Bitcoin Developer: Yes, There's A Flaw In Bitcoin But It Shouldn't Have Brought Down MtGox

Bitcoin prices are down big this morning as MtGox, a major Bitcoin exchange, announced it was continuing to suspended withdrawals denominated in Bitcoin while it addressed a technical glitch

In its statement this morning, the exchange explained why it has been forced to do so.

It said it had "detected unusual activity on its Bitcoin wallets and performed investigations during the past weeks. This confirmed the presence of transactions which need to be examined more closely."

In doing so, they found that transactions from its wallets were subject to "malleability" errors. This made it possible for incorrect transaction data to be registered on Bitcoin's master transaction ledger, the Blockchain. In theory, this makes it possible for theft or double spending to occur - something Bitcoin was supposed to be designed to prevent. The exchange did not say whether either had in fact occurred.

MtGox goes on to say that the glitch is a flaw in the Bitcoin protocol itself, and that it had "discussed [incorporating a fix] with the Bitcoin core developers and will allow Bitcoin withdrawals again once it has been approved and standardized."

But Bitcoin developers are disputing how severe that flaw is.

In an IM chat with BI, Bitcoin developer Greg Maxwell, who correctly identified MtGox's hiccup on reddit before MtGox acknowledged the problem, says he and co-developer Pieter Wuille spoke with MtGox chief Mark Karpeles over the weekend. Maxwell says he "had no idea, and really still have no idea what they'd be waiting on us [Bitcoin developers] for." He added that they had discussed changing part of the Bitcoin protocol to address the issue, but that he was "not aware of any reason that MtGox's withdraws would need to be gated on that."

BI reached out to Karpeles on the Internet Relay Chat, recommended by two Bitcoin experts as the best way to reach him, but did not receive a response.

We also reached out to BitStamp, which is now the world's largest dollar-traded exchange, to see whether they were concerned at all by the malleability issue. CEO Nejc Kodric replied via email that they are not commenting on the situation. "We hope that MtGox solves their technical issues as soon as possible," he said.

Maxwell said urgently addressing the issue is "neither necessary nor sufficient" for preventing theft in the case of cancellations or reissues, and that while Bitcoin wallet programs do not handle malleability well, it is not a serious issue.

"Issues like this- ones where I basically consider them non-interesting issues- are the hardest to respond to. When there is a normal severe problem there is always a proposed plan of attack, workarounds, etc. In this case 'meh'. I can see some people are very concerned about Bitcoin itself and not just MtGox. 'There really is nothing to worry about in this case' is not likely to help them feel better, but it's really the best and most ... correct advice I can give here."

The average Bitcoin price now stands at $621.