Mt. Gox, Bitstamp, and other Bitcoin exchanges have temporarily suspended withdrawal transactions after coming under a form of a denial-of-service attack that abuses weaknesses in the way they keep track of fund balances, a security expert said.
The attacks don't have any permanent effect on the central accounting mechanism for the digital currency, but they are likely the driving force behind a sharp decline in the bitcoin-to-dollar exchange rate over the past 48 hours. Since the attacks began on Monday, the price of one bitcoin on Mt. Gox has fallen from just below $700 to well below $540 at one point. It has see-sawed ever since and was at about $580 as this report was being prepared. Other exchanges showed similar fluctuations.
Andreas M. Antonopoulos, chief security officer of digital wallet developer Blockchain, said the attacks work by flooding exchanges with a large number of malformed transactions that are similar, but not identical, to legitimate transactions that were already made. Exchanges that trust one or more of the fake records instead of the entries in the official Bitcoin blockchain quickly fall out of sync with the rest of the network and must recalculate their fund balances once the mistakes become apparent. Malformed transactions aren't necessarily new, but over the past 48 hours their numbers have mushroomed, causing logjams that have prevented some exchanges from being able to process withdrawal requests.
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