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CoinDesk Removes Mt. Gox from Bitcoin Price Index (via coindesk)

CoinDesk has removed Mt. Gox from the Bitcoin Price Index today (as of 16:00 GMT), due to its persistent failure to meet the Index’s standards for inclusion.

Ultimately, the decision to remove Mt. Gox from the BPI was prompted by Friday’s announcement that bitcoin (BTC) withdrawals had been suspended until Monday, and today’s follow-up announcement that bitcoin withdrawals would now be suspended indefinitely. This was due to a previously known technical issue with Mt. Gox’s custom wallet implementation of the Bitcoin core protocol.

However, these recent withdrawal restrictions are just the latest in a series of issues which have made Mt. Gox’s inclusion in the BPI problematic.

Concerns over Mt. Gox’s price variance

A concern separate from timely customer withdrawals which had recently commanded attention was the expansion of the so-called ‘Mt. Gox premium’.

For example, on 28th January, Mt. Gox customers were paying more than 25% more for bitcoins than customers on BTC-e, another BPI component exchange.

The issue of price dispersion across the many different bitcoin exchanges was part of CoinDesk’s original rationale behind the Bitcoin Price Index, and some ongoing dispersion is to be expected for reasons ranging from differences in bitcoin regulation across the globe to the overall maturity of the exchange market for bitcoins.

However, the price dispersion between two other BPI components, Bitstamp andBTC-e, has recently remained in the low single-digit percent range, raising concerns over whether bitcoin prices quoted on Gox were representative of the overall market.

Concerns over excessive price dispersion at Mt. Gox, however, have since subsided as the Gox premium compressed into single percentage digits since 28th January.

Customers’ love-hate relationship with Mt. Gox

Complaints over withdrawal delays at Mt. Gox are nothing new, having dogged the exchange since the first-half of 2013, when Mt. Gox first ran afoul with US regulators after its failure to register as a money transmitter.

Throughout the first-half of 2013, Mt. Gox commanded a very high share of bitcoin trading volume, leaving many feeling that, in spite of its withdrawal issues, Mt. Gox was still a viable option given the available alternatives.

However, as the year progressed Mt. Gox’s market share in total bitcoin trading volume steadily eroded, and in late-2013 Mt. Gox was eclipsed as the number one Bitcoin exchange, first by BTC-China and then Bitstamp.

BTC Volume on BTC China, Mt. Gox and Bitstamp (1st August – 23rd December 2013). Source: BitcoinCharts

Mt. Gox’s persistent withdrawal problems

Reports of Mt. Gox customer withdrawal problems have been rising of late and these complaints have not fallen on deaf ears at CoinDesk.

CoinDesk has been working diligently to independently verify complaints. We recently ran an open poll about Mt. Gox to gather additional details from customers, and a number of Mt. Gox customers have shared their experiences with CoinDesk in confidence.

One recent high-profile example was a Mt. Gox customer who flew to Tokyo to protest outside Gox’s offices over withdrawal delays, alas to no avail.

Importance of timely customer withdrawals

The ability of exchange customers to obtain timely withdrawals is a criterion of the Bitcoin Price Index. Specifically, point 6 in the BPI criteria states:

“Banking and/or bitcoin transfers in or out of the exchange must be completed within seven business days, if deposit and withdrawal methods are not offered for various countries and/or currencies.”

Mt. Gox has been unable to consistently meet this criterion. Also of concern has been Mt. Gox’s failure to provide a sufficiently credible explanation for why the problem is occurring, or a detailed plan/timeline for when the problem of timely customer withdrawals will be resolved.

An exchange’s ability to execute timely customer withdrawals is an important BPI criterion for several reasons.

If timely customer withdrawals are not possible then this could have an influence on the accuracy of the exchange’s price discovery mechanism. For example, customers of Mt. Gox were often thought to be trading bitcoins at rates beyond their value on other exchanges so that they could more easily transfer BTC out of the exchange. In recent days the reverse has occurred, with the ‘Mt. Gox Premium’ becoming a discount during certain periods.

Customer withdrawal delays may be a symptom of other serious problems at the exchange which are difficult to independently verify, such as internal technical issues, legal/regulatory inquiries, or the exchange’s solvency.

CoinDesk has removed Mt. Gox from the calculation of the Bitcoin Price Index effective today at 16:00 GMT.

About the Bitcoin Price Index

Launched in September 2013, the CoinDesk Bitcoin Price Index represents an average of bitcoin prices across leading global exchanges that meet criteria specified by CoinDesk.

The BPI is intended to serve as a standard retail price reference for industry participants and accounting professionals.

The CoinDesk BPI is a professionally curated index with a combination of quantitative and qualitative data points under consideration. Selective criteria such as price volatility, inconsistencies in processing withdrawals, and standard deviation from the mean all play a factor in exchange inclusion.

CoinDesk’s goal is to include all exchanges which meet the BPI criteria in the Price Index so that the Index provides the most accurate, representative real-time measure of bitcoin’s price.

Have any feedback on the BPI criteria? Are there other exchanges beyond Bitstamp and BTC-e which should be included? Please share your thoughts and opinions in the comments.

Trading Image via Shutterstock

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Bitcoin DDOSed

A second major bitcoin exchange suspended withdrawals on Tuesday, 

amidst widespread attacks on the vast software system that drives the digital currency

Bitstamp, an exchange based on Slovenia, says that it suspended Bitcoin withdrawals 

due to “inconsistent results” from its online bitcoin wallet caused by a denial-of-service attack,

 according to apost on the exchange’s Facebook page. 

“Bitcoin withdrawal processing will be suspended temporarily until a software fix is issued,” 

the post reads.

The news comes a week after the Tokyo-based exchange Mt. Gox suspended Bitcoin payouts, blaming a known bug in the bitcoin software. At the time, outside observers turned the blame on Mt. Gox’s accounting software, but it turns out that the company isn’t the only exchange struggling to cope with the bug.

That a known issue like this could lead to the suspension of payouts on two of the world’s most popular bitcoin exchanges underscores the immaturity of bitcoin and the ongoing growing pains of the the world’s most popular digital currency. These growing pains are not just technical, but political. As Bitstamp battles against these attacks, it’s also worth noting that the Slovenian exchange is not listed as a money services business with FINCEN, the U.S. agency that registers money transmitters — even though it accepts US customers.

Bitstamp did not respond to a press inquiry from WIRED. But according to Andreas Antonopoulos, the chief security officer with bitcoin wallet-maker, Blockchain, the effects of this week’s attack should be temporary. “It’s a griefer attack,” he says. “All it does is slow down these exchanges.” But the company could eventually run into serious problems with regulators in the U.S. FINCEN expects even foreign-based money transmitters to register if they service US customers.

A Bored Teenager With a Computer?

Bitstamp’s technical issues came to light after someone — nobody knows who, exactly — started flooding the worldwide bitcoin network with thousands of bad transaction records. Because of a flaw in the bitcoin protocol, it’s possible for the bad guys to create two unique transaction identifiers — called hashes — for legitimate transactions on the network. The official bitcoin ledger, or blockchain, is not fooled by these so-called “malleable transactions”, but some badly written wallet software could be confused.

“It’s like creating a fake receipt,” says Antonopoulos. In theory, someone could try and use one of these fake receipts to try and trick an exchange into believing that a bitcoin transfer had not gone through, but a look at the blockchain would clear things up, he explains.

It turns out that a small number of these bad transactions have been broadcast in the background of the bitcoin network for some time now, but after Mt. Gox went public with its problems, someone cranked up the volume. “Some joker is rewriting thousands of bitcoin transactions and rebroadcasting them,” says Jeff Garzik, a core developer on the bitcoin software. “It’s not a ‘massive and concerted’ attack, probably just a bored teenager with one computer.”

Antonopoulos, who is working with other bitcoin companies to coordinate a response to the attack, says he’s spoken with five exchanges (not including Mt. Gox) about the issue, and that three of them are unaffected by the issue. None of the five exchanges that Antonopoulos has spoken with appear to have lost money because of the issue, he says

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