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Bitcoin Trading Technology In Question As Currency Dives After Glitch

Feb 11 2014, 6:26am CST | by

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Bitcoin Trading Technology In Question As Currency Dives After Glitch
 
 

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Bitcoin Trading Technology In Question As Currency Dives After Glitch

A software glitch, enabling Bitcoin traders to effectively defraud exchanges, has prompted a severe war of words – between the currency organisation and a Japanese trading venue that questioned whether the core messaging technology is fit for purpose.

Yesterday, the price of Bitcoin, the innovative yet secretive virtual currency reportedly used by some traders for illicit activity, dived by 16 per cent after exchange Mt Gox said there was a “bug” in the Bitcoin software.

The Bitcoin Foundation has rejected the comments, insisting that Mt Gox experienced its own technical problems and was not ready for a well-known messaging risk.

The issue affects transactions from a Mt Gox account to an external Bitcoin address, and not currency withdrawals. It allows someone to use the Bitcoin network to alter transaction details, making it appear that withdrawals to Bitcoin wallets have not occurred and enabling the currency to be resent – potentially allowing someone to make a withdrawal twice for only one charge.

Mt Gox said in a statement: “The problem we have identified is not limited to Mt Gox, and affects all transactions where Bitcoins are being sent to a third party.” It has suspended all withdrawals “until this technical issue has been resolved”.

The latest problem may – to some onlookers – demonstrate the risks of running cutting edge, highly adapted systems on a vast financial scale. It has even prompted an unexpected admission from high profile members of the Bitcoin community that the core technology in use is immature.

Mt Gox: The Defect Has Been ‘Largely Ignored’

In a scathing comment over Bitcoin’s software coding, Mt Gox said the problem has been “largely ignored” by coders. This was the case even though the issue is “known to at least a part of the Bitcoin core developers” and is frequently discussed on BitcoinTalk forums.

The problem can “easily” be taken advantage of by a party altering a transaction quickly, by direct connection to different mining pools or through simple mining, Mt Gox claimed. The exchange is calling for changes to transaction tracking processes, and insists on better messaging standardization.

Bitcoin: Problem Exchanges Should Know Better

The claims have prompted a swift and angry rebuttal from Bitcoin. Gavin Andresen, chief scientist at the Bitcoin Foundation , said: “Bitcoin is not at fault”.

Instead, Mt Gox was in part to blame, because of its customized software and inflexible platform, Andresen said. He described “an unfortunate interaction between Mt Gox’s implementation of their highly customized wallet software, their customer support procedures, and their unpreparedness for transaction malleability, a technical detail that allows changes to the way the transactions are identified”.

All exchanges need to “responsibly prepare for this possibility and include in their software a way to validate transaction IDs”, he said.

Bitcoin is working on its own problems, including tackling the transaction malleability, he noted, adding that this was “something that cannot be corrected overnight”.

It is understood that large parts of the Bitcoin community, including Mt Gox, are in dialog with the Foundation over how to tackle the issues. But some commenters on Bitcoin forums yesterday blamed Mt Gox, calling for the resignation of its founder Mark Karpeles, who is a board member of the Bitcoin Foundation.

Experimental Technology On A Vast Scale

The error has prompted a significant and perhaps unexpected admission by different members of the Bitcoin community that the technology remains immature, in spite of hundreds of millions of dollars of the currency being traded daily.

Andresen at the Bitcoin Foundation is one such high-profile person to note the risk. Referring to the Mt Gox incident, he said: “This is a good reminder that Bitcoin is still young and experimental. There are best practices to think about and account for by those who want to build companies.”

He adds: “To help improve both the reference implementation and third-party software, the Foundation is committed to working with companies to produce best practices to help improve software.”

Mt Gox, in a statement, made a similar admission. It said: “To put things in perspective, it’s important to remember that Bitcoin is a very new technology and still very much in its early stages.” The problems, it said, need to be “properly addressed in a manner that will best serve our customers”.

No more has been said yet on how the problems will be fixed and if messaging standardization will be achieved. After Bitcoin’s price plummeted to $540 dollars yesterday, it has staged a partial recovery to $577 at the time of writing. But this is well short of the $691 before the fall yesterday and a long way from the more than $1,000 value commonly witnessed since November.

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Source: Forbes

 

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