03/05/2014 03:18 EST | Updated 05/05/2014 05:59 EDT

Failed Alberta bitcoin bank blames technical flaw for digital currency heist

CALGARY - An Alberta-based online "bank" specializing in bitcoins is blaming a technical flaw for the theft of its digital currency that forced it to close its doors this week.

In a statement on its website, Flexcoin says 896 bitcoins were stolen from its online vault. That translates into a loss of about $600,000, based on bitcoin's current trading value.

"Flexcoin was attacked and robbed of all coins in the hot wallet," the company reported on its website. "As Flexcoin does not have the resources, assets, or otherwise to come back from this loss, we are closing our doors immediately."

An email to the company requesting comment was not immediately returned. But the website did provide details on how the company thinks the theft happened.

"The attacker successfully exploited a flaw in the code which allows transfers between Flexcoin users," it said.

Flexcoin said by sending thousands of simultaneous requests, the attacker was able to move coins from one user account to another until the sending account was overdrawn.

"This was then repeated through multiple accounts, snowballing the amount, until the attacker withdrew the coins."

A line in the company's terms of service says it doesn't insure any of the bitcoins stored on its system nor is it "liable for any lost bitcoins."

Flexcoin said it had made every attempt to keep its servers secure and in its three years of existence has repelled thousands of attacks.

"But in the end, this was simply not enough. Having this be the demise of our small company, after the endless hours of work we've put in, was never our intent. We've failed our customers, our business and, ultimately, the bitcoin community."

Since its creation in 2009, bitcoin has become popular among tech enthusiasts and risk-seeking investors because it allows people to make one-to-one transactions, buy goods and services and exchange money across borders without involving banks, credit card issuers or other third parties. Criminals like bitcoin for the same reasons.

It's hard to know just how many people worldwide own bitcoins, but the currency attracted media attention and the fascination of millions as an increasing number of large retailers such as began to accept it.

A professor from the Haskayne School of Business at the University of Calgary said it's probable the heist was the work of organized crime.

"I think a lot of the hackers with an intent to take commercial advantage seem to be in Russia and China and, I would imagine, a fair number of them are in the Middle East," said Gordon Sick.

"It's perhaps already being spent to buy some arms or drugs."

Registered in Alberta, Flexcoin billed itself as the first bitcoin bank that allowed users to store their bitcoins in a centralized location so that they could be accessed from any web-connected device.

The closure came just a week after the collapse of Mt. Gox, a major bitcoin exchange, but Sick doesn't see the latest setback as fatal to bitcoin.

"If (users) are nervous about it, they'll try to take their bitcoins out and cash them in," he said.

"If everybody takes a run on the bitcoin bank, essentially the exchange rate will go against them and they'll get almost nothing. Even though they'll get all their bitcoins out when they translate them into dollars, they'll be almost worthless."

Word of Flexcoin's demise generated little sympathy on social media.

"The house of cards is tumbling down ... two shutdown in two weeks," wrote one person on Twitter under the handle Dump Harper 2015.

"To all the fools who both believe in bitcoins and have lost gobs of money, don't worry, there's always Monopoly and Canadian Tire money to feed your silly habit," added another with the handle We Have Liftoff.

There was only one post on Flexcoin Facebook page that appeared to come from someone who lost bitcoins in the theft.

"Plyz i beg u return my hard earned btc. dats my hard earned money", said a post by Nikhil Kumar Mansinghka.

— Follow @BillGraveland on Twitter