What’s Going On With Bitcoin Exchange Mt. Gox?

mtgox12 Feb 2014 – Tech Crunch – Mt. Gox, one of the original Bitcoin trading sites, has shut down its withdrawals system, citing problems related to transaction malleability (more on that shortly).

Mt. Gox wrote on their site that this problem has forced them to shut down their withdrawal services:

“We apologize for the sudden short notice. All bitcoin withdrawal requests will be on pause, and the withdrawals in the system will be returned to your Mt Gox wallet, and can be reinitiated once the issue is resolved.”

So what happened?

Put simply, Mt. Gox has been suffering from a sort of hack that makes its transactions vanish, allowing aggrieved customers to come back and ask for their money again. In fact, however, these vanished transactions are properly processed and the customer is paid twice.

To explain it without going into too much detail, transaction malleability means that transaction – 1 bitcoin sent from Mt. Gox to User A, for example – could be changed so that Mt. Gox wouldn’t be able to track that the transfer ever happened. The transfer as it stands is added to the blockchain, the ledger of all bitcoin transactions, and User A gets the BTC. BTC transfers are actually chains of data leading back to the original coin in question’s “birth.” Each transaction has its own ID or hash which is based on the data inside the transaction – the recipient and the sender in most cases. These IDs are unique.

A renegade node can modify the transaction, whenever it sees certain data pass through the network. This modified transaction still says Mt. Gox sent User A 1 BTC, is still a valid transfer, but has a completely different hash. This new, modified transaction essentially cancels out the previous transaction (if the renegade node is fast enough to spread its data to the confirming nodes) and Mt. Gox doesn’t have any way of proving that the transaction occurred because it records transactions based on the hash. User A goes back to Mt. Gox complaining they didn’t get their cash and the exchange has no recourse but to send another payment… and another… and another. At least that’s how this would work in theory….. Read more


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