Bitcoin Foundation blames Mt Gox for trouble

The Bitcoin Foundation said the Mt. Gox Bitcoin exchange in Tokyo is to blame for technical faults that prevented customer withdrawals of the virtual currency that lost as much as 21 percent of its value today.

“The issues that Mt. Gox has been experiencing are due to an unfortunate interaction between Mt. Gox’s implementation of their highly customized wallet software, their customer support procedures and their unpreparedness,” said Gavin Andresen, chief scientist for the foundation, which promotes and sets technical standards for the currency.

Earlier today, Mt. Gox cited “a bug in the Bitcoin software” that is “not limited to Mt. Gox.” The quirk enables a user to cover up a transfer to another wallet — a software protocol for storing the virtual currency — and re-send the same money. The exchange said it was working with the core team of software developers associated with the Bitcoin Foundation to resolve the problem.

Andresen confirmed in an e-mail that Mt. Gox had been in touch with Bitcoin’s core developers, while adding that “they should be able to fix this on their own.” It is a problem internal to Mt. Gox, not the underlying Bitcoin concept, he said.

The Bitcoin Foundation is a network of entrepreneurs and technologists that oversees the basic software protocols for the digital currency. Mark Karpeles, the chief executive of Mt. Gox, is on the foundation’s board, along with Andresen.

The price of Bitcoin tumbled as much as 21 percent to $535.55 today before recovering to $664.75 at 4:23 p.m. New York time, according to the CoinDesk Bitcoin Price Index, which averages prices from exchanges. The index value was more than $780 before Mt. Gox announced the withdrawal halt on Feb. 7.

Mt. Gox had been part of the index until today, when CoinDesk announced it had removed the exchange from the calculations. The decision by Mt. Gox to shut down Bitcoin withdrawals for at least four days — they are still suspended – – prompted the review, according to a statement on the CoinDesk website.

“These recent withdrawal restrictions are just the latest in a series of issues which have made Mt. Gox’s inclusion in the BPI problematic,” CoinDesk wrote.

Another problem was the persistent premium, measured in dollars, paid by Mt. Gox customers over other exchanges, CoinDesk said.

The ability to re-send Bitcoins means that Mt. Gox may have been defrauded by its own users, said Andreas Antonopoulos, chief security officer of Blockchain.info, which provides online wallets for a digital currencies.

“I think it’s unlikely they are insolvent,” Antonopoulos said. “It’s likely they’ve been taken for a ride by some of their clients who’ve made double, triple and quadruple withdrawals.”

Antonopoulos said the company probably stored most Bitcoins offline to prevent theft.

Nejc Kodric, the chief executive of London-based Bitstamp, another exchange, said in an e-mail Bitstamp has been unaffected by the problem Mt. Gox is reporting.

Mt. Gox said customers can take out cash “as normal” and it’s working to resolve technical issues that prompted it to halt withdrawals of the digital currency.

“It’s not about cash at all, only about Bitcoin,” Michael Keferl, a communications officer for Tokyo-based Mt. Gox, said in an interview today. “There is a problem in the way transactions are verified.”

Mt. Gox customers have also complained that it can be difficult to get cash out of the exchange. U.S. authorities seized a total of $5 million from the company’s accounts.

The company released a statement today explaining the technical issues and saying it will resume Bitcoin withdrawals once they are addressed.

“We’re sending cash to people in Japan and around the world as normal. They can exchange coins into cash,” Keferl said in Tokyo. The Bitcoin withdrawal issue “will be fixed. It’s not like a structural problem.”

Bitcoin was introduced in 2008 by a programmer or group of programmers under the name Satoshi Nakamoto and has since gained traction with merchants around the world. The digital money has no central issuing authority, and uses a public ledger to verify transactions while preserving users’ anonymity.-Bloomberg