As the crisis continues in bitcoin exchanges, altcoins are discovering the downside of open-source software: It means they inherit the same genetic flaws, which is why even the best crypto wallets provider are concerned.
You’d think that the turmoil unleashed by attacks that exploit a “transaction malleability” bug in bitcoin’s core software would provide a big opportunity for litecoin, namecoin, peercoin, quark, ripple, and all the other challengers to its crown.
But we’re not seeing especially large fresh demand for the altcoins — at least not yet.
Why not? Well, besides the fact that many don’t trade on the biggest exchanges and that the two that do — Litecoin and Namecoin — are also trapped by a withdrawal freeze at BTC-e, a more fundamental problem is that most are built right off the same protocol on which bitcoin is based. They are carrying the very same bug in the hashing algorithm that the bitcoin network uses to ID transactions, the flaw that allows rogue actors to disguise completed transactions and demand undue repayment. That’s the bug that spawned a barrage of denial-of-service attacks that forced the halt in withdrawals by the three biggest bitcoin exchanges, Mt. Gox, Bitstamp, and BTC-e.
Such is the nature of open-source software. One advantage for newcomers is they are free to copy the original’s strong points. But they’ll also import its flaws. The offspring get the parents’ beauty genes but also their ugliness genes.
So, altcoin coders must also now wait on a global team coordinated by the Bitcoin Foundation Chief Scientist Gavin Andresen, which is working around the clock to come up with a fix that can prevent future attacks. The solution, many says, lies in coordinating response by exchanges to modify how they track transactions.
This includes the techies at Litecoin, which is considered to be the biggest challenger to bitcoin. According to coinmarketcap.com, litecoin’s market capitalization is currently worth $437 million, compared with bitcoin’s $8.1 billion.
“Litecoin developers are working together with Bitcoin developers to resolve these issues,” said Anton Yemelyanov, a member of the Litecoin development team in an email. “In fact, this affects all crypto-currencies that have been derived from Bitcoin, or… rather 3rd party software that interfaces with them.”
Litecoin’s price on the BTC-e exchange was last quoted at $17.05, down from $19.09 on Friday. Between 1000 GMT to 1100 GMT Monday, when the barrage of attacks that forced BTC-e and Bitstamp to follow Mt. Gox into halting withdrawals first hit, the price initially plunged 16.6% to $15.38.
Although they all seem to be in it together, fans and developers of alt coins are still using this as an opportunity to claim superiority over bitcoin. In chat forums, some Litecoin enthusiasts pointed out that the network of computers managing its central ledger can more quickly confirm the legitimacy of a transaction – an average of 2.5 minutes versus 10 minutes for bitcoin – which narrows the window for attackers to try to trick an exchange into making an undue repayment. (Of course, if an exchange were to just wait for official confirmation and double-check all requests for repayment against its own records, this problem shouldn’t arise in any case.)
Supporters of Quark – market cap $18 million, according to coinmarketcap.com – circulated a video Wednesday between that digital currency’s two most active promoters, Australian investor Kolin Evans and libertarian YouTube host Bill Still, in which Mr. Evans argued that exchanges won’t be tempted to prematurely honor quark transactions because its network takes just 30 seconds to complete confirmation. (Michael Casey)
Speaking of Bitcoin Foundation’s Mr. Andresen, the man at the middle of the storm, we caught up with him in his small, one-man office in Amherst, MA yesterday. He hadn’t gotten much sleep over the previous 24 hours.
“I’m normally very calm,” he said. “You’ve caught me at my most stressed.” To talk with us, he’d left a group of the core developers locked in an intense discussion in a chat forum, where they were trying to figure the ideal solution. “We want to fix it quickly,” he said, “but we don’t want to move so quickly that we make the problem any worse than it already is.” (Michael Casey)
Happy Valentine’s Day, Bitcoin.
Despite all this anxiety, stories of merchants taking up bitcoin for payments continue to reach us from an ever-increasing and wider array of industries. Today we heard that BloomNation, an ETSY-like e-commerce marketplace that allows florists to reach customers online, became the first major flower site to accept the digital currency. With the biggest sales day of the year coming on Friday, it will have a pretty good test case to see if it works. If it works, how will 1-800-Flowers or FTC Inc., or Teleflora respond?
It’s probably not a big surprise that BloomNation was the first to sell flowers for bitcoin. The young startup is funded by Andreessen Horowitz, which has invested in Coinbase and other bitcoin startups. The venture-capital firm’s founder, Marc Andreessen, is one of the most influential bitcoin evangelists. (Michael Casey)
“A fully operational and integrated bitcoin portal system for a large multinational bank.”
That’s how a bitcoin software developer Switchless describes the pilot system it set up with a rather large bank, according to a report on Coindesk. Chalk it up as another sign the bitcoin economy is expanding, regardless of the hacking attacks.
And it turns out that the name of the bank leaked. It’s Standard Bank, which is based in South Africa and is the biggest bank on that continent. Indeed, Standard is a powerhouse in emerging markets, a region that many think is ripe for bitcoin integration. More ‘broadly, the notion that a bank of this reputation is developing a site for customers to buy and sell bitcoin will feed the hopes of many in the bitcoin community that major adoption by a hitherto hesitant financial sector is coming soon. Check out the report, which shows images of the portal.