Bitcoin Meltdown 2014: Exchanges Are Returning To Normal Business After Withdrawal Stoppage Causes Price Crash

Major bitcoin exchange BTC-e is processing withdrawals again today, and Bitstamp is planning to resume withdrawals later this afternoon. However, MtGox, which halted withdrawal functionality Feb. 7, has yet to resume the capability for their customers. Bitcoin prices are down month-over-month on all three exchanges following the withdrawal freeze. MtGox, the oldest and once most trusted exchange, has yet to bounce back from the price crash, while Bitstamp and BTC-e are seemingly on the mend.

The return to business-as-usual comes after a hellish week for the three major bitcoin exchanges. Late last week, MtGox was forced to halt bitcoin withdrawals, bringing the term “transaction malleability” to the mainstream. Then on Tuesday, Bitstamp and BTC-e were both forced to halt their withdrawals as hackers attacked their servers in a DDoS attack, trying to take advantage of the transaction malleability fault. Thursday saw hackers take more than 4,000 bitcoins from the Silk Road 2, the second life of the digital black market, in yet another transaction malleability attack. Some are saying, however, that transaction malleability can’t be blamed in the Silk Road 2’s theft, instead arguing that the creator himself stole the funds.

Either way, it seems that at least two of the three major exchanges are back to normal operations. Andreas Antonopoulos, chief security officer of Blockchain.info, speculated on Tuesday that the exchanges’ codes could be fixed relatively quickly, therefore resolving the issue at hand. “I would expect to see withdrawals flowing again within 24 and 72 hours, and in the meantime, any withdrawals that were canceled will reappear in customer account balances,” Antonopoulos said. With the correction, prices on both BTC-e and Bitstamp are on the rise.

However, MtGox is still down since they have yet to correct their code. Despite correctly spotting a bug and suspending withdrawals, faith in the oldest exchange is low across the bitcoin community. At least two protesters stood outside the exchange’s headquarters in Japan with signs that read “Where is our money?” Twitter user Kolin Burges or the_K_meister even went as far as to confront MtGox CEO Mark Karpeles as he entered the MtGox offices. Karpeles declined to respond to Burges’ questions. The confrontation can be seen in a video here.

However, Karpeles did respond to Forbes Thursday, reminding and warning that the cryptocurrency is still nascent. “This is a good reminder that Bitcoin is still young and experimental. There are best practices to think about and account for by those who want to build companies,” Karpeles said. Currently there is no designated date that MtGox will resume withdrawals.

But it is important to note that while withdrawals were suspended, the bitcoins in limbo were not lost. Users only stood to gain an extra level of protection as the exchanges implemented new protocols to correct the transaction malleability issue. PayPal, the Silicon Valley money transmitter, has acted similarly, but on an individual level rather than throughout the site. When potential fraud is detected, PayPal will freeze the funds and require individuals to verify the transfer.

BTC-e told industry news site Coindesk that all bitcoins that were suspended in transfer have been finalized. “There are not any issues [with withdrawals at BTC-e], currently everything is working smoothly,” said BTC-e. At the time of this writing, Bitstamp has not yet resumed withdrawal capability, but a statement on Bitstamp’s website read, “after additional testing, we plan to enable Bitcoin withdraws later today.”