Bitcoin Exchange Bitstamp Halts Customer Withdrawals

Bitstamp, one of the biggest online Bitcoin exchanges, suspended withdrawals yesterday in the latest setback for the virtual currency following a service disruption at a Tokyo-based exchange last week.

A denial-of-service attack, in which a website is flooded with massive requests for data, obstructed Bitstamp’s ability to check account balances, the exchange said in a statement. Customers can withdraw cash but not Bitcoins, as the company works to fix services, Nejc Kodric, Bitstamp’s chief executive officer, wrote in an e-mail.

The value of Bitcoin, which can be used to buy everything from Tesla Motors Inc. cars to Gummi bears, was down 1.2 percent at $661.17 at 1:15 p.m. in New York today, according to the CoinDesk Bitcoin Price Index, which averages exchange prices. Mt.Gox, another major online exchange, restored cash withdrawals on Feb. 10 after suspending services last week because of a technical flaw in how service providers reconcile Bitcoin transactions.

“We already established working Bitcoin deposits, meaning that our client can deposit Bitcoins, sell them and withdraw fiat currency without any problems,” Kodric wrote. No funds were lost and transactions that failed on Feb. 10 and 11 will be canceled, Bitstamp said.

“This is a nuisance attack,” said Andreas Antonopoulos, chief security officer for Blockchain.info, a provider of online wallets for a digital currencies. “Funds have not been lost, and have not been affected. What it’s done is slow down their accounting system from reconciling transactions.”

Tracking Transactions

Bitcoins can be used to buy goods and services on Web stores and retail outlets. Non-profit thrift store operator Goodwill will be able to offer the option for stores to accept Bitcoins in some locations via payment terminals from Revel Systems Inc., the company said yesterday.

The governments of India, China and Russia have sought to ban or limit the use of Bitcoins, which exist as software and aren’t controlled by any central authority. Some U.S.-based exchanges have either closed at the behest of law enforcement or had difficulties obtaining business bank accounts due to regulatory concerns.

The latest attack exploits a design element of Bitcoin, which exists as software. Since transactions need to be tracked and reconciled within the currency itself, any data disruption makes it difficult for exchanges and other service providers to follow the flow of the digital money.

Updated Wallets

Coinbase Inc., a Bitcoin wallet operator, said that customers can still send and receive funds, although the attack, which affects the Bitcoin ecosystem as whole, is causing some delays in transactions.

Some websites, as well as users of Bitcoin wallet software, will have to update their programs with fixes to prevent future attacks, according to Jeff Garzik, a Bitcoin software developer.

“Even the designer of the system and other developers were unaware of how the system could be changed,” Garzik said in an interview. “All of the wallets will need some level of updates.”

The denial-of-service attack against Bitstamp was small, and probably originated from one rogue computer, Garzik said.

To contact the reporter on this story: Olga Kharif in Portland at okharif@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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