Big player in Bitcoin world appears near to collapse -
Published Wednesday, February 12, 2014 at 1:00 am / Updated at 11:26 am
Big player in Bitcoin world appears near to collapse

What was once the world’s largest Bitcoin exchange, Mt. Gox, appeared near collapse this week, the latest symbol of the woes facing early players in the world of virtual currencies.

Mt. Gox, based in Tokyo, has had a rough ride lately. A few days after cutting off withdrawals for customers, Mt. Gox said Monday that its problems were a result of a more fundamental flaw in the computer program that underlies Bitcoin.

That news touched off a sell-off in virtual currency markets Monday, briefly leading to a swoon of more than 20 percent in the price of Bitcoin, to $535. The price recovered somewhat after developers and researchers in the Bitcoin community said the problems were less an indication of flaws in the currency than of bad decisions at Mt. Gox.

“This just confirms what everyone in the Bitcoin community has known for a while: Don’t use Mt. Gox,” said Sarah Meiklejohn, a graduate student at the University of California, San Diego who studies virtual currencies.

Mt. Gox is not the only early leader in the virtual currency world to stumble as Bitcoin has grown more popular. Charles Shrem, a founder of one of the most popular early Bitcoin websites, BitInstant, was arrested in late January and accused of helping people make drug purchases with bitcoins.

Edward Felten, a professor at Princeton University who has studied Bitcoin, said, “We’re seeing a shakeout where the companies that are weaker in terms of management and technical execution are being weeded out.”

At the same time, Bitcoin developers did acknowledge that weaknesses remained in the currency’s underlying protocol.

“This is a good reminder that Bitcoin is still young and experimental,” the lead developer at the Bitcoin Foundation, Gavin Andresen, said Monday.

Bitcoin has drawn many fans because it runs according to computer code, and is thus theoretically immune to human error. Some critics, though, have long said that computer code can be susceptible to flaws or manipulation.

The recent big movements in the price of Bitcoin seem to be driven largely by the turmoil at Mt. Gox. Last week, a growing number of customers were complaining about their inability to withdraw money from their Mt. Gox accounts.

Friday, the company stopped any further withdrawals.

Mt. Gox’s contentions about the Bitcoin code were taken seriously Monday because they raised basic questions about the soundness of the currency.

From the creation of Bitcoin in 2009, one of the most important and vaunted features of its protocol was its ability to prevent the same coins from being moved to two different places at the same time. In its announcement Monday, Mt. Gox said that a bug in the Bitcoin software made it possible for someone to use the Bitcoin network to alter transaction details to make it appear that a bitcoin transfer had not taken place when, in fact, it had.

The company said: “We have discussed this solution with the Bitcoin core developers and will allow bitcoin withdrawals again once it has been approved and standardized.”

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