It seems to me that bitcoin wallets are a relatively new and not well enough understood risk. There are very few other "files" like them, in that an attacker copying them can deprive you of their value in a way that you cant protect with backups. I feel a big part of current "internet security best practices" are about minimising the risk of getting exploited - but with a pragmatic limit to how much effort you invest mediated by the excuse of "if we _do_ get rooted, we can always reinstall and recover from backups". It'll only cost you time, and perhaps some reputation, and may put assumed-private-to-you information in someone else's hands, but it hasn't deprived you of access to any of your data. That doesn't apply to bitcoin wallets, and example like this are pointing out flaws in assumptions people are making about appropriate ways to manage them.

It'd suck to be "that guy" who provides the object lesson in why we need to think differently about bitcoin wallets to just about any other file type we might put on an internet accessible machine, but we _do_, and I don't know whether we have an answer to the question "Is there a way to secure a bitcoin wallet on a machine someone else has root access to (either your datacenter's staff with physical access, or the people with hypervisor access to the hardware your vm is running on)?"

I _think_ the answer is "if you can't trust those people, you can't risk storing your bitcoins there". There's a reason people keep their money in banks, and not in train station luggage lockers. I'm guessing inexpensive commodity VPS's should be considered closer to storage lockers than bank vaults. I suspect the finance sector and/or fortune500 companies have hosting arrangements with companies offering bank-vault grade protection and reserve bank style insurance - but sure as hell not at $24.95/month.

But what really is a bit coin? I mean in physical existence. Is it just a file(plain text) with some data/metadata?

And stealing it means copying those files, and then deleting the source?

Which in case how is this any different than traditional bank account. My money in the bank is basically DB record. And that can be stolen.

The bank can then just say to every one 'look this transaction from db such and such is no longer valid'.

Can't bit coin do the same? I guess I'm missing something fundamental.

Can somebody explain this?

So they got access to these peoples keys and transferred ownership of the coins.

Most money supplies are regulated, but bitcoin isn't regulated. No one has the ability to say 'reverse that transaction', but it also makes the currency safe from inflation and interference by money printing governments and privacy snoops.

There's an economic myth that inflexible supply of a commodity gives that commodity when treated as money, stability. It does not, as looking at this graph of US inflation/deflation time shows (1944 is when the dollar stopped being gold convertible):

http://en.wikipedia.org/wiki/File:US_Historical_Inflation_An...

A few points:

1. The money supply around a currency not only contains the mined/minted instances of that currency, but also liquid currency-denominated assets, like customer bank balances. So money supply is not necessarily bounded.

2. Inflation/deflation can be considered measures of the change in demand for the currency. In times of deflation, holding money is valuable because it becomes more valuable.

3. From the above graph, you see that during the gold standard, inflation tended to be mostly balanced out by deflation in the long-term, so long-term inflation was low. But in the short term, prices were very unstable as inflation jumped all over the place, and far more unstable even than fiat money in the past three turbulent years that we've seen.

4. From the point of view of an economy, inflation and deflation are not symmetric; because of the value of sitting on money during periods of deflation, savers do not tend to invest their money but move money from investments to cash savings. This undermines economic activity. But in an economy with a rich range of investment opportunities, moderate inflation does not penalise acquisition of money and does encourage investment.

If you want a non-performing store of value and don't mind big fluctuations in value, gold is there and we know how to secure gold rather well. Bitcoins are another non-performing store of value with far more drastic fluctuations in value, and securing it involves the double vulnerability: physical security of storage media, information security of computations involving bitcoins. And it is much easier to accidentally lose bitcoins than gold, pirate tales notwithstanding.

Only funds that you have daily access to need be vulnerable to the latter point, as physical security (air-gapping) is sufficient when you do not need to -send- funds.

> And it is much easier to accidentally lose bitcoins than gold, pirate tales notwithstanding.

Strongly disagree. Can you keep N redundant copies of your gold? Combined with secret splitting, you could require that at least K of N secure locations be accessed.

I'm talking about protocol risk: e.g., the software that implements the protocol on some machine is flawed, so the cryptography can be effectively breached. Or there is some issue with the protocol, like but worse than the issue Kaminsky found with anonymity.

>Can you keep N redundant copies of your gold?

Have you ever found that your backups didn't contain what they were supposed to contain?

Gold gets stolen, but besides such things as costume jewellery, I think it doesn't often get lost.

So if you are a bitcoin business making bitcoin payments, at moment you cannot avoid the risk of having the wallet stolen if someone gains unauthorized access to your operating computer.

With Bitcoin, once it's copied, you can consider it gone forever, irrevocably, in totality.

(Of course, my understanding might be completely off-base.)

Probably not, _maybe_ trusted computing could help[1]. But it might secure enough if you had a special piece of hardware that stored the bitcoin-key and did all the signing operations. I believe things like these exists for Certifications and other signing-keys. I doubt VeriSign stores their root certificates on just-another-box :)

[1] In theory, TC could "anchor" your data to the hardware chip on the motherboard, and breaking it would require physical tampering.

Of course, sane people don't mix HSMs and VMs.

People who host on a VPS typically do so because they want to run complex applications that scale up, and do so without the cost or headaches of adding more physical hardware. Most people who use Linode probably do not do so to host static webpages, which can be done just fine on a shared server for a quarter the price. While Linode might be cheap, they do claim to be secure, and if they didn't it's doubtful people would host their apps there. And most apps do take some personal information; and a large number of them take financial details.

No one would use Linode to host their apps if they thought all accounts were rootable from a master login panel. And no one would use them to host static pages. So who would their customers be if people didn't expect their instances to be secure?

If a bank gets robbed, I'm not liable for the cash they steal. But how about if I've got cash in a safe deposit box and someone uses a fake id to get into it, and the bank doesn't recognize the fraud? That's trickier. And if someone robs my house and I've got a bunch of cash under my mattress, that's another story too. I know the analogy doesn't quite hold up because it's kind of like a bank and a customer engineering a safe together (eg both could be at fault for a break in), but there's got to be some responsibility on Linode's part.

I'd take issue with that summary. If I put things in a self-storage unit, and it gets robbed because some employee left his master key under the door mat, regardless of how bad of an idea it was to store my money there, that's still their issue.

Think about it this way. I could store my money under a table at McDonald's, in a self-storage unit, or in a bank. Clearly the self-storage unit should provide me some more security than McDonald's. So when an attacker gets access through some really trivial method that they really should be protected against, that's their fault; it doesn't matter that there was a better security option, because it's still below what I was paying for.

A good point but keep in mind that courts don't have the level of expertise to judge what in terms of security is trivial and what is not.

The person trying the case and/or the jury may very well be someone who uses "football" as a password.

Also there are multiple cases of the very best companies with supposedly the highest levels of security getting hacked on a regular basis (might be a small percentage but it always makes the news). Consequently any company defending could make an argument that "this stuff happens even with the best and brightest" and it might be believed. (Well anyway that's what I would argue if I was a lawyer..)

So the public could easily be convinced in the case of a technology company something that would never fly as far as a screwup at the self storage - something physical that they can relate to (like leaving a door unlocked which is easy to understand).

For a hosting company this is different. Especially because--it's hard to draw a line but I feel it's there--there's a difference between storing sensitive data and storing (what are practically) valuables/money.

I wonder though, I'm not clear on his set up (or business, even), but basically he was literally storing his bitcoin money on a Linode server? Since they're not a bank, nor a safe-deposit service, or are in the business of storing valuables (as opposed to sensitive data). I can't come up with a realworld analogy (they usually break down anyway), but wouldn't you want to wrap this data in an extra layer of encryption or something? It's not that hard to come up with some scheme so that people with root access to the Linode server can't do anything with it either. Since this is about (almost) real money, that's what I'd do.

Well of course that's never going to happen and the truth is the contracts of the more expensive provider no doubt also limit liability. (And all of this is in the TOS/contract etc). So what we are really talking about is who will do a better job protecting what you have AND more importantly who has more to loose if they screw up. (Small linode has more to loose but they also don't have deep pockets to pay. Amazon has deep pockets but access to magnitudes greater legal help to prevent having to pay.)

If you co-locate your hardware at a data center and your staff competently secures your systems.

Three letter agencies and foreign governments could attack your data if they took it off line, but you monitoring should detect that.

I think there's a _lot_ of "grey areas" here, and while I feel sympathy for the guy who's out ~$13k worth of bitcoins, I can't help but think he was "doing the wrong thing" relying on the security of an inexpensive vps to keep them safe…

You have to trust somebody at some point unless you're keeping the server locked in your own closet. It seems really bizarre to me to say that a hosting provider doesn't have a responsibility not to steal your stuff.

Firstly, I'd start asking whether a $19.95/month shared hosting* account is a "reasonable" place to store $13k worth of (effectively) cash. I'd be _very_ careful if I had that sort of folding-money-type-cash on hand, and would under normal circumstances automatically deposit in a bank account to mitigate the risks involved with carrying it around. And I'd usually take steps to not ever have that sort of value of cash build up or be required - the only transaction I've ever done of that sort of value in cash is selling or buying a car from an individual - and that's always been a direct from transaction to the bank type of arrangement.

If I had enough bitcoin value that it'd hurt to lose it, I would not (at least now in hindsight) store that on a machine that other people I don't know/trust have root access to. Maybe I'd keep my wallet on a usb stick in my pocket or in a safe at home? I think though that at somewhere near the $13k value the "right" thing to do is convert it to cash and take advantage of the existing banking system and its time-tested security and insurability.

(* Which is fundamentally what a linode VPS is, at least from anyone with access to the hypervisors point of view.)

With respect for #3 it would be reasonable for a bank safe deposit box to contain a $100,000 ring maybe but not to contain a 10,000,000 ring.

There's a saying in many businesses with different variations:

"Price, quality, speed" pick any two.

So this would be:

"Price, security, bandwidth" pick any two.

People pick on price and bandwidth security is taken for granted to be commercially acceptable. The colo can easily figure out price and bandwidth they are clearly defined. Losses from a security breach not as easy - to many variables. Same reason insurance companies love to write life insurance but hate to write disability insurance. Life insurance is absolute (you know when someone is dead and tables exist to compute probabilities on when they will die). Disability is open to interpretation, fraud and other things. It's not black and white.

As an aside, signs like that are the same as ones that appear in auto shops that say "insurance regulations don't allow you in the shop". I owned a company that did manufacturing and said a similar thing because I didn't want anyone in the machine area. I've dealt with insurance companies for many years they don't dictate things like that at least from my experience.

Your example is correct though the restaurant would be liable in the situation you cited because you actually saw an employee steal the coat. If you saw someone else NOT connected to the restaurant AND the coat was expensive you are probably out of luck. It's your property and there is no assumption that a restaurant protects you from acts of god.

The key is was their negligence on the part of the restaurant.

On the other hand if there was a large party at the restaurant and normally a coat check girl that's a different story (devils in the details with this stuff).

That doesn't mean Linode has any legal liability in this case, just that your analogy is off the mark.

Really? (I'm reading that as saying you think it _is_ a reasonable thing to store $13k worth of effectively-cash-value in a $19.95/month vps account?)

Does anyone know what regulations like HIPPA or PCI have to say about the security of data stored on managed-by-3rd-party servers like VPSs?

PCI doesn't specifically say anything about usage of a VPS. It does however speak about access to data.

If you have encrypted credit card information, you'll be asked to list those that have access to the encrypted information, they encryption key, and the key encrypting key. Then you'll be asked to justify their access.

I'm sure I could come up with with several other major violations, but this alone is severe enough that I can't envision a way that you'd pass a PCI audit.

Second, where are you getting $19.95/month from, anyway? I haven't seen the plan in question mentioned, and even if this particular VPS happened to be Linode's lowest-end, the last time I looked (a while back, granted), slush had multiple large VPSs with Linode.

Third, really, what does the price of the VPS have to do with it? You think as the cost of the VPS goes down, we're entitled to less assurance that an employee isn't going to bolt with our data?

Finally, HIPAA and PCI regulations are ginormously complex, but violations of them almost inevitably cost a hell of a lot more than $13k.

I'll freely admit I've only been thinking about this since reading this article, so I'm both not-fully-informed and I'm thinking about it as a response to some guy losing ~$13k, but to me it's _not_ reasonable.

(And my $19.95 number is perhaps hyperbolically chosen from their least expensive vps offering - but my assumption would be that the management/hypervisor back end would be shared across their entire infrastructure, so I think my argument holds, in that I'd expect the higher priced offerings to "only" have the employee-reliability-assurance of the cheapest vps…)

If you've got a vault that holds a massive diamond, and a little gold ring, do you become concerned because the diamond "only" has the protection of a little gold ring?