Facebook users: Those posts about a Secret Sister Gift Exchange that have been popping up in your News Feeds are big-time hoaxes.
Forbes contributor Amit Chowdhry reported that the hoax—which promises Facebook users who buy gifts of $ 10 or more 36 gifts in return—provides the following instructions to victims (unedited):
Send one gift value at least $ 10 to secret sister #1 below.
Remove secret sister’s name from #1; then move secret sister #2 to that spot.
Add your name to #2 with your info.
Then send this info to 6 other ladies with the updated name info.
Copy the secret sister request that I posted on my wall, to your own wall. If you cannot complete this within 1 week please notify me, as it isn’t fair to the ladies who have participated and are waiting for their own gifts to arrive. You might want to order directly from a web-based service (Amazon, or any other online shop) which saves a trip to the post office. Soon you should receive 36 gifts! What a deal, 36 gifts for giving just one! Be sure to include some information about yourself … some of your favorites. Seldom does anyone drop out because it’s so much fun to send a gift to someone you may or may not know … and of course it’s fun to receive. You should begin receiving gifts in about 2 weeks if you get your letters out to your 6 people right away.
Chowdhry reported that the U.S. Postal Inspection Service even addressed the Secret Sister Gift Exchange in a Facebook post earlier this week (embedded below), writing:
Consider a typical pyramid that involves six individuals in the chain. By the time you’ve reached the fourth level of participation, nearly 1,300 recruits must be onboard. Today, social media might make that a bit easier in than days past, which required chain-letter-type solicitations by mail. However, upon reaching the sixth level of participation, you’d have to attract more recruits than could be seated in Chicago’s Wrigley Field.
By the seventh level, you’d need more participants than folks living in Anchorage, Alaska. The ninth level requires you to recruit all of Houston and the Washington, D.C., metro area combined—and you still wouldn’t have enough participants. The 11th round requires everyone in the U.S. to join in if the promise is to be fulfilled. The odds are likely greater that Santa Claus himself would fly his sleigh into the middle of Times Square to personally distribute the gifts.
Readers: Have you seen Secret Sister Gift Exchange posts in your News Feeds?
Internet hoax image courtesy of Shutterstock. Secret Sister Gift Exchange image courtesy of Forbes.
The latest in the long list of breaches occurred at China’s BTER exchange, which has lost 7,170 bitcoin (valued at ~$ 1.75 million at today’s exchange rates) via an apparent hack to its cold wallet system.
The company is offering a 720 BTC (~$ 170,000) reward for information leading to the return of the stolen funds. The offending transaction can be viewed on the blockchain, meaning that the bitcoin ecosystem has at least some shot at tracking the missing funds and identifying the party or parties responsible.
The company issued a statement in Chinese on its Weibo that read, in part:
To ensure the safety of other funds, we have taken technical measures to stop and turn off all the virtual currency trading in online wallets in order to do further checks
At the same time, we plan to arrange CNY and other virtual currency extractions as soon as possible to reduce user’s concerns.
Please be assured that we will not run away, we will assume responsibility for the user to recover the stolen Bitcoins.
But if BTER’s own statements are to be believed, this incident has the most in common with the Mt. Gox debacle in that both companies saw their respective cold wallets breached – in Mt. Gox’s case costing depositors a staggering $ 450 million in crypto-currency wealth (based on exchange rates at the time of the breach).
The use of cold wallets, which are by definition stored offline and in most cases protected by extensive physical security, are meant to prevent this very type of scenario. Most modern exchanges keep less than 5 percent of all deposits in their hot wallet at any time, with the balance meant to be safe from would-be hackers. For example, it was BitStamp’s hot wallet, not its cold wallet that was breached, meaning the exchange lost just a fraction of its assets and has been able to continue as a going concern (despite suffering a blow to consumer confidence).
One thing that all of these incidents have in common is that they occurred at international exchanges in jurisdictions that have little to no regulatory oversight pertaining to digital currency businesses. As I wrote last month when Coinbase launched the first regulated bitcoin exchange in the US in partnership with the New York Stock Exchange:
For bitcoin to “cross the chasm” it needs reliable institutions that users of all sizes and levels of sophistication can trust. Coinbase, in partnership with the NYSE and other major financial institutions brings a new level of sophistication and credibility to the market – even if many bitcoin idealists will bristle at the centralization and institutionalization.
Bitcoin is, in many ways, still navigating its rebellious teenage years. As the technology matures and adoption grows — not only among online anarchists but mainstream consumers and businesses — there will be less tolerance for the type of amateur hour operations and fly-by-night founders that have plagued the industry’s first half-decade. But with several venture-backed organizations like Coinbase, BitPay, Circle, Blockchain, Xapo, Kraken, Ripple, Gemeni, SecondMarket and others seemingly operating under the full scrutiny of US regulations and the oversight of boards of directors with significant vested interests in their success, this transition is already taking place.
The Coindesk Bitcoin Price Index sits at $ 236 currently, up nearly 34 percent since bottoming out on January 14 at $ 177 – a low precipitated in part by the above-mentioned BitStamp hack and the trial of accused Silk Road mastermind, Ross Ulbricht – but down significantly from its all-time high of $ 1,120 reached in November 2013. Sentiment within the industry remains high, despite the overwhelmingly negative news cycle in recent months.
Lest you look at the above list of bitcoin hacks and conclude this is a technology that is somehow more risky or less worthy than the existing legacy banking system, note that the world’s leading banks were just hacked to the tune of $ 1 billion and didn’t know for months that it was taking place.
Hackers steal $ 1 billion from banks; Bitcoin not involved but I assume somehow to blame :-). http://t.co/HFq9n9egFB
The rule of thumb in bitcoin, as with most things in life, is choose wisely who to do business with and know what recourses you might have if things should go wrong. This isn’t the first time BTER was the victim of a major hack. In August 2014, the company had £1 million ($ 1.65 million) of the NXT digital currency stolen from the exchange.
In the case of BTER, it’s unlikely that affected customers will get their funds back. With the latest generation of regulated exchanges, like the banks affected by the above hack, FDIC insurance covers those unlucky enough to be caught up in any breach.
It’s still early for bitcoin, meaning the Darwinian process of weeding out bad actors continues. At the same time, the industry is beginning to identify and embrace those good actors, who will likely be the seminal companies as the digital currency ecosystem matures. There are now more reputable exchanges and wallet providers than at any point in history. In the meantime, if you have doubts about your bitcoin service provider, trust your instincts and do something about it. This is one lesson no one wants to learn the hard way.
Michael Carney is a West Coast Editor at PandoDaily, covering venture capital, financial technologies, ecommerce, on-demand services, and the future of television, among other subjects. He has spent his career exploring the world of early stage technology as an entrepreneur and early-stage investor, working in multiple countries within North and South America and Asia. He is an enthusiast of all things shiny and electronic and is inspired by those who build businesses and regularly tackle difficult problems. You can follow Michael on Twitter @mcarney.