Tech Talk: Bitcoin Breaks into the Offline World IBTimes UK

Bitcoin has shown remarkable resilience in the last 24 hours, as the cryptocurrency begins to recover after heavy losses were suffered in the wake of the Mt Gox exchange suspending coin withdrawals.

A statement from Mt Gox blaming technical issues with bitcoin spooked investors, causing the currency to fall by 20% to around $550 (£335) a coin; but by the following morning bitcoin had recovered to more than $700 per coin.

Bitcoin's behaviour was mirrored by much of the cryptocurrency landscape, with litecoin also showing a healthy recovery in the hours after Mt Gox's statement was published.

Cryptocurrency value

Dogecoin showed impressive resilience, falling briefly but soon recovering to $0.0015, up nearly 7% over the last 24 hours.

Pxlcoin reported the strongest gain, up 102% over 24 hours, to $0.26 per coin, followed by feathercoin up 45% to $0.29 and globalcoin, up 43% to $0.0055.

Mt Gox woes continue as customers remain in the dark

The biggest cryptocurrency news of the last 24 hours has of course been the apparent fall of Mt Gox. One of the first and once the world's largest bitcoin exchange, the Tokyo-based company issued a statement blaming a fundamental problem with bitcoin's protocol for its temporary ban on customers withdrawing their coins.

But the statement was dismissed by many as an excuse and even a cover-up for far deeper problems. Many members of the bitcoin community believe Mt Gox is insolvent and cannot provide the bitcoins its users' believe they have stored in the exchange.

The Bitcoin Foundation was quick to debunk Mt Gox's claims of problems with bitcoin itself. Gavin Andresen of the foundation said: "The issues that Mt. Gox has been experiencing are due to an unfortunate interaction between Mt. Gox's implementation of their highly customized wallet software, their customer support procedures, and their unpreparedness for transaction malleability, a technical detail that allows changes to the way transactions are identified."

This "unfortunate interaction" is known as transaction malleability and is where every bitcoin transaction's unique identifier can be briefly modified, letting hackers duplicate transactions to and from the exchange. The issue has been known about since 2011, and can be fixed by an exchange making simple changes to its customers' wallets.

If Mt Gox's statement is true, then it has failed to make these changes and, as Andresen said, "this is something that cannot be corrected overnight."

Another nail in Mt Gox's coffin was driven into place when cryptocurrency news site CoinDesk removed the exchange's bitcoin exchange rate from its price index "due to its persistent failure to meet the index's standards for inclusion."

Bitcoin regulation coming to Australia this year

The Australian Taxation Office has announced it will include bitcoin capital gains and sales tax guidelines into its system for users to declare tax returns on the currency this year.

Senior assistant commissioner Michael Hardy told Australian TV's Financial Review: "The ATO is working on a holistic understanding of the taxation treatment of bitcoin to be in a position to provide certainty for the Australian community."

The ATO will not accept tax payments in bitcoin, but it will expect Australians to account for bitcoin transactions when calculating their Goods and Services Tax (similar to VAT) by recording the transaction's value in dollars.

Australia's tax year ends on 30 June and returns must be submitted by 31 October.