoins that will ever be created (21 million) by Bitcoin “miners,” so a lot of folks want to get hold of them and let the price rise. Some folks believe the price will continue to grow quite a bit over time, even with horrifying corrections like the one we saw yesterday.

So, for speculation to occur and for people to sell their holdings when they feel comfortable, there needs to be a stable place in which to do this. Mt. Gox has been that place for a while, but with the flurry of activity as of late, more people than ever want to buy in. Mt. Gox hasn’t been able to keep up.

Why is Mt. Gox to blame?

Because Mt. Gox is such an important player in the marketplace and presides over the majority of trades, it needs to be a stable instrument. Any electronic service in which people are trading money for goods is expected to have a relatively quick transaction time. But it’s been far from stable in recent weeks.

“The core architecture of Bitcoin has proved resilient,” Colas said. “That core works fine. The periphery is not so sound. Exchanges [like Mt. Gox] and wallets fall into that category.”

Mt. Gox has been subject to distributed-denial-of-service (DDoS) attacks recently, and these took the exchange down. And now today, trading has been suspended to add more bandwidth. Think about this: Could you imagine the Nasdaq exchange having “an outage?” It would make investors lose their minds.

CoinLab’s Vessenes said he understands the frustration and has had an “emotional” response to the latest bits of news. But he expects the servers being added today will provide an “incremental improvement” to trading and add more stability.

What now?

Mt. Gox said it would open trading back up at 7 p.m. Pacific. There’s no way to know if the price will continue dropping or if investors who believe in Bitcoin for the long term might jump in and drive the price back up.

But opening on time is critically important, and if Mt. Gox does not, confidence in Bitcoin will be shaken, Colas said.

Long term, Mt. Gox will likely continue to be the largest Bitcoin exchange. But it will need to make some changes if it wants to get rid of its reputation as the weakest link in the Bitcoin ecosystem.

Vessenes said Mt. Gox will “need a new trade architecture,” but he wouldn’t put a timeline on when that would be implemented. And at some point in the next two years, his company will handle all U.S.-based Mt. Gox transactions, which will take some of the strain off Mt. Gox’s servers.

When I asked directly when he expected the new trade architecture to be installed, Vessenes responded: “Not soon enough.”

Market exchange photo via SergeyP/Shutterstock
Bitcoin graphic via Duncan Elms/Vimeo
Other screenshots via Sean Ludwig/VentureBeat

OpenCoin is a startup building a simple, global, open currency system. Today, the company announced it has an angel round of funding to expand the Ripple protocol, a virtual currency and payments system that allows “anyone in the world to trade any amount of money in any currency.”

“Our world has moved into a digital era, and it is time that we embrace a digital currency that can accommodate today’s global commerce needs while laying the groundwork for future evolution,” said OpenCoin CTO Jed McCaleb in a statement. “Now, wherever there is Internet, there is Ripple. The future is here.”

Ripples are a virtual currency. The Ripple network is a decentralized, open source, peer-to-peer payment network that enables free payments to merchants, consumers, and developers in any currency. According to the site, Ripple was invented by Bitcoin enthusiasts to update money for the Internet era. The system does not require ACH, banks, or credit card networks, and transactions are confirmed within seconds, there are no restrictions, minimum fees, or penalties, and the fees are “freeish,” at $0.0001 per transaction.

Money is digital and basically a number associated with an account that goes up and down depending on activity. Money is also often distributed across multiple accounts that require time, fees, and passwords to exchange. Since all the information on Ripple is kept within Ripple, it can avoid “the costs, delays, and inconveniences of system-hopping.” Money goes in and out of Ripple through the ‘Ripple gateway,’ which acts as a bridge to the outside economy. At the center is ‘The Ledger,’ which tracks every transaction, account, and balance.

Bitcoin has made the nature of currency, wealth, and trading a hot button discussion topic as the value of this purely electronic, nationless currency goes up and down, with the entire tech community breathlessly following its fluctuation. Bitcoins are not the only volatile forms of currency, however, as the Euro crisis has shown. Whether it is Bitcoin, US dollars, Japanese yen, or Euros, Ripple has created a hub at the center to simplify their exchange.

OpenCoin was founded by Chris Larsen, who founded E-LOAN and Prosper, and McCaleb, who worked on eDonkey and Bitcoin Exchange Mt. Gox. Andreessen Horowitz, FF Angel IV, Lightspeed Venture Partners, Vast Ventures, and Bitcoin Opportunity Fund participated in this round.

Photo Credit: mtsofan/Flickr

Top Bitcoin exchange Mt. Gox, which facilitates more than 70 percent of trades of the currency, has halted trading for 12 hours following a gigantic decline in Bitcoin prices.

The price of a Bitcoin on Mt. Gox as of this report is $120, a dramatic drop from a high of $260 yesterday. On Wednesday, Bitcoin prices dropped from $260 to about $150 in a matter of a hours. The price rebounded briefly, but then dropped again this morning.

This has led Mt. Gox to take action, and it has halted trading for 12 hours. Trading will resume at 7 p.m. Pacific time. Mt. Gox writes in a short update:

Market Cooldown for 12 hours

Orders will not be accepted for the moment as we need to upgrade our database to accommodate the trading volume. However, you may still cancel your pending and open orders. Trading will resume at 11.00 am JST. Our apologies for the inconvenience caused and thank you for your patience while we work to resolve this issue.

Just before halting trades, Mt. Gox also issued an update outlining how popular the service has been the past few days. It said that the number of trades executed in the past 24 hours had tripled and the number of new accounts opened each day now sits at 20,000.

The substantial increase in Bitcoin trading has put a spotlight on Mt. Gox because it controls so much of the day-to-day Bitcoin trades. The service has been subject to much criticism for not being prepared for the influx of new traders and for increasing lag time on trades. It also has faced distributed-denial-of-service (DDoS) attacks from people looking to destabilize the market and buy Bitcoins for cheap.

Check out the crazy fluctuation of Bitcoin prices over the past few days in the chart below.

Bitcoin image via zcopley/Flickr

Virtual currency Bitcoin has seen a massive rise in prices in the past few week, but today that growth halted with a precipitous price decline of more than $100.

Bitcoin is a decentralized digital currency that has seen a lot of momentum over several months, most of which is likely due to price speculation rather than actual use of Bitcoins. (If you want to know more about the basics of Bitcoin, check out this video.)

Bitcoin prices soared this past week and hit a high of about $260 early this morning. As of this writing, a single Bitcoin is now worth about $150 on the Mt. Gox exchange, an astounding decline.

The cause of the decline isn’t attributable to a single event, but many believe this was an inevitable “downward correction” that stemmed from the price rising too quickly. Too many speculators aiming to sell at the first sign of a large price drop was a perfect combination for what has happened today.

Some Reddit users are also claiming that Mt. Gox is suffering from significant lag time and potential distributed denial of service (DDoS) attacks, which has led to a destabilization of the market.

Check out the chart below to see Bitcoin’s fall today versus its rise this past week:

Bitcoin image via *carbonism/Devinantart
Chart via Clark Moody

The virtual currency Bitcoin is hot. In the past week, the price of a single Bitcoin has more than doubled and currently sits at about $240 on Mt. Gox, the largest Bitcoin exchange.

If you’re new to Bitcoin, you’ve probably got a lot of questions. How does it work? Who controls it? Where do I buy Bitcoins? Is it safe?

Luckily, the 3.5 minute video above is a great place to start. While the video doesn’t go into much detail on how to create Bitcoins through “mining” or how to store Bitcoins in a digital wallet, it at least offers a handy overview.

If you’re still hungry for more after watching the video, here are a few other resources to help you get in the know:

• 15-part video series on Bitcoin from CBT Nuggets
• Short video introduction to mining Bitcoins

It’s been a great past few weeks if you’re a holder (or hoarder) of Bitcoins. The value of a single Bitcoin surpassed $200 today on the Mt. Gox exchange, yet another impressive milestone for the virtual currency.

Bitcoin is an unregulated, decentralized currency and people can use it to make international monetary transfers that are free, instantaneous, and hard to trace. One might think the currency would be relegated to criminals and hackers, but it has gained a higher profile thanks to media coverage (ours included) and because many legitimate businesses, including Reddit and Expensify, have recently started accepting Bitcoin as a payment option.

Bitcoin prices have seen an unbelievable rise in the last two months, with the price of a single Bitcoin hitting $100 only eight days ago. As of this writing, Bitcoin prices are sitting at about $217, having crossed the $200 threshold early this morning. In January, the currency was trading at just $15 a pop.

While the quick price increases indicate a larger interest in Bitcoin, they also could indicate a massive bubble. Research from Quartz supports the notion that many Bitcoin holders have simply been hoarding them and intend to sell them after hitting a certain price or when confidence busts. Bitcoin prices also experienced a bubble in June 2011, and at that time, the value hit about $30 per Bitcoin and then prices plummeted to the low single digits where they stayed for more than a year.

Check out the fast rise of Bitcoin prices during the past two months in the chart below:

Bitcoin image via Deviantart
Bitcoin chart via Bitcoin Charts

If you’re a game developer and you want to make some coin — Bitcoin that is — you’re in luck.

Heyzap, which makes tools to help game developers encourage players promote their games (by checking in or earning badges, for instance), announced last night that it would offer the option for developers who earn money from Heyzap’s advertising platform to receive payment in Bitcoin. Developers can also use Bitcoin to pay for ad campaigns they buy on Heyzap’s network.

“We have some developers in countries that don’t accept Paypal, so Bitcoin makes sense to be able to pay them out,” Heyzap co-founder Jude Gomila told VentureBeat. “Also, some developers just want to be paid in Bitcoin rather than USD.”

Bitcoin is an increasingly popular all-digital currency. The value of a single Bitcoin has rocketed up recently, from $30 in June 2011 to over $100 per Bitcoin as of April 1. However, a string of hacks and a recent denial-of-service attack directed at the largest Bitcoin exchange, Mt. Gox, have plagued the currency, and as a result its value has been highly volatile. Also untested is how federal governments around the world will feel about an untraceable, decentralized, completely electronic currency.

Gomila said that developers have to fill out a W9 (if they are in the USA) or a W-8BEN (if they are outside the USA) before they receive any payments from Heyzap, regardless of the currency. “This allows the IRS to keep track of the payments and is the same for any form of payment above around $600.”

Despite the volatility, lots of companies have offered to make or accept payments in Bitcoin recently, including WordPress.com. A Finnish web development firm, SC5, is even offering to pay its employees in Bitcoin.

Updated 11:15am Pacific with comments from Gomila.

Photo credit: Zach Copley/Flickr

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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On top of news that Bitcoin digital wallets were causing security headaches for customers, a new piece of malware spread through Skype might be using your computer to mine Bitcoins.

Russian security firm Kaspersky Lab revealed the malware in a blog post yesterday, saying the virus only infects PCs, though similar attacks have infected Macs. The malware is disseminated through Skype messages that social engineer you into clicking a link by saying something like, “I can’t believe this pictures of you!” When you click the link, the malware downloads and starts using up the CPU on your PC.

As Ars Technica notes, “mining Bitcoins” refers to the process of earning Bitcoins for solving a “block,” or a number of encrypted Bitcoin transactions. When that block is solved, the transactions are processed and the solver gets a certain number of Bitcoins as a prize.

The malware is set up to connect a number of PCs to solve these blocks together, automating the process and earning the malware writer more Bitcoins, faster.

Kaspersky said the malware is getting nearly 2,000 clicks per hour. The majority of its victims live in Russia, Poland, Costa Rica, Spain, Germany and the Ukraine, according to Kaspersky. The firm warns that if your computer is running a lot of CPU, you should check to make sure you’re not infected.

Bitcoin image via zcopley/Flickr

A second Bitcoin wallet service is facing security issues today after it was discovered that you can find Coinbase user information simply by searching on Google.

The company warned users yesterday that a phishing email was spreading around, asking for people to enter their Coinbase information on a website not affiliated with Coinbase. Ars Technica connected it to what we hope is a bug or fixable oversight that shows Coinbase user information in search results.

Coinbase, which acts as a digital wallet for Bitcoins, also allows merchants to put a “Pay with Bitcoin” button on their websites, as a Redditor pointed out. Those Pay with Bitcoin buttons display your name, email address, and Bitcoin address and lead you to a transaction page. Google indexes that transaction page, and while it seems it does not display the actual transaction, it will show your Bitcoin address in searches.

“It’s unclear which emails received the above message, but there doesn’t seem to be any clear link between those we’ve seen and our user database,” said Coinbase in its blog post.

The issue comes soon after another digital Bitcoin wallet called Instawallet was hacked into on Tuesday. At the time, Instawallet announced it was halting its service “indefinitely” because the way it was hacked rendered the entire service permanently vulnerable. The company says it is having to go back to the drawing board to rethink the way Instawallet will work technically.

Yesterday, Bitcoin market Mt. Gox experienced outtages, which it explained were actually denial of service attacks.

As a commenter on our post about the issue pointed out, this isn’t really a mark on Bitcoin itself. It seems the tools we use to store and trade Bitcoins are insecure, but the currency itself might not be.

Bitcoin image via zcopley/Flickr

The price of Bitcoin has been on a tear, with prices surging from $100 a few days ago to $147 earlier today. But an outage of the largest Bitcoin market and an unrelated Bitcoin hacking incident have knocked the price back down to $115.

Bitcoin is a virtual, decentralized currency that isn’t regulated by any government body. But the nature of the currency means that it is subject to wild price swings when confidence declines.

Today, an outage knocked out Mt. Gox, the largest market where Bitcoin is traded. The incident was not one related to hacking but most likely happened because of unusually high trading volume.

But an attack did happen today: the hacking of Bitcoin wallet service Instawallet, which has suspended service “indefinitely.” The company said it will need to develop an alternative architecture that isn’t susceptible to hacking if it wants to relaunch.

Check out today’s price fluctuations on Mt. Gox in the chart below.

Bitcoin photo via zcopley/Flickr
Bitcoin chart via BitcoinCharts

Updated at 12:57 p.m. with more detail about current Bitcoin prices.

Bitcoins are a hot commodity now, but are your Bitcoins actually safe? Bitcoin wallet company Instawallet has suspended its service “indefinitely” after being hacked.

Bitcoin is a virtual, decentralized currency that no government or central bank controls. Several companies, including Reddit and Expensify, have recently added Bitcoin support, helping the value bubble up. The value of Bitcoin surpassed $100 per coin just two days ago, and early today it reached as high as $145. Now the price reportedly sits below $117.

Instawallet provided a way to easily set up a Bitcoin wallet that can be used to store your Bitcoins and associated data. But the company had its database “fraudulently accessed,” so it has decided to close down until it can develop a new architecture that is safe from hacking attacks.

Instawallet writes on its homepage:

INSTAWALLET SERVICE NOTICE

The Instawallet service is suspended indefinitely until we are able to develop an alternative architecture.

Our database was fraudulently accessed, due to the very nature of Instawallet it is impossible to reopen the service as-is.

In the next few days we are going to open the claim process for Instawallet balance holders to claim the funds they had stored before the service interruption.

Important information on claims submission:

For the first 90 days we will accept claims for individual Instawallets. Your wallet’s URL and key will be used to pre-populate a form to file the claim.

After 90 days, if no other claim has been received for the same url, your Instawallet balance under 50 BTC will be refunded. If several claims have been filed for the same url, we will process those claims on a case by case basis, under the presumption that the claim we received first belongs to the legitimate balance holder.

Claims for wallets that hold a balance greater than 50 BTC will be processed on a case by case and best efforts basis.

The Instawallet incident highlights that Bitcoin still has serious issues with security. While transfers between Bitcoin holders are secure and instantaneous, the software used to actually store Bitcoins may not be up to snuff in many cases.

Bitcoin prices have often faltered in the past after hacking incidents, and a security breach in June 2011 is thought to have triggered a massive sell-off in Bitcoins. We’ll see if something like this happens again with today’s incident.

Popular expense report startup Expensify now lets employers reimburse international workers with virtual currency Bitcoin, another step that shows Bitcoin’s influence is growing.

Expensify was founded in May 2008 with the promise of offering “expense reports that don’t suck.” It makes the expense report and reimbursement process easier for companies with simple-to-use iOS, Android, and web apps. The company has attracted 1.4 million users across more than 200,000 companies to date.

But one of the company’s biggest issues is with reimbursement for international employees — PayPal and wire transfers to employees outside of the United States can entail fees of 4 percent or more. Bitcoin — a completely virtual currency that is decentralized — can solve that problem because it doesn’t cost anything to make transfers.

“Bitcoin is perfect for international transfers,” Expensify CEO David Barrett told VentureBeat. “It’s secure, instantaneous, and totally free. We support PayPal, but it is expensive. A four percent charge on a large reimbursement can really add up.”

Bitcoin support and prices have surged in the past few months, with several major newly-announced business deals giving it a boost. Mt. Gox, the largest Bitcoin exchange, struck a deal to let Seattle startup CoinLab handle its U.S. operations to give Bitocin a bigger foothold with institutional investors. On top of that, news-sharing site Reddit started accepting Bitcoin as payment, the Internet Archive began accepting Bitcoin donations, and Bitcoin startup Coinbase announced it is selling more than $1 million in Bitcoins per month.

Barrett said Bitcoin might not be well known just yet, but he doesn’t mind being on the forefront.

“Hardly any Expensify users know what Bitcoin is, but we believe this is a really great option for them,” Barrett said. “Bitcoin is clearly on the rise.”

San Francisco-based Expensify has raised $6.7 million in funding to date from investors including Hillsven Capital, Baseline Ventures, SV Angel, and Travis Kalanick.

Top graphic via Expensify

A 22-year-old currency trader is selling his grandparents’ house for as many Bitcoins as he can get his hands on.

Taylor More put the listing up for the family home (pictured above) in Alberta, Canada, several days ago. He told me that the property is worth about $395,000, according to a realtor appraisal.

“This is a good way to get in on the movement early,” he told me. “It’s the best way I could think of to get as many bitcoins as possible.” More is so passionate about the cyber currency that he is willing to negotiate or accept a partial payment.

Bitcoin is a cryptographically secure currency that operates without a central authority, unlike the dollar or yen. It is a favorite of the libertarian and hipster crowd, but it has gained some legitimacy, with sites WordPress.com offering updates in exchange for Bitcoins.

More has yet to receive any offers for the quaint 2-bedroom bungalow that sits on 2.9 acres and boasts mountain views. The problem is that only a handful of people have collected enough Bitcoins needed (between 5,500 and 7,000 depending on the highly fluctuating value) to purchase a house.

More claims this is the first time anyone has sold a house in exchange for Bitcoins.

He hopes to make a profit from the transaction in the short term. Stories of cybercurrency traders making real money by trading Bitcoins are increasingly common.

For this reason, coupled with the fact that there is no centralized authority, it’s considered by some to be the most dangerous project on the Internet.

More’s convinced that Bitcoin will be appealing, given the banking crisis in Europe. He references recent news that one of Cyprus’s largest banks is freezing ATM withdrawals.

He is also hoping the house sale will lure some of Bitcoin’s early adopters. The would-be entrepreneur is working on a project that involves “needing a lot of Bitcoins,” but More would not disclose any further details.

Tradehill cofounders Ryan Singer and Jered Kenna (L-R)

Bitcoin evangelists say that More isn’t crazy — and that the house sale is a strategic move for any financier.

Jered Kenna is one of the early proponents of the Bitcoin craze. Kenna announced this week that he would be relaunching TradeHill, a site that was one of the largest Bitcoin exchanges, but was shut down after being embroiled in a string of payments fraud charges.

Kenna said if the house sells, it would be an important milestone. “There are people who would buy it for bragging rights alone,” he said.

He continued, “In June of 2011, I called Bitcoin an experiment during an interview with the NY Observer and advised not to bet the house. Had he sold his house for Bitcoin then it would be worth $1.6 million today.”

Tradehill COO Ryan Singer advised that More should still use the normal broker approach to negotiating and documenting the transaction, as Bitcoin is just a settlement mechanism.

As for the grandparents in question, More told me they have recovered from the shock and are moving east to be closer to him. More’s father, a professional hockey player, owns the house and would be financially responsible if the bet doesn’t pay off.

“My family knows it’s for sale, but I’m going to give it some time before I throw this Bitcoin idea on them,” said More.

For more information, check out the house listing here.

In its heyday, Tradehill was the second largest exchange for experimental virtual currency Bitcoin. But the site closed down due to a protracted regulatory dispute and a string of payments fraud charges.

With a new team and a design reboot, Tradehill is ready for a relaunch. The new site goes live today with a new business-focused product dubbed “Prime.”

“We want to be the grownups in the Bitcoin space,” said chief operating officer Ryan Singer in an interview. “Our goal is to be the institution that other institutions turn to when they have needs related to digital currencies.”

Bitcoin is a cryptographically secure currency that operates without a central authority, unlike the dollar or yen. It burst into the public eye in the spring of 2011, and its value has fluctuated widely ever since. Last week, the currency collapsed 23 percent due to a technical glitch.

Bitcoin is a favorite of the libertarian and hipster crowd. Criminals too. The FBI fears the anonymous payment network is a haven for money laundering and other criminal activity.

Tradehill founders Ryan Singer and Jered Kenner (L-R)

However, Tradehill’s founders are convinced their first product will be a hit with business and accredited investors who need a better way to engage with the digital economy. Every client will receive a $75 credit to test trading and can activate an account with a deposit of at least $10,000, 200 Bitcoins, or $5,000 in Mt. Gox codes.

The difficulty in managing online transactions and exchanging digital wealth for hard cash led to the rise of exchanges like Tradehill, which use online wallet services to move real money around. Money transfers are regulated and require licenses.

Tradehill claims to be the first institution in the Bitcoin market to hold over $5 million in user funds and process full payouts. “Every other Bitcoin company that achieved scale either lost money in a hack or went insolvent,” a press release states.

Still, the Bitcoin currency has a few advantages — namely, it allows for complete anonymity and privacy. Once a transaction is completed, there is no central server with information that a government agency could subpoena. In addition, Bitcoin advocates will tell you that about 60 countries are blocked completely from PayPal, so sites like WordPress will accept Bitcoins for blog upgrades.

The team is confident it can deal with any potential problems that may arise.

“We have more lawyers than engineers,” said Singer, who stressed that the new Tradehill will be fully compliant. Likewise, the site’s defenses are up. To avoid being hacked, the founders recruited a chief technology officer from Google’s privacy unit.

It has been just over a year since Tradehill went bankrupt. In February 2012, founder Jered Kenna shut down the site after losing $100,000 in a dispute with one of its payment processors.

Singer said the company made the decision to keep the Tradehill name as it’s an “established brand” with a strong network, and the team refunded its investors when the site shut down. The founders also say they have strong relationships with other Bitcoin sites and services (and potential competitors) Mt. Gox, Coinbase, BitInstant, and BitPay.

The new team, based in San Francisco, has raised a small seed round of funding from angel investors and expects to close a first round of about $300,000 in the coming months.

Virtual currency Bitcoin has hit new highs in value after Mt. Gox, the largest Bitcoin exchange, struck a deal to let startup CoinLab handle its U.S. operations.

Japan’s Mt. Gox is the largest exchange in the world for Bitcoin, but it had been having trouble making headway in the United States. So it will move operations to a U.S. company that might be able to attract more Americans. Seattle-based CoinLab has a partnership with Silicon Valley Bank and is backed by $500,000 in VC funds, which will help lend credibility to the service.

“There are two major difficulties Bitcoin exchange customers have traditionally faced: banking troubles for the underlying exchange, and security of their coins,” CoinLab CEO Peter Vessenes said in a post announcing the move. “Since we believe in Bitcoin, we’d like to solve these problems.”

As of early Wednesday evening, Bitcoin was trading above $32, a new record for the currency. Just a few days ago it hit new highs by trading above $31.

Other recent events might have helped the currency boom as well. News-sharing site Reddit started accepting Bitcoin as payment, the Internet Archive began accepting Bitcoin donations, and Bitcoin startup Coinbase announced it is now selling more than $1 million Bitcoins per month.

Check out Bitcoin price movement this week on Mt. Gox in the chart below.

Bitcoin illustration by Tom Cheredar/VentureBeat

Just a week after Reddit started letting its users pay via Bitcoin, another staple of the internet has started accepting the digital currency.

Yesterday, non-profit organization The Internet Archive — a site that backs up old webpages, videos, and other forgotten digital media of the past — announced that will now allow people to submit donations to the site via Bitcoin. The group said the move was due to Bitcoin quickly becoming the preferred digital currency of the Internet, as well as its employees requesting to be paid in Bitcoin.

Bitcoin is a form of digital currency that uses decentralized (peer-to-peer) technology to manage transactions and validate payments instead of a government-regulated banking system. Anyone can convert their local country’s currency into Bitcoins, making it a universal form of trade for any company or organization that accepts it.

In the past several months, many well-known websites and web services have started opening up to using Bitcoin, including WordPress, Reddit, Mega, and a handful of others. The added support could help the digital currency shed its bad reputation of only being the preferred form of payment for criminals and illegal services.

Community news-sharing site Reddit is the latest in a small (but growing) list of online services that are now accepting Bitcoin as a form of payment.

Bitcoin is a form of digital currency that uses decentralized (peer-to-peer) technology to manage transactions and validate payments instead of a government-regulated banking system. Anyone can convert their local country’s currency into Bitcoins, making it a universal form of trade for any company that accepts it.

Part of Reddit’s business strategy is selling “Reddit Gold” subscriptions that sports experimental features that you can use before they roll out to all users. Reddit Gold can be purchased in one-month increments for $4 or $30 per year for yourself or as a gift to others. The site also started letting people buy a month of gold to people who made particularly useful or witty comments. And until recently, Reddit only accepted PayPal and Google Wallet to pay for gold subscriptions, but it has now added both Bitcoin and credit cards to its list of payment options.

The move should give the news sharing site a boost in revenue, especially from international users that are unable to pay via credit card or PayPal for one reason or another.

“Unredeemed game tickets from state fair midways are the next currency we’re going to add,” joked Reddit developer Brian Simpson, who is responsible for the site’s new Bitcoin integration. “[We] just need to figure out how to handle garbage bags full of them in our mailroom.”

Simpson told VentureBeat that Bitcoin payment was something that Reddit’s community had requested for a while now. The site is using Y Combinator-backed Bitcoin exchange startup Coinbase to handle all transactions, which made the process of integrating the digital currency relatively straightforward, he said.

Reddit joins a handful of organizations now accepting Bitcoin payments: Dewlance, Diaspora, 4chan, Wiki Leaks, Uploaded.to, The Internet Archive, and, more recently, WordPress operator Automattic.

Yet the vast majority of businesses are not on board, which could have something to do with Bitcoin’s perception of being an unsecure method of payment as well as the currency of choice for criminals. But that may change over time since Bitcoin doesn’t have the same limitations as a currency that’s tied to a government.

“On our end there’s less risk because there’s no such thing as a Bitcoin chargeback,” Simpson said in reference to banks/credit companies reversing the initial purchase by disputing its legitimacy, thus leaving the business empty-handed. “Someone could get their Bitcoin wallet stolen, but it seems like protecting your wallet is one of the fundamental issues with Bitcoin.”

And in terms of losing money, Reddit also won’t be keeping a balance of Bitcoins, which will minimize the odds of those payments being compromised/stolen by hackers and protect against the possibility of a low currency exchange rate, according to Reddit CEO Yishan Wong.

In a comment thread announcing the new payment option, Wong offered a good explanation for how Reddit will handle the digital currency:

With legitimized exchanges like Coinbase offering bank-level encryption (and processing over $1 million worth of Bitcoin transactions per month), it may just be a matter of time before it starts appearing next to PayPal, Visa, Master Card, and Google Wallet — especially with support from Reddit’s highly effective active user base.

Top image via Reddit Postcards

Bitcoin is beginning to boom again.

Customers of Coinbase, a platform for buying and selling the digital currency, have bought or sold more than $1 million worth of Bitcoins in the past 30 days.

“There’s an incredible amount of demand for people who want to buy Bitcoins now,” Coinbase CEO Brian Armstrong told VentureBeat. “The pace of going from $0 to $1 million was staggering.”

Coinbase launched last year and aims to be “the PayPal of Internet-only currency.” It helps merchants and consumers by providing a Bitcoin wallet and platform to make transactions easier, but the vast majority of its revenue comes from letting users buy and sell Bitcoins directly from Coinbase. It charges a one percent fee on top of each transaction.

The company claims that it has seen huge growth in the past three months, after it started letting users buy and sell Bitcoins by connecting any U.S. bank account.

“Bitcoin is a difficult technology, but we’re making it easy to use,” Armstrong said. “People keep wanting to buy more and more of it.”

The success of Coinbase, along with other recent developments like WordPress accepting Bitcoins, are signs that Bitcoin is gaining serious traction once again. The decentralized currency is currently trading at $22.66 per Bitcoin on Mt. Gox, the largest Bitcoin exchange.

San Francisco-based Coinbase was founded in June 2012. The company has raised $600,000 in seed funding from investors including Y Combinator, IDG Ventures, Greg Kidd, Adam Draper, FundersClub, Start Fund, and Garry Tan. Armstrong said Coinbase has nearly 40,000 users and performs 30,000 transactions per month.

Bitcoin badge via Ben Ostrowsky/Flickr

Blogging platform WordPress will now accept Bitcoin as a form of payment, the site announced yesterday.

Bitcoin is a form of digital currency that uses decentralized (peer-to-peer) technology to manage transactions and validate payments instead of a government-regulated banking system. Anyone can convert their local country’s currency into Bitcoins.

People with a free WordPress.com-hosted blog (not to be confused with the free open-source WordPress platform available on WordPress.org) can now use Bitcoins to buy most upgrades, such as removing advertising or enabling blog design customization.

WordPress said it decided to start accepting Bitcoin because of its “role” as a universal currency. PayPal and a number of credit card companies actually restrict transactions in certain parts of the world due political circumstance, high criminal activity, and more.

“Whatever the reason, we don’t think an individual blogger from Haiti, Ethiopia, or Kenya should have diminished access to the blogosphere because of payment issues they can’t control. Our goal is to enable people, not block them,” WordPress’ Andy Skelton wrote in a blog post. “With Bitcoin, we join a new digital economy that doesn’t leave anyone behind, essentially making financial transactions open source — something WordPress.com is behind 100 percent.”

Currently, few legitimate businesses accept Bitcoin, which has primarily been used for black market (aka mostly illegal) transactions. And since banks aren’t involved with Bitcoin transactions, purchases don’t leave a “paper” trail for law enforcement agencies to track criminal activity.

U.S. federal government isn’t too fond of Bitcoin — and with good reason. A universal currency like Bitcoin could hypothetically destabilize a government’s capability to regular its finances. And if that happens, it could disrupt their authority.

But despite any negative connotation attached to Bitcoin in the past, WordPress’ intentions seem entirely pure.

“I think the technology is value-neutral,” WordPress creator and Automattic founder Matt Mullenweg told VentureBeat via email. “I’m sure many people use paper dollars and euros for bad things as well, but that doesn’t mean they’re intrinsically bad (or good).

“I hope many more businesses, particularly digital ones, follow our example and support Bitcoin so it can continue to shake off its early reputation.”

WordPress said the Bitcoin payment option will be available for all WordPress.com blog upgrade purchases in the next few months.

Sometimes a hack has unexpected outcomes. Today, a hacker who claims to have obtained Mitt Romney’s tax returns is demanding a ransom of $1 million in Bitcoins. The hacker probably didn’t expect to improve the market for Bitcoins, but that’s exactly what happened, as the value of Bitcoins spiked about 6 percent today, from $10.40 per Bitcoin to about $11 per Bitcoin at the end of the day.

Bitcoins are an electronic currency unregulated by any central authority. Users are self-policed and receive instant payments of Bitcoins through an encrypted process that verifies each transaction and does not allow it to be undone. Bitcoins are difficult to exchange for actual dollars, but are otherwise a very private way of exchanging cash. This makes the currency preferable for those who don’t wish to be identified.

Like any currency, the value of Bitcoins fluctuates based on the sentiment around its strength. After the news Tuesday that a hacker stole $250,000 in Bitcoins, the currency dipped into the red, and went up and down throughout the day. The movement didn’t make that much of a difference to the overall price. Today, however, a hacker sent letters to the Democratic and Republican party offices with a USB drive claiming to have stolen Mitt Romney’s tax returns. The hacker demanded $1 million in Bitcoins as a payment for silence, causing a dramatic spike in the currency’s value.

The chart above shows that as the news hit, Bitcoins spiked dramatically. This is likely because the idea of $1 million in new Bitcoins entering the system is attractive to users and potential investors.

One Twitter user, @McBill notes, “I would think theft would drive price down. Ransomers demanding them makes them seem legit, spikes demand, price [goes up].”

Ah, the things that restore faith.

Thanks @McBill; Bitcoins image via zcopley/Flickr, chart via Bitcoincharts

Ready for the most outlandish story of your day? Here we go. Today a hacker allegedly stole Mitt Romney’s tax returns and is demanding $1 million in Bitcoins for silence. The hacker also sent a USB drive and letter to the Republican and Democratic party offices in Williamson County, Tenn. as proof.

Williamson County Republican party executive director Jean Barwick confirmed to VentureBeat that the U.S. Secret Service has taken the USB drive and letter from the GOP party office to examine it and see if this is a hoax or a real situation.

“We don’t know what this will turn into, if anything,” said Barwick in an interview with VentureBeat. “[The Secret Service] didn’t say what they would do with it.”

In a letter, the hacker says the records were stolen from PricewaterhouseCoopers in Franklin, Tenn.

PricewaterhouseCoopers PR managing director Chris Atkins told VentureBeat in an e-mail, “We are aware of the allegations that have been made regarding improper access to our systems.  We are working closely with the United States Secret Service, and at this time there is no evidence that our systems have been compromised or that there was any unauthorized access to the data in question.”

The letter begins:

Dear PricewaterhouseCoopers LLP,

… We were able to gain access to your network file servers and copy over the tax documents for one Willard M Romney and Ann D Romney. We are sure that once you figure out where the security breach was, some people will probably get fired but that is not our concern.

Barwick went on to tell me that the GOP office did not call the Secret Service but expects that news traveled through the U.S. Attorney’s Office, which prompted the confiscation. She also added that she doesn’t believe they are the only office that received a letter such as this, though she’s hearing conflicting stories.

In the letter, the hacker threatened the release of the tax returns to “all major news media outlets” if the Bitcoin ransom is not received (the hacker also politely suggested people should “Google it if you need a lesson on what Bitcoin is”). The person also set up a bit of a race for Romney: first to pay the sum will receive the goods.

Of course, Bitcoin has its own problems after a hacker stole the Bitcoin equivalent of $250,000 dollars Tuesday.

via Nashville’s The City Paper; Mitt Romney image via Dave Delay/Flickr

As CNet reports, an unidentified hacker found and absconded with an unencrypted backup of virtual wallet keys, taking 24,000 Bitcoins, each worth just over ten U.S. dollars. It’s the virtual equivalent of leaving your wallet on the cafe table as you go to use the restroom.

In a blog post, BitFloor founder Roman Shtylman said that BitFloor, the exchange for Bitcoins, would be paused while he evaluates options. He said he still had logs for all the accounts, trades and transfers for every user, but the theft took the vast majority of the coins BitFloor has on hand at any time, which are generated by commissions on Bitcoin trades.

Shtylman wants to continue to operate BitFloor, but that is currently in doubt. And shuttering the exchange, while a last resort, is a very real option:

As a last resort, I will be forced to fully shut BitFloor down and initiate account repayment using current available funds. I still have all of the logs for accounts, trades, transfers. I know exactly how much each user currently has in their account for both USD and BTC. No records were lost in this attack.

There are multiple Bitcoin exchanges, and BitFloor is only the fourth-largest, globally. So if BitFloor is forced to shutter operations, it does not mean the end of the line for Bitcoin as a currency. In addition, there is no centralized authority for Bitcoins — the system is inherently resistant to a single point of failure.

On the other hand, other Bitcoin exchanges have gone bankrupt, some have been hacked, and there are trojans and viruses in the wild that can steal Bitcoin digital wallets.

It’s not something that engenders trust in something as fundamental as money.

photo credit: zcopley via photo pin cc