Monthly Archives: February 2014

Mt.Gox Bank Run

First bank run in the history of Bitcoin.

[UPDATED on Feb.06 17:45 GMT with information on the technical error]

[UPDATE 2 Feb.07 07:48 GMT : Mt.Gox has released a more detailed statement saying all withdrawals are halted to be able to fix the problem, promising further updates on Feb.10th.]

[UPDATE 3 Feb 07 11:17 GMT: The details of the bug have been explained by Bitcoin developer Gregory Maxwell on Reddit. In essence it is a combination of a design flaw in the Bitcoin protocol coupled with the way the custom Mt.Gox software handles transactions.]

Withdrawing USD from Bitcoin Exchange Mt.Gox already used to take anything from weeks to months, but it is now becoming similarly difficult to withdraw Bitcoins.

As of Feb.06, over 50.000 (50k) Bitcoins ( ~40 MIO USD) are “stuck” inside of Mt.Gox according to their own data, collected by Coinsight and “The Gox Report”, and this number is growing fast. While being inflated due to the “change” of transactions, and possibly being closer to 20-30k, just the rate at which this amount is rising is a cause for concern.

The problem became apparent around the 25th of January, when a rapidly growing number of users started voicing their concerns on Bitcointalk , Reddit and Twitter. Some users report waiting over a week to be refunded for failed withdrawals, only to have the transaction fail again on the next attempt.

While some withdrawals seem to go through, the overall success rate as stated by users, and backed up by data from Mt.Gox and IRC support, seems to be below 30%.

The official statement by Mt.Gox is that they are aware of the problem and are working hard to fix it, but is providing no further information.

[UPDATE: Sources close to Mark Karpeles claim progress has been made on finding the cause of the problem, pointing to a misinterpretation of the wallet software as to which outputs are already spent. It is further claimed that he has personally confirmed this error, and progress is being made in fixing it. Due to security concerns the details cannot be disclosed here, as other wallets might be affected.]

This has lead to speculation about the situation of Mt.Gox, with even members of the Bitcoin Foundation asking for clarification and for Gox’ CEO, Mark Karpeles, to step forward.

Karpeles has so far not commented on the issue, and is apparently not even in touch with fellow members of the Foundation, of which Mt.Gox is one of the two only “Gold” members.

Looking at the transactions inside of Mt.Gox wallets via the “Skanner” website reveals a tangled mess of interdependent double spends, causing whole chains of transactions to fail over time.

According to Bitcoin Developer Mike Hearn, Mt.Gox is running a customized version of the Bitcoin software which is maintained by Karpeles himself, and the ongoing problems are leading to the assumption that for some reason he is currently unable to fix it.

With support tickets not being answered, their Twitter & Reddit support sending out prefabricated messages, and their IRC support being overloaded, speculation is running wild about the true nature of their problems, including that the technical problems might be intentional to mask underlying problems. However, support in IRC keeps stating that the problem is being worked on, that Mt.Gox is running a full-reserve operation, and all coins are safe and will be paid out.

Even if these are just errors in the software, Mt.Gox’ failure to properly communicate the issues is alarming in itself, and is already showing to be eroding trust in the exchange, as an increasing number of customers is trying to leave.

At the time of writing Bitcoin prices have been tumbling, with Mt.Gox rates dropping up to 15% in what seems to be Bitcoins first Bank run.

With Bitcoin slowly gaining legitimacy around the world, one stands to question the way Mt.Gox is handling this problem, and whether the Bitcoin Foundation is watching their members to uphold the standards and level of professionalism they have ascribed to themselves.

The current situation can only be defused by either fixing the problems within the next days, or by Mt.Gox stepping up and providing evidence of having enough funds, and giving clear information about the exact nature of the technical problem. It would be in the best interest of Mt.Gox, as well as the Bitcoin Foundation, to step up and address this problem openly and transparently, as the speculation alone might prove detrimental to the further evolution of the emerging Bitcoin economy.

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