Bitcoin Processor's API Goes Dark, Clients Lose Access To Balances

It won't take many more stories like this one before people start to shy away from the Bitcoin ecosystem and cryptocurrencies altogther. Cryptocurrency news site is reporting that Bitcoin processor EgoPay has frozen the accounts of some of its customers, some of which are cryptocurrency exchanges. According to the report, transaction attempts through EgoPay's API are also not completing, rendering the balances of those customers inaccessible through any means. Adding an element of intrigue to the matter, EgoPay is apparently not responding to inquiries either. 

According to EgoPay's Web site "EgoPay is a global payment processor, which enables you to send money to your friends or family members, fund Forex or Crypto-currency accounts, shop online and even more."  Customers apparently came forward to to report the matter, at least one of which (payment solutions provider Payeer) showed the journal evidence that over $185K of its funds were frozen in an EgoPay walllet.

The report points to a forum threadstarter dated Dec 28, 2014 that says:

I am sorry if this is a wrong forum to post this, but I couldn't find a better one. The matter is urgent and since EgoPay is one of the most popular payment methods connected with bitcoin trading, I think it is vital that the whole community is aware what is happening....This morning we received several transaction notifications from EgoPay via merchant API. These notifications were posted from the usual IP [address] of Egopay and were verified correctly by the SCI Callback to the server. However, the funds from these transactions were not added to our wallet... It looks that someone has hacked EgoPay servers and is/was sending fake transactions to merchants. We suspect this because (a) the notifications come from the IP address of EgoPay server and (b) the transactions were verified correctly by the callback to EgoPay server.

Additional posts to the thread raise further alarms regarding the company's lack of response, eventually summarizing that owners of the company may have absconded with clients' funds:

It is confirmed. Egopay was hacked and then the owners ran with the money. they are saying that the management is changing just to earn some time...millions are missing. very curious why only a part of their exchangers came to public until now. I think they are still hoping to get some funds back from Egopay but NO chance

It's hard to make out exactly what might have happened from the tone of thread but there seems to be at least some agreement regarding the sketchiness of certain transactions which in turn led some to believe that EgoPay might have been hacked and that it had to freeze a bunch of clients' wallets until it could fully unravel the hack.

ProgrammableWeb asked Blockchain Technology Group founder and CEO Devon Read how a transgression of this magnititude could have been perpetrated given how the Decentralized nature of cryptocurrencies is supposed to guarantee the "safety" of their participants.  According to Read, 

They broke the first rule of crypto, don't give other people your private keys. These companies and individuals didn't actually control the wallets that held those coins, they trusted EgoPay with them. Giving exchanges and payment services control of wallets adds a lot of value to the services that can be offered but sacrifices the core safety in the system you point to.  [This] takes us right back to one of the biggest problem with banks; trusting their intentions, security and effectiveness with control of money. I'm of the belief that distributed exchanges will largely replace these services over time, but Fiat-crypto seems like it will necessarily always be a central point of failure.

Whether it was misplaced trust (a.k.a. misplaced keys), a hack, or the founders have disappeared, stories like this are a black-eye for the various emergent cryptocurrency ecosystems because of how the devil is in the details that most people won't take the time to understand. They'll just hear how Bitcoin got hacked and stay as far away as possible.

Be sure to read the next Financial article: Money20/20 Hackathon Is Back: $125K in 24 Hours

Original Article

Bitcoin Exchange Processor EgoPay Freezes Funds, Disables API