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Bitcoin bandits do in bank in Canada

AP, Kyodo

A Canada-based bank specializing in bitcoins said it has closed after computer hackers stole its digital currency.

The closure of the Flexcoin bank comes only a week after the collapse of Mt. Gox, a major bitcoin exchange. The Japan-based Mt. Gox also linked its demise to an electronic heist.

The twin failures of Mt. Gox and Flexcoin will likely raise more doubts about bitcoin’s ability to establish itself as an alternative currency.

In a notice Tuesday, Flexcoin said 896 bitcoins were stolen from its online vault. That translates into a loss of about $600,000, based on bitcoin’s current trading value.

Unlike banks dealing in government-backed currencies, Flexcoin’s losses aren’t covered by deposit insurance. The Alberta province bank says it can’t recover from the setback.

Bitcoins that Flexcoin kept offline, or in “cold storage,” remain secure, according to the bank. Although Flexcoin didn’t provide details, bitcoins stored this way are often documented on paper certificates or on a hard drive that’s not connected to the Internet.

The Mt. Gox collapse represents a far bigger blow to bitcoin’s credibility. That downfall wiped out about 750,000 bitcoins, or about 6 percent of the currency’s total circulation. Mt. Gox has filed for bankruptcy protections while it sifts through its financial mess.

Supporters are touting the five-year-old currency as a way to lower transaction fees by cutting out banks and payment processors that collect billions of dollars annually by serving as financial middlemen. Skeptics, including government leaders around the world, deride bitcoins as a currency suitable only for speculators.

In an attempt to bolster state regulation on bitcoin, the Japanese government plans to impose taxes on profits from bitcoin transactions as well as the consumption tax on purchases of the virtual currency, sources said in Tokyo.

The decision on the issue is likely to be approved at a Cabinet meeting soon, the source said.

The government is expected to define the bitcoin as a product that is not handled by banks and security houses, the sources said.