He lost 25,000 Bitcoin and lived

Hello,

Rizzo the Bitcoin Historian here, back with an epic story from the vaults — the tale of an early Bitcoin legend named ALLINVAIN, who lost 25,000 bitcoins at a time well before the battle-tested self-custody solutions we have today.

It’s a heck of a story, one that underscores the importance of personal security when it comes to securing your Bitcoin, but also shows the hardship and adversity early adopters persevered through.

Just imagine that someone actually saw this status on one of their transactions – then kept working on Bitcoin for years…

If that gives you anxiety about your self-custody set up, head to Casa to upgrade. Enjoy 10% OFF a Standard membership* with promo code PETERIZZO. I’ve been using Casa for years and recommend it.

The Tragic Story of ALLINVAIN

In 2010, ALLINVAIN became one of Bitcoin’s earliest businessmen. He built one of the first Bitcoin exchanges in Canada. It was called Bitcoin Express.

I hadn’t previously heard of the service. It’s unclear to me how long it operated or whether it did significant volume. Little survives of the early exchanges of 2010 and 2011. They didn’t receive enough traffic to get logged in the Internet Archive, and the presence of pages with real-time price information meant a lot of their code is now mostly unreadable.

From the few surviving screenshots, we can see the platform allowed its users to buy 1,000 BTC for $5 — or $0.005 per coin, and that it had only about 3,000 BTC worth of liquidity. (Much of it probably from ALLINVAIN himself).

At the time, there was only a handful of other places that people could go to buy bitcoin.

This was before the infamous Bitcoinica (which we covered earlier this month), and Mt. Gox and The Bitcoin Market were just coming online.

All of these services were selling coins for pennies on the dollar.

But ALLINVAIN was more than an entrepreneur. He was an apparently prolific miner, generating coins alongside the likes of Satoshi and famed pizza-lover Laszlo Hanyecz. Armed with his laptop, and the belief that Bitcoin could change the world, he was generating a 50 BTC block every hour.

For you Bitcoin history buffs, this is what Bitcoin mining looked back when the cost per coin was $10. Miners like ALLINVAIN were generating BTC with the click of a button on their home computers.

This shot appears to be some sort of third-party software interface that could run alongside the standard bitcoin client. (I’d be interested to learn more if anyone is more familiar).

But as more people came online, and started to generate their own coins, Bitcoin’s mining difficulty skyrocketed. By 2011, hashrate surged from 0.001 just a year before to 4 TH/S — an increase of 114,000%.

“It’s as if everyone, their mother, father, cousin, and their dog started mining,” ALLINVAIN said on May 26, 2011.

Still it appears ALLINVAIN kept having success in generating coins – he quickly became a whale, amassing 25,000 BTC, about $500,000 at the peak of the 2011 bubble when the price hit $30.

But it all came tumbling down on June 13, 2011. Here’s another heart-stopping image of the theft in action.

Disaster struck one morning when he realized that 25,000 BTC had been drained from his wallet. And just like that, while he slept, all his bitcoin was gone forever.

News quickly circled the globe. Forbes called it “the FIRST Bitcoin heist,” and the situation grabbed headlines in The Atlantic, and National Public Radio (NPR). This really would have been one of the first big Bitcoin news stories, Satoshi Nakamoto having left the project only a month earlier.

The robbery was so big, it spun up conspiracy theories across the Bitcoin Talk forum. Some reckoned he was spreading FUD, and quickly claimed ALLINVAIN had staged the whole thing. (Interestingly, his choice of handle didn’t help).

As expected, ALLINVAIN was devastated. He collapsed into depression, and wondered whether all his effort to expand freedom money for the world was worth anything. His real-time reactions hit hard.

But he quickly bounced back.

The same day he was hacked, ALLINVAIN was posting on mining topics on the Bitcoin Talk forum. In the years after his loss, he stayed active, kicking off his own hosted mining business called CryptoBoreas which stayed operational until 2017. (If anyone ever used the service, feel free to reach out.)

So what happened? A common practice in the Bitcoin space: poor security practices.

ALLINVAIN says it was his own fault, writing in the Bitcoin Talk forum that “it was stupid of me to trust my security that much.”

According to him, he had backed up his wallet to Dropbox, Wuala, and SpiderOak. Later on, he deleted them after finding out that Dropbox employees could remotely access files. But the real issue—and one that happens all too often—is that someone hacked his computer and stole the unencrypted wallet file.

In August, just two months after the hack, he revealed that the problem may have been a trojan virus disguised as a Bitcoin mining software. And since he had his keys unencrypted on his computer, he was asking for trouble.

But back then, it was tough to truly understand the nuances, and considerations of proper security practices. Thankfully, today we have an archive, and better options out there (like Casa).

Today, the hack is a reminder to always keep your private keys written in a secure offline location, especially if you’re using it to secure generational wealth.

We’ll end today with a quote: “Those who don’t know history, are doomed to repeat it” — Edmund Burke.

See you all on Monday,

Rizzo