Bitstamp’s Ongoing Outage Echoes Through Bitcoin Economy

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.

This post was published at Coin Desk on January 6, 2015.