Yesterday the largest Bitcoin market known as Mt. Gox was hit with a Distributed Denial of Service (DDoS) attack. The attack was conducted by people interested in either destabilizing the currency or aiming to profit from it.
Bitcoin is a decentralized digital currency that is based on an open-source P2P Internet protocol. The currency hit around $1 billion in total circulation worth last month. Mt. Gox handles over 70% of Bitcoin trades in the world with about 420,000 trades per month.
When Mt. Gox went offline last night, Bitcoin prices dropped to about $30. The Bitcoin wallet service Instawallet shut down indefinitely due to a hacking accident also. Clearly this was a massive coordinated effort.
Below is an article that Mt. Gox wrote on Facebook:
It?s been an epic few days on Bitcoin, with prices going up as high as $142 per BTC. We all hope that this is just the beginning!
However, there are many who will try to take advantage of the system. The past few days were a reminder of this sad truth.
Mt. Gox has been suffering from its worst trading lag ever, 502 errors, and at one point some users were not able to log in their account. The culprit is a major DDoS attack against Mt.Gox.
Since yesterday, we are continuing to experience a DDoS attack like we have never seen. While we are being protected by companies like Prolexic, the sheer volume of this DDoS left us scrambling to fine-tune the system every few hours to make sure that things don?t go beyond a few 502 error pages and trading lag.
Why has Mt.Gox become the target of a DDoS attack?
It is not yet clear who is behind this DDoS and we may never know, but these actions seem to have two major purposes:
1. Destabilize Bitcoin in general.
It is not a secret Mt.Gox is the largest Bitcoin exchange with more than 80% of all USD trades and more than 70% of all currencies. Mt.Gox is an easy target for anyone that wants to hurt Bitcoin in general.
2. Abuse the system for profit.
Attackers wait until the price of Bitcoins reaches a certain value, sell, destabilize the exchange, wait for everybody to panic-sell their Bitcoins, wait for the price to drop to a certain amount, then stop the attack and start buying as much as they can. Repeat this two or three times like we saw over the past few days and they profit.
Mt. Gox is considering disconnecting the trade engine backend from the Internet by separating the data center from the Mt. Gox website to prevent future DDoS attacks.
Today Bitcoin prices are at about $137 as of the time that I was writing this. This means that the currency quickly recovered close to the $142 price that it was trading at yesterday.