Bitcoin Exchange Bitfinex Integrates BitGo Following Recent Hack

Popular bitcoin exchange Bitfinex recently announced it has integrated the multi-signature enterprise solution of bitcoin security firm, BitGo. The partnership comes several weeks after the exchange’s hot wallet was hacked and over 1,500 bitcoins were stolen.

When the Hong Kong-based exchange was hacked, the exchange lost about $18,000 or 0.05 percent of the company’s total digital currency holdings. It joined bitcoin startups, BitStamp and Coinapult, who were hacked earlier this year for a combined loss of $5.4 million. Like BitStamp, Bitfinex has partnered with BitGo in an attempt to restore confidence of the exchange’s security.

According to Zane Tackett, Director of Community and Product Development at Bitfinex, the bitcoin exchange has upgraded their hot wallet system so every user has their own hot wallet; meaning a similar hack happening would be unlikely. Now, if a hacker gains access to a Bitfinex hot wallet they would only be able to steal an individual user’s funds, not everyone’s hot wallet holdings. Each user’s wallet will have different public and private keys making hacking them much more difficult and costly.

The Asian bitcoin exchange is one of the most popular exchanges in world and already secured the company’s cold storage wallet, a wallet disconnected from the internet, in a multi-signature configuration before the hack.

On-blockchain

The exchange will now offer “near real-time” verification of customer’s bitcoin balances by verifying them through the blockchain. Users should be able to know for certain how many bitcoins are held in their wallet.

Now several business and people will hold one of the several private keys to wallets on Bitfinex. Multi-signature transactions require two out of three private keys belonging to a wallet to be signed in a transaction. As part of the partnership with BitGo, the security firm will hold one of those private keys; the other two being held by the user and Bitfinex respectively. So even in a worst case scenario and Bitfinex shuts down without a trace, through the help of BitGo, users would still be able to retrieve their funds.

The bitcoin security firm also provides insurance from A-rated insurer XL Group for its clients. BitGo clients automatically get coverage of up to $250,000 in the case of a theft, and can request a higher amount of cover for an additional 1% fee.

“The industry has been clamoring for exchanges to adopt the multi-sig model, and we’re proud that Bitfinex selected BitGo’s platform to do it. This new level of transparency and security makes breaches such as those of Mt. Gox impossible.”
— – Mike Belshe, BitGo CEO

BitGo and Asia

Founded in 2013, the bitcoin security platform has already partnered with exchanges in North America and Europe. The exchange recently entered the Asia region, earlier this year, and now provides multi-signature technology in the region.

In April, BitGo partnered with Hong Kong-based bitcoin remittance startup Bitspark and South Korea-based exchange Coinone, making them the first Asian digital currency startups to implement multi-signature security. Later that month, BitGo partnered with CoinHako, a bitcoin exchange and remittance platform in Singapore. Bitfinex is the bitcoin security firm’s fourth Asian client.

Asia has been home to some of the biggest bitcoin exchange hacks and meltdowns in the history of the digital currency. The most notorious being MT GOX, a Magic The Gathering playing card trading website turned bitcoin exchange. MT GOX eventually closed because of several difficulties, but primarily because of losing 800,000 bitcoins valued at $450 million at the time. 200,000 of the bitcoins have since been found.

A more recent example was Hong Kong-based exchange BTER, whose cold wallet was hacked and over $2.1 million worth of bitcoins were stolen in January. The exchange claimed that it has begun to pay back users through a loan from Chinese cyber-security firm, Jua.com, who would also take over the security of the exchange. Jua claims to run BW.com, one of the largest mining bitcoin pools.

That was the second time BTER had been hacked. The first time was when 50 million units of the alternative digital currency,  NXT, ($1.7 million at the time) were stolen in August of last year. The exchange nearly shut down but was able to absorb the stolen amount and pay back customers who had lost funds.

Prior to Bitfinex’s integration, BitGo’s most recent partnership was with digital currency debit card, E-Card. The startup is first time the bitcoins security firm had partnered with a company focused on offering a digital currency debit card.