I will talk about how the subsequent DDOS attack following the Transaction Malleability issues made problems worse and how it crashed the price of Bitcoin.
In this video I want to talk about the issue that caused the price of Bitcoin to crash to $100 a couple of days ago or was it yesterday or something like that.
It crashed from around $700 down to around $100 and it snapped right back up to $700 in the end.
This issue concerns the transaction malleability issue with Mt. Gox and other Bitcoin exchanges around the world. This is not just with Mt. Gox only, this can happen to any of the Bitcoin exchanges or the crypto currency exchanges.
I was able to do some research and find out from my friend Leon Fu and here is a non-technical explanation of what happens to the transaction malleability issue or the bug that’s in the exchanges.
Using An In House Wallet Vs.
Using The Official Bitcoin Wallet
Basically what happens is the exchanges do not use the factory made Bitcoin wallet or the Bitcoin QT wallet.
They have their own wallet that they create or their own account that they create because of the large amount of transactions that they have to do on a daily basis because it’s an exchange, and because of the amount of volume that they do.
They have to create their own wallet.
They cannot use the Bitcoin QT wallet or software and be able to make all those transfers. So for security reasons and for transaction volume reasons they use their own wallet that they create in house.
They don’t use the Bitcoin QT wallet or account software that is developed by the core developers of Bitcoin.
Bitcoin Transaction ID’s
What happens is whenever you withdraw Bitcoins from the exchange, the exchange will assign a transaction ID number.
This is very common, the banks use it with the fiat currency and it’s very common with the New York or the NASDAQ exchanges as well and not just the banks.
Every time you make a trade, withdrawal or financial transaction with a banking institution or any kind of financial institution that uses fiat currency they will attach a transaction ID to it for confirmation and for security reasons, and for liability and compliance reasons.
In the Bitcoin protocol and the Bitcoin network the transaction ID’s is no different and serves the same purpose.
The problem arises when the exchange uses this transaction ID as the basis to determine whether or not the Bitcoins have been withdrawn from your account or taken in and out of your account.
The core developers including the chief scientists of Bitcoin which is Gavin Andresen are fully aware of this transaction malleability issue and they have put notices out and its on the Bitcoin Wiki and its everywhere.
It’s publicly available and they have warned people not to use this transaction ID number as the basis to determine whether or not the Bitcoins have been withdrawn from your personal account or not.
The reason why is because they can be changed during the time that it’s waiting to be processed in the block chain and included in the public ledger (block chain) in Bitcoin.
So all the core developers and the Bitcoin foundation, and everybody that’s involved with Bitcoin are aware of this and they have advised businesses such as the Mt. Gox exchange and other exchanges, or any type of business that uses Bitcoin. Your withdrawal transaction has to be included in the public public ledger first before the account is considered to have a complete withdrawal.
Once the transaction has been included in the public ledger, then it means that the majority of the network has agreed to the validity of he transaction.
Mt. Gox’s Mistake
What Mt. Gox was doing was they would just rely on the transaction ID only to use as the standard or the basis of their withdrawal confirmations and that is not a complete and 100% accurate piece of data.
During the time that Mt. Gox (or any exchange) sends that transaction ID to the Bitcoin network to be confirmed and included in the block chain, the transaction goes and it travels through the different Bitcoin nodes to get confirmed and transacted and confirmed and included in the block chain there is a possibility that a bad node or a node that is a not doing what it’s supposed to be doing changes the transaction ID number.
This creates confusion inside the Bitcoin network, and the system, and the businesses involved with issuing that transaction ID.
What happens is there’s confusion as whether or not the Bitcoins have been withdrawn from your account or not. What it does is it creates confusion and it takes time to clear up this confusion and resubmit the transaction.
Now there are some concerns about this, and I want to address those concerns.
Based on what my friend Leon has told me and what other security experts in the field such as Gavin Andresen have told me is that the Bitcoin Foundation have indicated on their foundation blog are notices to let people know that this transaction malleability issue does not affect your Bitcoin and that it’s only with exchanges such as Mt. Gox.
In other words someone cannot steal the Bitcoins from your account, nor add Bitcoins to your account.
The only thing that it does is it creates confusion at the exchange, and it creates panic and fear within the novice and the amateurs that do not understand what Bitcoin is and how it works.
It sends the price of Bitcoin downwards and causes the price to crash because the nervous novice and the amateurs that don’t understand Bitcoin start to panic and start to sell their Bitcoins and do other things.
You do not have to be concerned that someone is going to steal your Bitcoins.
There will be a delay when there’s a withdrawal.
This is a known issue and a known fact since 2011 and it has been widely published among the Bitcoin community.
Mt. Gox’s incompetence forced them to place their transaction malleability issue on top of their bad business practices.
I’m not saying what’s going on behind the scenes at Mt. Gox but apparently the customers are not happy with their work and the way that they handle customers.
Their customer service is not the best.
Mt. Gox Attempts To
Shifts The Blame
Due to the previous mentioned circumstances Mt Gox has decided to use the transaction malleability issue (which they knew about) and blamed it on the Bitcoin protocol and the Bitcoin developers.
In other words they are trying to push the blame on the Bitcoin network and the developers.
This is not fair and this is not true because they have been fully warned and they are fully aware of this issue with transaction malleability issue since 2011 since it was publicly announced by the Bitcoin foundation and its core developers on their blog.
We know this for a fact that Mt. Gox and all the exchanges knew this problem because it’s been out for a while.
We know for a fact that Mt. Gox knows this so they cannot blame it on the core developers or the Bitcoin protocol because, Mark Karpeles, the CEO of Mt. Gox…
… is on the Bitcoin foundation!!!
He was one of the board members of the Bitcoin foundation. He was right “next” to Gavin Andresen who is the chief scientist of the Bitcoin protocol.
So there’s absolutely no reason whatsoever for Mark Karpeles, Mt. Gox or anyone at Mt. Gox to claim that they do not know about the transaction malleability issue or bug in the system. They should be relying on the fact that once the transaction is completed and its included in the Bitcoin public ledger or block chain, at that point they can let the customers know that their Bitcoins have been withdrawn instead of relying on an incomplete withdrawal and basing it only on the transaction ID.
I want to address this issue and want to calm people down because we got a lot of nervous novices and a lot of amateurs that are involved in Bitcoin so they’re not aware of this and they’re panic selling.
They’re creating more confusion, and more dumps in the markets.
I hope that this video helps people understand what happened, what caused the crash and how they’re recovering from it.
Gavin Andresen from the Bitcoin Foundation and chief scientist for the Bitcoin developers and the protocol and other core developers are working on a patch or fix right now to completely eliminate this problem so that businesses, whether they know how to address the issue or not will not suffer from the transaction malleability issue.
Whether they use the Bitcoin QT wallet or not, this transaction malleability will no longer be a problem after their fix.
DDOS Attack Worsens
The Mt. Gox Issue
The other issue that I want to bring up is that immediately after this transaction malleability issue occurred with Mt. Gox there was a massive DDOS attack.
a DDOS attack is where hackers (let’s just say bad people) are setting up all these botnets to attack a website and take it down so people can not access the website.
You can learn more about DDOS attacks in the video below.
What they do is they go in and take control of innocent people’s computers and they’re taking control of that computer and sending a request to Mt. Gox and other Bitcoin exchanges.
What this does is it creates thousands and thousands of computers just hitting the website at one time.
It collapses the website and it doesn’t cause damage, it causes delay because it’s being flooded with traffic and users and the websites are not able to handle that many user requests at one time.
That’s just a non-technical explanation of DDOS attack.
These bad people are hitting the exchanges immediately after this transaction malleability issue was exposed at Mt. Gox so it makes it worse, it makes it seem that the problem is bigger than what it is but the reality is they are completely two separate problems and the DDOS issue and the transaction malleability issue will, be resolved in a very short period of time.
However, the DDOS attacks will never cease to exist.
That will continue to happen just like there will constantly be bad people who will try to rob banks.
There will always be bad computer hackers who try to hack into the system and screw up the network, and screw up the system. That will never go away.
The Bitcoin protocol has been resistant to that and that has already proven it in the last five years.
However the exchanges will have to beef up their security and just deal with these DDOS attacks just like banks have to deal with bank robbers.
Obviously it costs money to create a DDOS attack so it’s not something that can happen 24 hours a day and be never ending.
Eventually whoever ‘s doing it has to stop because of the cost factor.
Now let’s discuss several reasons why someone would DDOS attack an exchange and cause panic and fear.
Reasons To DDOS Attack
A Bitcoin Exchange
I have come up with several reasons or several excuses of why someone would do that. Because when they do a DDOS on an exchange it does not allow them to steal the Bitcoins, it does not allow them to do anything with the Bitcoins. The only thing it does is that it causes confusion and panic and it causes the price of Bitcoin to fall.
Now who would benefit from doing this?
Obviously it would be somebody who needs a large amount of Bitcoins.
- They need it for a hedge fund.
- They need it to increase their inventory of Bitcoins
- They need it because they want to Bitcoins at a lower price.
Let’s talk about the first two people the ones that want to buy a large inventory or need a large quantity for their hedge fund or for investment reasons.
By doing this they’ll spend a small sum of money to trick the exchanges to cause a sell panic and lower the price.
Afterwards, they would go in there and buy all these Bitcoins at a lower price for their hedge fund or for their own personal inventory and after that the price of Bitcoin will come back up. So this allows them to buy a large amount of Bitcoins at a lower price.
Another reason that someone would want to DDOS attack a Bitcoin exchange is they are big time traders, what you would call a “whale”.
They’re spending a sum of money to cause panic and fear, and drive the price of Bitcoin down. Once it’s at the bottom they will buy it and then as soon as they stop the DDOS attacks and people realize that it’s just a fake attack, the price of Bitcoin will shoot up and so they buy it low and sell it high and make the profit in between.
This is not something that everyone can do.
A typical Bitcoin investor like myself or the average Bitcoin user cannot perform these high level manipulations.
You need lots of computer skills and you need lots of money to initiate a DDOS attack on the Bitcoin exchanges. You also need a large sum of money to buy up all these Bitcoins once the price falls.
I don’t know the exact cost to initiate a DDOS attack on an exchange but I know that it’s not plausible to do it just to buy 10, 200 or 100 Bitcoins. You would look to buy probably thousands of Bitcoins in order for it to be profitable and to be worth the attackers’ time and money.
I hope that this video was able to explain in non –technical terms for people that are invested in Bitcoins or other crypto currencies of what a transaction malleability is and how the DDOS attacks are affecting the price of Bitcoin, and who stands to benefit from it.
I hope that this non-technical video explanation of what a transaction malleability and how a DDOS attack affects the exchange’s price of Bitcoin helps you better understand it so you don’t panic when these things happen.
I look forward to catching you guys in the next video.
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