Dive Brief:
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Bitcoin’s largest exchange, Tokyo-based MtGox, suspended withdrawals Friday and into this week, saying a protocol flaw was allowing fraudulent transactions.
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The flaw could allow theft or double-dipping, something the currency is explicitly supposed to prevent. Bitcoin developer Greg Maxwell acknowledged the glitch but blamed it on MtGox.
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Bitcoin’s price, which had been floating around $1,000 so far this year, plummeted to as low as $500, and the debacle was yet to be resolved as of Monday evening.
Dive Insight:
The glitch that may or may not allow fraudulent bitcoin transactions may or may not be a problem with its exchange rather than with bitcoin itself, but the damage has been done, at least in the short term. While bitcoin developers and advocates hash things out, the currency itself isn’t gaining any — uh — currency in the real world. In order for bitcoin to hang on and gain legitimacy in everyday business transactions, it must be fraud-proof — or at least mightily fraud-resistant — and it must sustain its value in a fairly consistent way. Otherwise, it will remain a novelty at best. Or, at worst, it will lose its usefulness even among the people who are currently promoting it.