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Bitcoin exchanges have been crippled by hackers exploiting a weakness in the digital currency's core network.
Bitcoin exchanges have been crippled by hackers exploiting a weakness in the digital currency's core network.
The biggest breach affected the ability of several major digital currency companies to process withdrawals, halting or suspending the process.
No individual or group has claimed responsibility for the distributed denial-of-service (DDoS) attack, which overwhelms websites with requests for data.
"This went from an isolated exercise that was happening to a single exchange to a relatively broad-based attack," said Andreas Antonopoulos, chief security officer of digital wallet provider Blockchain.
Antonopoulos, who first made the discovery, was not sure how many were involved in the attack or where it originated.
Top exchanges Bitstamp and BTC-e, which control more than half of bitcoin transactions, suspended or delayed withdrawals as trading platforms stepped up checks and inspections on order books.
Bitcoin prices at both companies fell, resulting in the virtual currency's value dropping by more than US$100, to its lowest for the year. The benchmark Coindesk price index slumped to US$652.93 at 10pm last night.
A smaller hacking of the Japan-based Mt Gox exchange last April saw the price fall US$20 to US$120.
London-based exchange Bitstamp said a denial-of-service attack had left it unable to check account balances.
"As such, Bitcoin withdrawal and deposit processing will be suspended temporarily until a software fix is issued," the company said.
On Monday, Mt Gox revealed it had been hit with "unusual activity" related to transaction malleability - a characteristic of the bitcoin protocol that allows transaction IDs to change - which affected all exchanges.
"You can't change where the money has come from," Antonopoulos said, trying to explain how the hackers penetrated bitcoin exchanges. "What you can do is make it appear like it's a different transaction and when a network sees that, it tries to ignore one and only process the other, and that causes confusion."
He said customer funds and exchanges were not at risk.
Lo Ken-bon, chief executive and co-founder of Hong Kong-based exchange Asia Nexgen, which has not been affected, said discussions were being held among exchanges to address the situation.
"Everybody needs to fix their networks," Lo said. "Hackers are attacking the infrastructure but you have to find a way to prevent or re-route around the problem."
Jeff Garzik, a bitcoin software developer, told Bloomberg some websites, as well as users of bitcoin wallet software, would have to update their programs to prevent attacks.
Popular wallet service Coinbase - which raised US$30 million from investors last year - said customers faced delays to "legitimate" transactions.
Garrick Hileman, an economic historian at the London School of Economics, said: "The current co-ordinated DDoS attack on exchanges appears to be more potent than past ones, and certainly the timing of this attack, which exploits the transaction malleability problem Mt Gox cited yesterday, is peculiar."
Standard Bank are reportedly trialing a bitcoin portal system. Photo: Bloomberg
Top emerging-market bank trialing bitcoin – but will China veto?
Africa’s largest bank, the Johannesburg-headquartered Standard Bank, is reportedly trial running an integrated bitcoin system. According to Coindesk, Singapore-based developers Switchless have created a “fully operational and integrated bitcoin portal system for a large multinational bank”.
Jon Matonis, executive director and board member of the Bitcoin Foundation lobby group, declared: “This picture threatens bitcoin exchanges more than government regulators.”
Although Standard Bank has not confirmed or denied backroom testing, if the report is true – it first surfaced at a London bitcoin conference – it would undoubtedly be a significant coup. The trials will no doubt be of considerable interest to the financial industry, but what about Standard Bank’s major backers?
Industrial Bank of China (ICBC), the world’s largest bank by total assets and market capitalisation, is Standard Bank’s biggest shareholder with a 20 per cent holding –paying US$5.5 billion in 2008 – according to the Financial Times, and has greater influence in the boardroom with two seats.
Since the relationship began, ICBC has been on a buying spree, snapping up Standard Bank’s non-core assets. In 2011, it bought the bank’s Argentina business for US$600 million, while a fortnight ago it agreed to buy a 60 per cent majority stake in Standard’s London-based global markets arm for US$765 million.
The financial watchdog and central bank, the People’s Bank of China, has previously stepped into the digital currency fray on two occasions in December last year to release some air for a bitcoin bubble. The mainland’s central bank ultimately triggered a collapse in global prices. As we reported, buyers could snap up coins for as little as 2,011 yuan (HK$2,572), a collapse of more than 70 per cent from a high of 7,588 yuan (HK$9,707) in November last year.
After December’s crackdown, experts were divided on whether the central bank would raise objections to the testing of the system.
“I think it is unlikely for the central bank to interfere with other bank’s internal business, despite the ICBC having a holding in the bank,” Hao Hong, managing director of research at Bank of Communications, told Bitcoin Buzz.
“Assuming the PBOC and ICBC were aware of it, the local trends or laws would dictate as Chinese subsidiaries often engage in financial activities and products that are allowed in the foreign market, but not necessarily in China,” said Zennon Kapron, managing director of mainland-based financial research firm Kapronasia. “That being said, I’m sure the PBOC could restrict ICBC’s activities if they wanted to.”
Bocom's Hong cast some doubt on the digital currency’s short-term attractiveness to speculators.
“Bitcoin is a viable payment system, but has been used as a speculative tool. The recent arrest of one its key figures, as well as its trading volatility, may dampen its attractiveness as a speculative object,” he said.
Bitcoin exchanges under ‘massive and concerted attack’: update
As we reported that exchanges were talking on a technical level to shore up their defences. It is worth noting that bitcoin will be stronger, as this line sums up the situation in today’s article:
“Some websites, as well as users of bitcoin wallet software, will have to update their program with fixes to prevent future attacks, according to Jeff Garzik, a bitcoin software developer told Bloomberg.”
Bitcoin flowers for Valentine’s Day – what else!
The #BitcoinBuzz team will pay a visit to Hong Kong Flower Delivery on one of their busiest days of the year. Valentine’s Day is less than 24 hours away – and a big bouquet of flowers to show your love is a tradition. Some of the florist’s orders have been snapped up and paid in bitcoin already.
We’ll have the full story, photos and video in Friday’s South China Morning Post print edition.
Latest bitcoin price: US$649.51 at 13.27 on Thursday based on prices from BTC-e and Bitstamp
