Following news that Bitstamp has suffered what now appears to be a massive security breach, the effects of the surprise outage at one of the largest cryptocurrency exchanges have spread quickly through the wider bitcoin economy.
From payment processors serving billion-dollar merchants to bitcoin ATMs and advanced trading platforms, Bitstamp's stoppage caused quoted prices in bitcoin to become inaccurate, some products to be suspended and select services to be retailored in light of the interruption.
The wide-ranging ripple underscores the still-somewhat fragile nature of the bitcoin ecosystem and one that, 10 months removed from the failure of once-dominant Mt Gox, is still striving to eliminate vulnerabilities from its network.
Taariq Lewis, CEO of DigitalTangible, explained for example how users of his bitcoin and precious metals trading platform were shown incorrect prices throughout the day. DigitalTangible functions as a catalog of merchants that resell products, and all are BitPay merchants. With BitPay’s pricing rendered incorrect by Bitstamp's data, he said, customers could have ended up paying more.
While largely academic in his view, Lewis’ speculations point to what he called the “delicacy” of the bitcoin ecosystem, using the impact at the leading US-based bitcoin payments processor as an example:
“If customers are paying $276 and the price is $266, that’s a $10-dollar difference. With 400 merchants processing several hundred thousands of dollars an hour at the wrong price, there’s a risk that BitPay can now be liable for making good on the incorrect price.”
BitPay has since issued a few announcements on the issues its global exchange rate Bitcoin Best Bid (BBB) experienced, first adding more data sources to its engine and later expanding on the subject in a full blog post.
Still, some like BTC.sx CEO Joseph Lee view the situation as evidence that, while increasingly active in terms of the number of players, the bitcoin ecosystem perhaps is overly reliant on certain trusted services.
“Unfortunately for the newcomers in this space, competing with large players isn’t easy when the largest exchanges command. Bitstamp has become a victim of its own success – and the well-timed demise of Mt Gox,” Lee said.
BitPay was not alone in being affected. US-based bitcoin exchange Coinsetter removed Bitstamp as a source of liquidity from its order book, for example, while wallet provider Blockchain began using rival Bitfinex for its pricing data.
Lewis perhaps summed up the total of the outages, stating: “What you’re seeing is a lot of systemic risk in the bitcoin ecosystem.”
Merchant issues limited
Given that bitcoin’s primary use case today may be as a payment mechanism in online commerce, the effects at major merchants are perhaps the most troubling for the network.
BitPay quoted prices that were several dollars higher than the rest of the market for about eight hours on 5th January. During this time, the BitPay price was in line with Bitstamp’s last quoted price of $276.66 before trading stopped.
As a result merchants who use BitPay to process bitcoin payments quoted prices for products that were slightly above the market rate. CoinDesk found that TigerDirect showed a bitcoin-US dollar exchange rate of $276.79 supplied by BitPay when major exchanges were quoting rates in the $270–271 range.
BitPay said in a tweet that the price discrepancy was due to a “frozen” market monitor that required more data sources, without referring to the Bitstamp suspension. The company also declined to comment on its potential liability for pricing issues.
Despite the more theoretical issues raised by commenters, however, the actual impact on BitPay merchant customers appears to have been minimal.
Stephen Macaskill, CEO of BitPay customer and precious metals retailer Amagi Metals indicated that he received no customer complaints about the issue.
“When the bitcoin price drops, bitcoin sales are reduced,” he said. “So, none of our customers were affected by BitPay’s pricing indicator. They were not placing orders during that time.”
Netherlands-based food delivery network provider Takeaway.com also indicated that none of its customers complained about the pricing.
“We didn't get any questions on this subject from our customers,” a spokesperson said.
ATM operators react
At kiosks designed to enable bitcoin buying for purchases in the real-world, effects were also noticeable but limited.
Bitcoin ATM operator Robocoin said it was largely unaffected by the outage, noting that the outage impacted only a small number of its operators.
Robocoin allows its operators to use its Robocoin Exchange Connector as a means to obtain bitcoins for the use in their machines, and those who use the tool can buy from BitPay, Cointrader and Bitstamp.
“Due to Bitstamp's unavailability at the moment, operators may need to manually replenish or liquidate their float in their operator accounts that their machines trade on while they switch the Robocoin Connector to another one of our exchange partners,” Robocoin CTO John Russell said.
Robocoin, however, said it was able to react to the news quickly, issuing an email to its operators after first learning of the issue.
Exchanges feel impact
Online trading was also impacted on at least two notable trading platforms.
A Bitfinex spokesperson also indicated that it saw a number of clients, including enterprise customers, migrate to its platform from Bitstamp, though it suggested it believes that this migration is part of a longer-term trend.
Elsewhere, BTC.sx, which allows users to open positions on Bitfinex, itBit and Bitstamp, for example, disabled the Bitstamp BTC/USD currency pair on the exchange.
“For users with open trades out at Bitstamp, we have suspended our daily funding charge for these positions,” CEO Joe Lee told CoinDesk. “Pending the outcome of the situation, our staff are on hand to issue refunds of any positions opened during this period.”
Lee indicated that any repercussions were limited by his exchange’s decision to diversify the number of exchanges it allowed users to access via its platform, which used to only allow for trading on Bitstamp.
Notably, BTC.sx has experienced similar issues in the past, as it once suspended trading due to the shutdown of Mt Gox in 2014, a development that wasn’t lost on Lee.
His comments suggest that the bitcoin system may be learning from its past mistakes, even if questions are raised about whether centralised exchanges will ultimately be the best way for the network to expand more broadly.
“From BTC.sx's perspective, we saw a skewed dependency on Mt Gox just before its demise and as a result planned from very early on to use multiple exchanges,” he said.
Joon Ian Wong contributed reporting.
Disclaimer: CoinDesk founder Shakil Khan is an investor in BitPay.
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