Russia and China are backing out of the Bitcoin business.
Recent DDoS attacks on a number of major Bitcoin exchanges have caused them to suspend trade. Mt Gox, one of the most significant exchanges, blames hackers trying to create fraudulent transactions for the attack. The value of the cryptocurrency has dropped significantly, from a high of $926 on February 5th to $501.83 as of time of writing. Bitstamp, BTC-e and Mt Gox are all known to have been affected.
Tokyo-based Mt Gox argues that the attackers are trying to create uncertainty, and exploiting that uncertainty to duplicate transactions. By intervening just after a transaction is initiated but before it completes and changing the transaction ID, the hacker can create the illusion that the transaction never completed. The hacker then claims a second payment, alleging that the first one wasn’t valid.
“Whoever is doing this is not stealing coins, but is succeeding in preventing some transactions from confirming,” says Jinyoung Lee Englund of the Bitcoin Foundation. “It’s important to note that DDoS attacks do not affect people’s bitcoin wallets or funds.”
The value of most other Bitcoin variants has fallen, dragged down by the drop in Bitcoin itself. The one exception so far is Dogecoin, whose value has risen markedly. It’s now the third most valuable cryptocurrency, after its value soared 27% in 24 hours.
Meanwhile both Russia and China have started cracking down on Bitcoin. Last week the Central Bank of Russia made it illegal to use Bitcoin, alleging that it could be used for money laundering and criminal activity. Russia’s move came after China’s largest exchanges started banning Bitcoin sales earlier this year, as the government cracked down on the cryptocurrency. Alibaba Group, China’s biggest online marketplace, complied with the government’s demands “in the interest of consumer protection,” said a spokeswoman.
In both instances it seems likely that, although there are legitimate concerns about criminal activity, the bigger issue is currency control. Though there are benefits – China’s investments in Africa have been made much easier with Bitcoin – neither China nor Russia really likes the idea of an electronic currency that avoids both government regulation and monitoring.
“It is proposed to punish (with large fines and imprisonment) all anonymous ‘electronic’ money transfers through the border,” alleged an anonymous Russian Cryptocoins News source. “Since Bitcoin has no borders, it may be the problem.” The source argues that Russia’s political opposition has been funded via Bitcoin for some time, and this crackdown is an attempt to stifle that opposition, as well as a more general reaction against technology the government doesn’t understand.
“To put things in perspective,” says Mt Gox as it explains the reasons behind its suspension of trade, “it’s important to remember that Bitcoin is a very new technology and still very much in its early stages. What Mt Gox and the Bitcoin community have experienced in the past year has been an incredible and exciting challenge, and there is still much to do to further improve.”