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Bitcoin's journey to the Silk Road via the South Seas on the HMS Tulip

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This has been a week Bitcoin advocates would probably rather forget. At the start of the month 1 bitcoin would set you back about $960. Today it will cost you $422. What the hell happened?

Back on Monday (10 Feb) we saw prominent exchange MT Gox halt trading and stop withdrawals of bitcoins. Then Bitstamp, another big exchange followed suit. Whilst trading was closed on those exchanges it continued on others, but Bitcoin holders saw their wallets take big knocks. The problem was caused by “transaction malleability”. Huh? I said, “transaction malleability”. I didn’t know what that was either, but Bitcoin provided an explanation for those of us not up to date with the jargon:

A bug in the bitcoin software makes it possible for someone to use the Bitcoin network to alter transaction details to make it seem like a sending of bitcoins to a bitcoin wallet did not occur when in fact it did occur. Since the transaction appears as if it has not proceeded correctly, the bitcoins may be resent. MtGox is working with the Bitcoin core development team and others to mitigate this issue.

So, naughty types were getting paid more often than they should have been.

MT Gox said they had only detected this happening “during the past weeks”. However, @aantonop on Twitter pointed out that the bug has been known about for at least a year:

The Who Is record for that Bitcoin wiki lists Mark Karpeles (the CEO of MT Gox) as it’s technical contact by the way, so it seems unlikely that MT Gox only just found about something that has been documented on their own site since 21 January 2013.

After the debacle on Monday reports started coming in of massive DDoS (distributed denial of service) attacks on Bitcoin exchanges, supposedly targeting the problem outlined above, transaction malleability. The attacks were designed to make it difficult to confirm transactions and enable the aforementioned naughty types to get paid twice.

Today’s blow to Bitcoin‘s reputation comes from Silk Road 2. Silk Road 2 is the successor to Silk Road, a site where you could buy drugs, weapons, even get hold of a hitman and pay in Bitcoins. It was shut down in October 2013 by the FBI, with its founder, Ross Ulbright, arrested and charged for using Silk Road to arrange a hit on a Silk Road employee. Nice site, good guys. Bitcoin took a dent at the time, but recovered quickly.

Silk Road 2 popped up only a month or so later to take up where Silk Road had left off. It has just emerged that the transaction malleability we are all now experts on has been used to wipe out the site’s escrow account, taking around 4,400 bitcoins worth around $2.7million.

Has the bubble burst? Do people no longer trust the cryptocurrency? A drop from nearly $1000 a pop to around $420 since the start of the month would probably suggest that it has and that they don’t. I guess we’ll have to wait and see.

In the meantime, I’m off to buy what I’m told are some really rare tulip bulbs.

Bitcoin current price and chart
Bitcoin 6 month chart

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