Bitcoin Magazine editor Pete Rizzo took to his X account to share the story of Zhao Tong, who created the first-ever crypto margin exchange, Bitcoinica, and ultimately lost 99,000 Bitcoin BTC/USD with its downfall.
What Happened: Tong, a 16-year-old Chinese teen, discovered Bitcoin in 2010 and was captivated by the idea of sending money globally. He enthusiastically shared this newfound concept with friends, sparking his deeper involvement in the emerging crypto landscape.
Despite challenges like dealing with intermediaries, and enduring the unreliable Mt. Gox exchange of 2011, Zhao continued his efforts and built Bitcoinica in just four days. Unlike other exchanges, Bitcoinica allowed margin trading, enabling users to speculate on future prices. This attracted traders and miners pushing volume to $40 million per month.
Also Read: Bitcoin Is Working Its Way Towards This ‘Liquidation Zone’ But There Is One Danger, Trader Warns
The Problem
Zhao’s youthful age and lack of experience raised concerns about the exchange’s security. Despite these reservations, he earned $10,000 (about 2,000 BTC at the time) within the first two weeks.
While the year 2011 saw a thriving Bitcoinica, Zhao was overwhelmed with school exams and thus sold the company to Wendon. The new buyer sought to improve security with the help of veteran Bitcoin developers like Amir Taaki.
With all efforts in vain, Bitcoinica was hacked in March 2012 losing 43,000 BTC. Subsequent attacks in the same month resulted in an additional 48,000 BTC being stolen. With no hardware wallets or multisig security measures in place, the hackers easily reset passwords to execute the thefts.
Early Bitcoin investor Roger Ver reportedly lost over 24,000 BTC in these incidents. In his last act before exiting the industry, Zhao invested 1,000 BTC in a rare solid gold Casascius coin, one of only three in existence, now worth over $60 million.
‘Prioritize Security'
The precise details of what happened remain a mystery, but Zhao’s takeaway was clear: Bitcoin users and businesses must prioritize security. Zhao’s reputation was tarnished, and his name became synonymous with being cheated and robbed in the crypto community.
Exchange hacks, like Bitcoinica’s, highlight the ongoing risks for crypto investors. To mitigate these risks, serious Bitcoin holders are advised to use hardware wallets or multi-sig custody.
Today, Bitcoinica serves as a $6 billion lesson in the importance of taking custody seriously and safeguarding assets against potential hacks. It marks the third-largest ever loss in exchange hack.
What’s Next: The influence of Bitcoin as an institutional asset class is expected to be thoroughly explored at Benzinga’s upcoming Future of Digital Assets event on Nov. 19.
Read Next: Venture Capital Interest In Crypto Revives: $2.4B Poured Into Bitcoin And Crypto Firms In Q1 2024
This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
Image created using artificial intelligence with Midjourney.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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