Following Mt. Gox’s decision to freeze withdrawals, Bitcoins stored at the exchange have been tanking in value, dropping as low as $130 on Thursday.
The Tokyo-based exchange is still trying to work out a Bitcoin software glitch that could allow criminals to steal users’ Bitcoins. But in the meantime, people who have Mt. Gox accounts can’t cash out and are concerned now that their deposits could be lost.
The issue here is what is referred to as “transaction malleability.” Every Bitcoin transaction is assigned a unique identifier, Jeff Garzik told the Wall Street Journal. But transaction malleability allows someone to alter a detail of the transaction and create a different unique identifier. This can make it appear as if Bitcoins were not sent to an external Bitcoin address when they actually were.
Mt. Gox customers, meanwhile, have begun selling the rights to their Bitcoins at steep discounts, presenting speculators with some potentially big opportunities. Wednesday, Mt. Gox Bitcoins were selling for about $265 a piece, while on other exchanges, Bitcoins were going for more than $600, CNNMoney reported.
However, paying for Bitcoins on one of the other exchanges will at least allow you to immediately possess them – on Mt. Gox, it is unknown when you will be able to access your Bitcoins. If Mt. Gox cannot make account holders whole, investors could be left with nothing. “The market is telling you there’s a huge risk that Mt.Gox is completely insolvent,” Leigh Drogen, chief executive (CEO) of Estimize told CNN.
Even if Mt. Gox resolves its issues, other problems have also caused Bitcoin’s value to drop overall. Two other large exchanges, Bitstamp and BTC-e were hit with distributed denial of service (DDoS) attacks last week. The problem was linked to the same malleability issue that has been affecting Mt. Gox.
Bitstamp also had to temporarily suspended withdrawals, but they resumed shortly thereafter. Bitcoins on that exchange currently sit at a little under $600, according to bitcoincharts.com.
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