Bitcoin Faces Credibility Crisis as Major Exchange Struggles
NEW YORK ( MainStreet) Bitcoin, the digital currency, is battling to maintain its already tenuous credibility. Mt. Gox, a leading bitcoin exchange headquartered in Tokyo, has halted withdrawals to external addresses while it works to alleviate what it claims is a technical issue.
"As you are aware, the Mt. Gox team has been working hard to address an issue with the way that bitcoin withdrawals are processed," the exchange says in a statement on its website. "By 'bitcoin withdrawal,' we are referring to transactions from a Mt. Gox bitcoin wallet to an external bitcoin address. Bitcoin transactions to any Mt. Gox bitcoin address and currency withdrawals (Yen, Euro, etc) are not affected by this issue."
The statement also says the issue is not limited to Mt. Gox transactions but affects withdrawals system-wide, where the currency is being sent to a third party. The exchange originally detected "unusual activity" during the past weeks on its bitcoin wallets and began investigating.
"A bug in the bitcoin software makes it possible for someone to use the bitcoin network to alter transaction details to make it seem like a sending of bitcoins to a bitcoin wallet did not occur, when in fact it did occur," the Mt. Gox team says. "Since the transaction appears as if it has not proceeded correctly, the bitcoins may be resent. Mt. Gox is working with the bitcoin core development team and others to mitigate this issue."
The exchange reports bitcoin trading at $562 as of Tuesday morning, down from a close of $935 on February 1.
Mt. Gox originally announced the transaction issue Friday, saying, "We apologize for the sudden short notice. All bitcoin withdrawal requests will be on pause, and the withdrawals in the system will be returned to your Mt. Gox wallet and can be reinitiated once the issue is resolved."
The bitcoin community is swirling with rumors regarding the ongoing viability of Mt. Gox, one of the first and largest exchanges, but also an enterprise that has previously struggled with trading and withdrawal suspensions, self-admitted "significant losses," lawsuits, regulatory issues and an asset seizure conducted by the U.S. Department of Homeland Security.
In a statement, the Bitcoin Foundation, an advocate for the fledgling currency, says the issue is with Mt. Gox, not bitcoin.
"The issues that Mt. Gox has been experiencing are due to an unfortunate interaction between Mt. Gox's implementation of their highly customized wallet software, their customer support procedures, and their unpreparedness for transaction malleability," the organization says in a statement.
"Transaction malleability has been known about since 2011," the statement continues. "In simplest of terms, it is a small window where transaction ID's can be "renamed" before being confirmed in the blockchain. This is something that cannot be corrected overnight. Therefore, any company dealing with Bitcoin transactions and have coded their own wallet software should responsibly prepare for this possibility and include in their software a way to validate transaction ID's. Otherwise, it can result in Bitcoin loss and headache for everyone involved." The Bitcoin Foundation concludes, "This is a good reminder that Bitcoin is still young and experimental."