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FearTheFez wrote:"Social Engineering and poor DNS Security lead to a Bitcoin heist worth about $12000. Bitcoin broker Bitinstant was robbed after thieves managed to take over ownership of their domains. While Bitinstant claims that no customers lost any money, without 2 factor authentication all it took was a place of birth and a mothers maiden name to gain access. This looks like poor security from everyone involved."

timothy wrote:An anonymous reader writes with a link to a story at Forbes about what's said to the first Bitcoin hedge fund; the article goes into some of the details of how the (literally) valuable data is kept. A selection:

Anonymous reader wrote:"The private key itself is AES-256 encrypted. After exporting Bitcoin private keys from wallet.dat file, data is stored in a TrueCrypt container on three separate flash drives. Using Shamir's Secret Sharing algorithm, the container password is then split into three parts utilizing a 2-of-3 secret sharing model. Incorporating physical security with electronic security, each flash drive from various manufacturers is duplicated several times and, together with a CD-ROM, those items are vaulted in a bank safety deposit box in three different legal jurisdictions. To leverage geographic distribution as well, each bank stores only part of a key, so if a single deposit box is compromised, no funds are lost."

We also have some deeper insights. For example, there's very good evidence that people are hoarding Bitcoins - or at least they were until they all tried to cash out through the same stuttering exchange. Major Bitcoin exchange MtGox was hammered last week by too many micro trading requests, leading to a drop in value of BTC from $260 to $160. Of course, holding onto an asset simply because you think the price will rise - and for no other reason than market momentum - that's the perfect recipe for a bubble.

However, it's also worth looking at this from the other side. There have been plenty of bubbles that have indeed gone on to change the world. The one that many people are comparing Bitcoin to is Tulipmania, widely seen as the first recorded instance of a financial bubble. From 1634 to 1637, the Dutch went wild speculating on the value of the recently introduced tulip bulb. The tulip went from being a new and interesting flower to a good that was worth more than a house - and then back again to being an interesting flower. Vast fortunes were won and lost. Most involved knew it was a bubble and played on regardless.