FROM WSJ:
Hackers Launch Attacks on Bitcoin Exchanges
By ROBIN SIDEL CONNECT
Updated Feb. 11, 2014 6:41 p.m. ET
The two largest bitcoin-trading exchanges came under attack from hackers Tuesday, leaving customers unable to withdraw their money in the latest development to roil the fledgling virtual currency.
Bitstamp's move to suspend withdrawals of bitcoin follows similar action Friday by Mt. Gox. Reuters
Slovenia-based Bitstamp said it halted customer withdrawals to deal with the issue. BTC-e, a bitcoin exchange based in Bulgaria, said it was experiencing delays in crediting certain transactions. During such outages, some trading can continue, but customers aren't able to gain access to their money.
Both exchanges described the problem as a denial-of-service attack, according to comments made by the companies on their websites. In denial-of-service attacks, hackers essentially disable a website by flooding it with information requests.
The two exchanges account for 56% of bitcoin trading volume, according to bitcoincharts.com, which tracks trading activity.
The attacks underscored the fragility of the five-year-old currency, which is created by computers and isn't backed by a central bank.
"This is a very big deal," said Jaron Lukasiewicz, chief executive of Coinsetter, a New York-based bitcoin-trading platform that remained open as usual. "The two largest bitcoin exchanges aren't processing withdrawals—that essentially shuts the ecosystem down."
Details about the incident were limited, although Bitstamp linked the problem to a "transaction malleability" issue that prompted the Tokyo-based Mt. Gox exchange to halt withdrawals last week. BTC-e didn't elaborate on its problems in the statement on its website.
Mt. Gox has blamed its issue on a glitch in the bitcoin software that could potentially give rogue traders a way to falsify transactions. It said Monday the problem wasn't limited to Mt. Gox.
After the Mt. Gox news arose, "somebody, somewhere in the network decided it would be fun to start mutating transactions," said Gavin Andresen, chief scientist at the Bitcoin Foundation, a trade group that promotes the use and development of bitcoin.
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Bitcoin prices fell sharply for a second consecutive day. The price of a bitcoin dropped roughly 4% to $650, based on the CoinDesk price index, which collects data from Bitstamp and BTC-e. At the beginning of February, one bitcoin was worth about $850, according to the CoinDesk index.
"Virtual currencies were dreamed up in a virtual world, and now they are being market-tested," said Mark Williams, an economics professor at Boston University and former bank examiner who has expressed concern about bitcoin's infrastructure and unregulated exchanges.
The most popular in a host of nascent virtual currencies, bitcoin has attracted enormous attention from professional investors, merchants and ordinary users in the past year.
But because a computer-generated currency isn't backed by a central bank, there is no government to intervene if problems emerge.
"The long-term strength of the virtual-currency industry will require robust safety and soundness requirements—so customers have faith that their money won't get caught in a virtual black hole," said Benjamin Lawsky, superintendent of the New York Department of Financial Services, in a speech delivered Tuesday at the New America Foundation think tank in Washington.
The New York regulator, which recently held public hearings on virtual currencies, is considering requiring bitcoin companies to get a special "bit license." Regulators want to require bitcoin-related companies to meet anti-money-laundering rules and vet customers better to help stop the currency from being used for illegal activities.
Bitstamp said on its website that a denial-of-service attack triggered "inconsistent results" in the virtual wallet that holds bitcoin for its customers.
"As such, Bitcoin withdrawal processing will be suspended temporarily until a software fix is issued," the exchange said in its statement. It also noted that no funds have been lost and none are at risk.
Bitstamp said the problems "have simple solutions that are being implemented as we speak, and we're confident everything will be back to normal shortly."
Mr. Lukasiewicz of Coinsetter called the problem, while troublesome, a "hiccup" in the evolution of the currency and expressed confidence the issue could be resolved.
"In general, bitcoin is very robust, and this problem is more related to the exchanges than bitcoin itself," he said.
—Michael J. Casey contributed to this article.
Write to Robin Sidel at
robin.sidel@wsj.com
