Bitcoin exchange halts withdrawals after cyber-attack

BitStamp, one of the world’s largest and most commonly used Bitcoin exchanges has temporarily halted withdrawals after its exchange system came under attack.

The exchange firm, based in Slovenia, said criminals had used a vulnerability in the underlying Bitcoin software to perform the attacks. The Bitcoin Foundation, who maintain the code on which the software is based, have been trying to find a work around as well as fixes for the issue. They added that as this was a DDoS (distributed denial of service) attack no theft of Bitcoins had taken place, but that funds were “tied up” in the affected exchanges for now.

Bitstamp are now the second big Bitcoin exchange to come under DDoS attack in under a week, with Tokyo’s MtGox being the first last Friday.

A third exchange, BTC-e has also warned that transactions would be delayed due to another DDoS attack.

The cause of the problem stems from a weakness in the Bitcoin code known as transaction malleability. This malleability allows somebody to alter the code of Bitcoin just before a particular transaction is logged. This in turn allows a withdrawal to be made multiple times without the “blockchain” (the database Bitcoin uses to record every transaction carried out) noticing, opening the door to theft of Bitcoins.

The actual DDoS attack, according to Gavin Andersen of the Bitcoin foundation, comes when an exchange firm’s systems can’t cope with vast amounts of these fraudulent transactions. Mr Andersen pointed towards the design of MtGox and Bitstamp’s systems not being up to scratch, adding that the transaction malleability issue had been known about since 2011.

Unfortunately, despite Bitcoin trying to distance themselves from the fallout of this issue, this is more unwanted publicity, after the arrests of Charlie Shrem and Robert Faiella, in the US. Shrem and Faiella worked together to exchange over $1 million in Bitcoins to users of the Silk Road. The Silk Road, which has been shut down since October 2013, was an illegal trading place of illicit materials, such as illegal drugs and weapons. Bitcoin was the only accepted currency on the Silk Road.

Stock prices of Bitcoin fell as a result of this news from $830 to $665, a drop of nearly 20%. Prices also fell after the arrests of Shrem and Faiella, so this latest hiccup is something that Bitcoin could have done without. However, that does not stop the meteoric rise of virtual currencies, in particular Bitcoin, over the last 12 months or so. Less than two years ago, in July 2012, Bitcoin’s value was at just $9, which itself was a revelation at the time.

On this basis, it would be a safe assumption that Bitcoin might not be too worried about this latest incident.


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