UPDATE: It appears transaction malleability is an unlikely excuse, at least as far as determining where all of the missing coins went. As more evidence has come to light, a 2013 hack of the Mt. Gox customer database seems to explain much here, including why cash balances were of as well. Hackers penetrated the database, altered cash balances on accounts with forged KYC info that they controlled, purchased bitcoins and withdrew the coins from the unverified accounts. Mt. Gox later instated verification requirements for bitcoin withdrawals.
This week I assisted lawyers in Tokyo to submit a brief (here) concerning newly released independent research on transaction malleability at Mt. Gox. The basic import of this research is that the likelihood of transaction malleability being responsible for the missing bitcoins is very low.
On March 26, 2014 independent researchers from the University of Zurich released a study (here) showing transaction malleability could have been responsible for no more than a few thousand bitcoins being stolen from Mt. Gox.
The paper’s concluding passage nicely sums it up:
“While MtGox claimed to have lost 850,000 bitcoins due to malleability attacks, we merely observed a total of 302,000 bitcoins ever being involved in malleability attacks. Of these, only 1,811 bitcoins were in attacks before MtGox stopped users from withdrawing bitcoins. Even more, 78.64% of these attacks were ineffective. As such, barely 386 bitcoins could have been stolen using malleability attacks from MtGox or from other businesses. Even if all of these attacks were targeted against MtGox. MtGox needs to explain the whereabouts of 849,600 bitcoins.”
The key criticism of this article is that the researchers started observing the transaction malleability issues in January 2013, whereas the issue was known about going as far back as May 2011. (See here). The research is missing one year and eight months worth of data, which represents a significant amount of time to take advantage of this vulnerability. Technically, the bitcoins could have stolen during this time (assuming Mt, Gox had 849,000 bitcoins to steal prior to January 2013).
At the same time, were transaction malleability attacks actually taking place from May 2011 to January 2013 we could expect the frequency of this attack to increase over time, especially as the price of a bitcoin appreciated. This does not appear to have happened. A service offered on the “Hidden Wiki” to take advantage of this malleability vulnerability (here) has been offered for some time, though I have not made any attempt to confirm whether it was legitimate or not.
Unless Mt. Gox can produce research disproving these conclusions, they have only two arguments I can see: (1) the 849,000 bitcoins were stolen prior to January 2013 and went unnoticed; and/or (2) the bitcoins were stolen in some other manner. Accepting the first argument requires us to believe Mt. Gox went all of 2013-14 without noticing more than 849,000 missing bitcoins. Accepting the second argument requires us to accept that Mt. Gox falsely used transaction malleability as an excuse, wrongly blaming the bitcoin protocol to deflect blame from themselves. Either way, the transaction malleability is likely not the cause of Mt. Gox’s missing bitcoins.