Bitcoin exchange shuts down after hack

Bitcoin bank Flexcoin is closing after it lost bitcoins worth about $600,000 to a hacker attack.

Flexcoin said in a message posted on its website Tuesday that all 896 bitcoins stored online were stolen on Sunday. The theft comes after a multi-million dollar hacking theft of the digital currency from Mt. Gox and increased scrutiny from federal regulators.

"As Flexcoin does not have the resources, assets, or otherwise to come back from this loss, we are closing our doors immediately," the company said in a statement.

Flexcoin, based in Alberta, Canada, said it is working with law enforcement agencies to trace the source of the hack, adding it would return bitcoins stored offline, or in "cold storage,” to users.

Cold storage coins are held in computers not connected to the Internet and therefore are much harder for hackers to infiltrate.

Mt. Gox, once the world's biggest bitcoin exchange, filed for bankruptcy protection in Japan on Friday, saying it may have lost some 850,000 bitcoins due to hacking into its computer system.

Bitcoin is a digital currency that, unlike conventional money issued by nations, is bought and sold using an online network independent of central control. The currency's value soared last year, and the total worth of bitcoins is now about $7 billion. In addition to being detached from a central bank's control, bitcoins offer users a level of anonymity they can't find with credit card transactions. 

Prominent members of the Bitcoin community — including San Francisco's wallet service, Coinbase, and the Chinese exchange, BTC China — have sought to shore up confidence in the currency by saying in a statement that the collapse of Mt. Gox was an isolated case of mismanagement. They said it had abused users' trust, but they did not offer details.

"As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today," the statement said.

Flexcoin said on February 25 it was not affected by the closing of Mt. Gox. "While the Mt. Gox closure is unfortunate, we at Flexcoin have not lost anything," Flexcoin tweeted at the time.

Some online retailers and even brick-and-mortar stores had started to accept the currency, after its price and popularity shot up in 2013. According to Tuesday's price on Bitstamp, one of the largest exchanges for trading bitcoins, the crypto-currency was valued at about $668.57 per coin.

The "crypto-currency," a name that stems from its crypotgraphically coded software, has struggled to shake off its associations with criminality, particularly its role in the now defunct online drug marketplace Silk Road.

In January, a prominent bitcoin entrepreneur and member of the Bitcoin Foundation, vice chairman Charlie Shrem, was arrested at New York's JFK Airport on charges of money laundering.

Authorities have recently taken an increasingly hard look at bitcoin and related virtual currencies, including Litecoin, Namecoin, Ripple and others. Some countries like Russia have effectively banned the currency. In other jurisdictions, authorities are weighing whether to try to tame the marketplace through licenses or other mechanisms.

Even if Mt. Gox doesn't drag Bitcoin down with it, there's fear that the demise of the exchange will push officials to take an even more skeptical stance.

Al Jazeera and wire services