Bitcoin Value Plunges as DDoS Strikes Currency Exchanges

[Karloff]

Bitcoin Value Plunges as DDoS Strikes Currency Exchanges

Russia and China are backing out of the Bitcoin business.

Recent DDoS attacks on a number of major Bitcoin exchanges have caused them to suspend trade. Mt Gox, one of the most significant exchanges, blames hackers trying to create fraudulent transactions for the attack. The value of the cryptocurrency has dropped significantly, from a high of $926 on February 5th to $501.83 as of time of writing. Bitstamp, BTC-e and Mt Gox are all known to have been affected.

Tokyo-based Mt Gox argues that the attackers are trying to create uncertainty, and exploiting that uncertainty to duplicate transactions. By intervening just after a transaction is initiated but before it completes and changing the transaction ID, the hacker can create the illusion that the transaction never completed. The hacker then claims a second payment, alleging that the first one wasn't valid.

"Whoever is doing this is not stealing coins, but is succeeding in preventing some transactions from confirming," says Jinyoung Lee Englund [http://www.theguardian.com/technology/2014/feb/12/bitcoin-exchanges-suspend-conversions-hacker-attack] of the Bitcoin Foundation. "It's important to note that DDoS attacks do not affect people's bitcoin wallets or funds."

The value of most other Bitcoin variants has fallen, dragged down by the drop in Bitcoin itself. The one exception so far is Dogecoin, whose value has risen markedly. It's now the third most valuable cryptocurrency, after its value soared 27% [http://uk.news.yahoo.com/cryptocurrency-news-round-ddos-attacks-dogecoin-soaring-bitcoin-090723637.html#MyKGrlX] in 24 hours.

Meanwhile both Russia and China have started cracking down on Bitcoin. Last week the Central Bank of Russia made it illegal to use Bitcoin, alleging that it could be used for money laundering and criminal activity. Russia's move came after China's largest exchanges started banning Bitcoin sales earlier this year, as the government cracked down on the cryptocurrency. Alibaba Group, China's biggest online marketplace, complied with the government's demands "in the interest of consumer protection," said a spokeswoman [http://voiceofrussia.com/news/2014_01_08/Bitcoin-banned-by-China-s-Alibaba-3465/].

In both instances it seems likely that, although there are legitimate concerns about criminal activity, the bigger issue is currency control. Though there are benefits - China's investments in Africa have been made much easier with Bitcoin - neither China nor Russia really likes the idea of an electronic currency that avoids both government regulation and monitoring.

"It is proposed to punish (with large fines and imprisonment) all anonymous 'electronic' money transfers through the border," alleged an anonymous Russian Cryptocoins News [http://www.cryptocoinsnews.com/2014/01/15/breaking-news-russia-may-outlaw-bitcoin-russian-voice/] source. "Since Bitcoin has no borders, it may be the problem." The source argues that Russia's political opposition has been funded via Bitcoin for some time, and this crackdown is an attempt to stifle that opposition, as well as a more general reaction against technology the government doesn't understand.

"To put things in perspective," says Mt Gox [https://www.mtgox.com/press_release_20140210.html] as it explains the reasons behind its suspension of trade, "it's important to remember that Bitcoin is a very new technology and still very much in its early stages. What Mt Gox and the Bitcoin community have experienced in the past year has been an incredible and exciting challenge, and there is still much to do to further improve."

Source: Guardian [http://www.theguardian.com/technology/2014/feb/12/bitcoin-exchanges-suspend-conversions-hacker-attack]


Permalink

 

[SL33TBL1ND]

The value of most other Bitcoin variants has fallen, dragged down by the drop in Bitcoin itself. The one exception so far is Dogecoin, whose value has risen markedly. It's now the third most valuable cryptocurrency, after its value soared 27% [http://uk.news.yahoo.com/cryptocurrency-news-round-ddos-attacks-dogecoin-soaring-bitcoin-090723637.html#MyKGrlX] in 24 hours.

It's important to note, however, that each Dogecoin is worth virtually nothing [http://www.cryptocoincharts.info/#jump-doge-btc], so a 27% increase isn't all that much when you really look at it. Which is part of the driving force behind its success, I suppose. People are far less worried about making transactions in a currency that's not even worth 2 10ths of 1 US cent (at the time of this post), and is used mostly as a joke (for now).

 

[Hairless Mammoth]

Hmm, methinks the sweatshops in either China or Russia along with the usual bots are behind this attack. Better to just use your existing crypto army on a threat than go out and try to find, fine and arrest anyone still trying to trade in the country with the banned currency.

"It's important to note that DDoS attacks do not affect people's bitcoin wallets or funds."

Ha, that's like saying a major industry stock dive didn't affect the portfolios of investors. This very article just said the price of a bitcoin dropped by 54%. I'd say that dramatically affected anyone with bitcoins.

 

[castlewise]

Wait Dogecoin is a real thing? I thought that was something that LRR make up for the X ways to Kickstarter video

 

[KingsGambit_v1legacy]

What I fail to grasp is how a currency not within a given governments control, can be made "illegal". How can they control what any two given people use as trade for a transaction? I might pay someone in favours, beer, a steam game, pounds, dollars or "services rendered" (a favour for a favour). If I agree that something is of value to me and sufficient as payment for whatever I provide in exchange, I can use whatever medium I choose for the transaction.

The only thing a nation's currency is good for, is the knowledge that all shops/businesses within that nation are obliged to accept that currency. There's nothing to stop them accepting others if they choose.

 

[Phrozenflame500]

What I fail to grasp is how a currency not within a given governments control, can be made "illegal". How can they control what any two given people use as trade for a transaction?

In a free country, you can't. But we're talking about China and Russia.

Bitcoin crashing? Whoa, that's totally never happened before.

 

[Jeroenr]

What I fail to grasp is how a currency not within a given governments control, can be made "illegal". How can they control what any two given people use as trade for a transaction?

In a free country, you can't. But we're talking about China and Russia.

Bitcoin crashing? Whoa, that's totally never happened before.

Well there are tax and labor laws in many country's.

Money earnt with bitcoins must be reportet on youre tax returns.
This goes not only for real currency you own, but also the real currency value of the bitrcoins you own.

A lot of people wont do this.
So they can atleast get you for tax evation.

 

[Phlakes]

And (not so) suddenly, being independent from the government doesn't seem so appealing when you don't have the security of an entire government. It's almost like there's a reason regular currency has (mostly) worked for hundreds of years.

 

[medv4380]

What I fail to grasp is how a currency not within a given governments control, can be made "illegal". How can they control what any two given people use as trade for a transaction?

In Russia it qualifies as a Surrogate currency. Which means it is used in place of the countries legally recognized currency. For example, if you used US Dollars in Russia, and they found out about it, you would be arrested and charged. In Russia you cannot legally use anything other than Rubles as currency. If you are found spending dollars in Russia and it's not at a legal exchange usually found at the boarder you're going to be spending some time in jail. Here is a guide [http://petersburgcity.com/business/bguide/currency/] that outlines in English Russia's currency standards for business. Anyone who thought Russia wouldn't view BitCoin as Illegal under their current law when they view USD as Illegal shows just how powerful Group Think is in regard to BitCoin.

If a Government wanted to shutdown the entire bitcoin operation it would be a trivial task.

Here is how and why.
BitCoin controls the difficulty of creating currency by controlling the length of time it takes to Generate Blocks of data. Because the length of time is limited to generate a block the maximum number of transaction permitted on the network is 7 transactions per second.

So to perform a Resource starvation attack all I need is a few computers that appear to be spread accost the country to mask that it's all the same person doing it. Simple if your a government with deep pockets with access to an ISP with plenty of Fiber loops like Century Link. You could make one computer look like a dozen spread accost the country.

You then just have it send out once a second 0.0000001 BTC to one of 7 accounts. Then those accounts do the exact same things. If they keep this up and keep changing the accounts they send the money to the network is starved of resources.

This kind of attack is impossible to prevent. Even increasing the transaction fees wouldn't stop it because the government just has to know who doesn't have transaction fees and ensure they use those nodes. Since they control the Sending and Receiving of the transaction that's trivial. A real banking system would just put a hold on the accounts doing the transactions, but since it's a distributed peer to peer network everyone has to agree in order to freeze an accounts assets. Even if you think that everyone would agree you couldn't stop the government from creating their own mining rigs that would accept the 0.000001 transactions.

This would stop all transactions until the protocol was rewritten which would just change the maximum number of transactions which the government could just increase to meet that new limit.

The particular attack against MTGOX is different, and involves a well known bug in the BitCoin protocol that the best way I have to describe it is that you write someone a check and they change the check number on the check. Because MTGOX ignored this possibility they think the check they sent didn't clear so they don't remove funds from the account that requested the money. MTGOX then sends the money again effectively double paying the requester until their wallet gets out of sync or until it's empty. The alternative to checking the Check Number is the stupidest thing I've ever heard come out of application programmers mouths. They have to use the Account Number, Amount, and Timestamp to actually verify that they send money. However, those are not Unique and opens up another attack vector utilizing two transactions with the same account, amount, and timestamp. Since the bug in the transaction ID goes back to 2011 and will never be really "fixed" it highlights the general issue with utilizing a Peer to Peer network.

The solution is to have a central authority like a Central Bank, but that was done before and the Government easily shut them down, see eGold [http://en.wikipedia.org/wiki/E-gold], because they can just arrest the Central Authority, and the game is over.

 

[Nimcha]

What I fail to grasp is how a currency not within a given governments control, can be made "illegal". How can they control what any two given people use as trade for a transaction?

The solution is to have a central authority like a Central Bank, but that was done before and the Government easily shut them down, see eGold [http://en.wikipedia.org/wiki/E-gold], because they can just arrest the Central Authority, and the game is over.

Good post, by the way.

Also, I think the whole idea of the Bitcoin was that there would be no central authority whatsoever. This always seemed like flawed thinking to me, and now I know why.

 

[JarinArenos]

Instability and inherent silliness aside... doesn't bitcoin still cost significantly more to "mine" (in electricity costs) than the coin is, or ever has been, worth?

 

[Jeroenr]

What the fuck are bitcoins actually backed by? Most currencies are backed by countries, I'm still wrapping my head around why Bitcoins are even worth anything at all. Not just another extension of the current dotcom bubble that's going to crash sometime reeeeeeeaaaalll soon.

Supply and demand. There is maximum of coins that can exist.


And as long as it remains unstable i just cant see bitcoins as currency, but more like a investment.
If i received a payment just before the price drop, i probably felt screwed.

So for easy online payment Pay-Pal wil do just fine for me.

 

[008Zulu_v1legacy]

My "bullshit" meter has broken the needle with this one. With all the negative publicity virtual currencies have received over the last few months, you don't find it strange that they are now suddenly being hit by ddos attacks that are devaluing the "currency"? Marketing 101; If your product has a perceived negative quality, lower the cost to entice new customers.

 

[Dogstile]

"The one exception so far is Dogecoin, whose value has risen markedly. It's now the third most valuable cryptocurrency."

Ha! And people take this shit as money. If you have never invested in a Cryptocurrency you are a fucking idiot who deserves to lose every cent.

I assume you mean ever. Also, just about everyone I know who has invested into bitcoins have made back twice their investment and are now trading with money completely separate from their original investment. Their original investment is back in their pocket.

 

[Dogstile]

"The one exception so far is Dogecoin, whose value has risen markedly. It's now the third most valuable cryptocurrency."

Ha! And people take this shit as money. If you have never invested in a Cryptocurrency you are a fucking idiot who deserves to lose every cent.

I assume you mean ever. Also, just about everyone I know who has invested into bitcoins have made back twice their investment and are now trading with money completely separate from their original investment. Their original investment is back in their pocket.

Bitcoin isn't really a currency, it's a speculative commodity. Just because a few people have made money on it does not prevent it from being a terrible idea. "Hey Guys! Lets speculate on this unregulated commodity! The price can't possibly go down i doubled my money last time i- aaaand it's all gone" Right now there is Bitcoin fever, I'm sure all those dutch people in the 17th century investing in tulips thought they were pretty smart too, I'm sure a few of them made a bit of money.

It's like investing on any highly speculative commodities on the stock market it's self; these things can be extremely volatile because their value is not moored to reality it is simply imaginary. People know these are high risk ventures and act accordingly. This is ignoring all the massive structural vulnerabilities with cryptocurrencies that make then arguably more vulnerable than a traditional commodity.

Bitcoin is a bubble. When it bursts a lot of people are going to be very out of pocket.

However, the rest of us are profiting off this bubble and are at no risk because we've already made our money off of suckers. People who combine their normal finances with bitcoin finances are dumb and deserve every penny they lose.

 

[Dogstile]

Spoiler

"The one exception so far is Dogecoin, whose value has risen markedly. It's now the third most valuable cryptocurrency."

Ha! And people take this shit as money. If you have never invested in a Cryptocurrency you are a fucking idiot who deserves to lose every cent.

I assume you mean ever. Also, just about everyone I know who has invested into bitcoins have made back twice their investment and are now trading with money completely separate from their original investment. Their original investment is back in their pocket.

Bitcoin isn't really a currency, it's a speculative commodity. Just because a few people have made money on it does not prevent it from being a terrible idea. "Hey Guys! Lets speculate on this unregulated commodity! The price can't possibly go down i doubled my money last time i- aaaand it's all gone" Right now there is Bitcoin fever, I'm sure all those dutch people in the 17th century investing in tulips thought they were pretty smart too, I'm sure a few of them made a bit of money.



It's like investing on any highly speculative commodities on the stock market it's self; these things can be extremely volatile because their value is not moored to reality it is simply imaginary. People know these are high risk ventures and act accordingly. This is ignoring all the massive structural vulnerabilities with cryptocurrencies that make then arguably more vulnerable than a traditional commodity.

Bitcoin is a bubble. When it bursts a lot of people are going to be very out of pocket.

However, the rest of us are profiting off this bubble and are at no risk because we've already made our money off of suckers. People who combine their normal finances with bitcoin finances are dumb and deserve every penny they lose.

You see that's the problem. Bitcoin is supposed to be a currency. It's supposed to be useable as a means of storing finance.

All of those who invested in bitcoin, even at it's early stages, could have just as easily lost all that money. "No risk" is the exact opposite of the situation, it was high risk. Profit made was done so out of luck. That is the nature of risk. People make money from risky investments, but those people don't see the 10 other people who lost out by either coming in at the wrong time or hanging on too long.

It's essentially like gambling, by buying a bitcoin you are 'betting' they are going to go up. But the factors that control that are completely out of your control. Since the bitcoin has no underpinning, central reserve, regulation or monitory systems in palace there is really no way to predict it's trajectory. Nevermind that frequent attacks, selfish mining techniques and other vulnerabilities means things are stacked against you.

Some people will put their money on No. 7 black and win. It's still a stupid idea. But all of this does give me the urge to go to vegas. More fun than bitcoins. Probably a better long term investment plan too.

Tell me, have you ever heard of the stock market?