Bitcoin faces onslaught of attacks

27 February, 2014

While bitcoin has enjoyed a meteoric rise in value over the past few months, the digital currency is currently facing a wealth of problems that could affect its future if steps are not taken to correct those issues.

Since its inception in 2009, bitcoin has exploded in popularity, but not without repercussions. Prices for the digital currency have experienced a wild ride of fluctuations just over the past year. Now, it would appear that the system as a whole may not be able to hold up to the strain and is bursting at the seams. As a result of that strain, bitcoin now appears to have three rather serious weaknesses. While early users of the currency were quick to purport its security and anonymity, now it seems as though the currency might not be as anonymous or secure as was first assumed. Additionally, the ledger system used for tracking transaction has become extremely unwieldy. Finally, the mining system that is responsible for increasing bitcoin currency while at the same time maintaining the currency's integrity has resulted in a fierce computation.

Following the closure of the infamous Silk Road and the implementation of severe regulations in China, the value of bitcoins temporarily crashed. Soon, values began to rise once again; however, the virtual currency would quickly face another onslaught of problems in the form of hacking and denial-of-service, or DDoS attacks.

The attacks stem from anonymous computer hackers who are responsible for transmitting mutated lines of code into the program that runs bitcoins. As a result of those attacks, two bitcoin exchanges have experienced serious problems causing them to halt withdrawals by customers on a temporary basis.

Although the currency is not being stolen by the party or parties responsible for the attacks, the hacking has prevented transactions from being confirmed. The balances of customer funds or wallets are not affected, but ultimately they are not able to use their funds as a result of the attacks. Currently a team of software developers are working valiantly to resolve the problem.

Mt. Gox, the original Bitcoin exchange, has also experienced a wealth of problems that has proven to make it even more difficult to conduct Bitcoin transactions. Much like the currency on which it is based, Mt. Gox has also experienced a rapid rise in popularity. First opened in 2009, the Tokyo-based exchange saw thousands of people signing up monthly, beginning in 2012. Moving in 2013, those numbers began to double and then triple. In June and July of 2013, the exchange was forced to suspend US dollar trading for a period of two weeks. In addition, the exchange has been the victim of multiple DDoS attacks and was even forced to cease trading in April of 2013 after the digital currency experienced a major price decline. Along with technical issues and hacking attempts, the exchange has also borne the brunt a multi-million dollar lawsuit as well as ever-increasing regulatory issues.

Last year, in light of the problems it had experienced, Mt. Gox undertook a massive technical overhaul in a desperate attempt to save its exchange. As part of that overhaul, Mt. Gox completely rebuilt the trading platform. In an effort to prevent future problems, the new trading platform was completely separated from the front-end website. It was hoped that this move would provide the trading platform with some immunity to the types of problems it has experienced in the past.

Recently; however, Mr. Gox found it necessary to temporarily suspend all withdrawals in an effort to resolve technical issues. According to Mt. Gox, the suspension was necessary due to the presence of a bug that could allow fraud. Bitstamp, another large Bitcoin exchange, also recently suspended all withdrawals as a result of the continuing denial-of-service attacks. The subsequent impact on the Bitcoin market has been astounding. The price of a single Bitcoin dropped from $850 to $681 within just one week, and currently hovering at around $600. i

Such attacks utilize malleability in transactions to temporarily interrupt balance checking. Overall, the Bitcoin industry is working together to ensure that problems do not expand across the network. Any exchanges that have been affected by the attacks are working diligently to fix internal systems in order to correct account balances so that withdrawals can be resumed as quickly as possible. Large mining pools are also working together to prevent the spread of attack-related problems.

The core block chain mechanism that underpins the currency has not been directly impacted by the malleability problem that has allowed the recent onslaught of attacks. The chief security officer of, Andreas Antonopoulos, has stated that he expects the malleability issue to be resolved for all major exchanges within the next few weeks.

In light of the recent problems experienced by the digital currency, both the United States and Canada may strengthen regulations intended to prevent money laundering and adopt more stringent consumer disclosure regulations.