Top Bitcoin exchange MtGox goes offline

Bitcoins The value of Bitcoin had fallen sharply on the MtGox exchange in recent days

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One of the biggest Bitcoin Exchanges, MtGox, has gone offline.

The exchange has been hit by technical issues and recently halted all customer withdrawals of the digital currency after it spotted what it called "unusual activity".

The move is a setback for backers of Bitcoin, who have been pushing for greater adoption of the currency.

Meanwhile, six other major Bitcoin exchanges issued a joint statement distancing themselves from MtGox.

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Bitcoin's strength - that it has grown in an organic, slightly anarchic and devolved way, with no central oversight or control - is also its weakness”

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The move by MtGox to halt withdrawals had resulted in a sharp decline in the value of Bitcoin.

A statement was posted on the MtGox website on Tuesday afternoon.

"In the event of recent news reports and the potential repercussions on MtGox's operations and the market, a decision was taken to close all transactions for the time being in order to protect the site and our users. We will be closely monitoring the situation and will react accordingly," it said.

The closure of the site did not "reflect the resilience or value of Bitcoin", said a statement from representatives of several other Bitcoin exchanges, including Coinbase and BTC China.

"This tragic violation of the trust of users of MtGox was the result of one company's actions.

"As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today.

"We are confident, however, that strong Bitcoin companies, led by highly competent teams and backed by credible investors, will continue to thrive, and to fulfil the promise that Bitcoin offers as the future of payment in the internet age," they added.

Lost Bitcoins?

MtGox halted transfers of the digital currency to external addresses on 7 February.

The Tokyo-based firm said it had found a loophole that thieves could use to fool the transaction process into sending double the correct number of Bitcoins.

The issue also left it vulnerable to attacks, which slowed down the rate at which coins could be bought and sold.

How Bitcoin works

Bitcoin is often referred to as a new kind of currency.

But it may be best to think of its units being virtual tokens rather than physical coins or notes.

However, like all currencies its value is determined by how much people are willing to exchange it for.

To process Bitcoin transactions, a procedure called "mining" must take place, which involves a computer solving a difficult mathematical problem with a 64-digit solution.

For each problem solved, one block of Bitcoins is processed. In addition the miner is rewarded with new Bitcoins.

This provides an incentive for people to provide computer processing power to solve the problems.

To compensate for the growing power of computer chips, the difficulty of the puzzles is adjusted to ensure a steady stream of about 3,600 new Bitcoins a day.

There are currently about 11 million Bitcoins in existence.

To receive a Bitcoin, a user must have a Bitcoin address - a string of 27-34 letters and numbers - which acts as a kind of virtual post-box to and from which the Bitcoins are sent.

Since there is no registry of these addresses, people can use them to protect their anonymity when making a transaction.

These addresses are in turn stored in Bitcoin wallets, which are used to manage savings.

They operate like privately run bank accounts - with the proviso that if the data is lost, so are the Bitcoins owned.

The loophole was also thought to have been exploited by thieves, who stole about $2.7m in Bitcoins from the Silk Road 2 website earlier this month.

However, last week, the exchange said that customers would be able to starts withdrawals "soon".

One report claimed on Monday that the exchange had become "insolvent" after losing 744,408 Bitcoins - worth about $350m (£210m) at Monday's trading prices.

The chief executive of MtGox, Mark Karpeles, told Reuters in an email on Tuesday: "We are currently at a turning point for the business. I can't tell you much more for now, as this also involves other parties."

'Re-establish trust'

Unlike real currencies, Bitcoins are not regulated by any central bank or government financial institutions.

They are created as part of a technique called "mining", which is used to process transactions.

With only a limited number or Bitcoins in circulation, their price has risen significantly in recent months driven by a variety of factors.

Some have been betting that the digital currency may get the backing of regulators as a legitimate financial service and have been investing in it.

Their popularity has also been driven in part by it being difficult to trace transactions carried out using Bitcoins, and the currency has been linked to illegal activity online.

Its growing popularity has seen backers of the currency push for greater mainstream adoption. They have had some success with a few firms starting to accept Bitcoins as a form of payment.

However, there have also been concerns over the currency's long-term future, not least due to a lack of proper regulation and laws.

At the same time, some have warned that the rapid surge in Bitcoin's price was merely due to speculation and was not sustainable.

The latest development with MtGox is likely to trigger fresh concerns over the digital currency.

However, other Bitcoin backers said they were working together to "re-establish" trust among users and were "committed to the future of Bitcoin".

They said they "will be coordinating efforts over the coming days to publicly reassure customers and the general public that all funds continue to be held in a safe and secure manner".

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