Largest bitcoin exchange, Mt. Gox, 'throttles' trading to tame price swings

Mt. Gox is clamping down on mini transactions during high-volume trading periods

The largest bitcoin exchange, Mt. Gox, is in a continuing battle with miscreants trying to manipulate the price of the virtual currency.

Early Monday, Mt. Gox wrote on its Facebook page that it was once again struggling with a very large distributed denial-of-service (DDOS) attack. The exchange said earlier this month it has been hit by attacks upwards of 80Gbps, which it believed were intended to swing bitcoin's price.

The virtual currency can be bought on exchanges around the world. But Mt. Gox's market tends to set the price of bitcoin since it is has the highest volume of trades and users. Confidence in the bitcoin market is somewhat dependant on Mt. Gox's ability to keep its exchange running smoothly.

Mt. Gox, based in Tokyo, said it was working hard to mitigate the attack and said it is close to implementing better defenses. The company already uses a Florida-based security firm called Prolexic that specializes in mitigating DDOS attacks.

When Mt. Gox's website slows or goes offline, trading becomes more uncertain. The price for a single bitcoin may not be updated as frequently, causing people to trade on relatively old information.

Traders may also suddenly sell large volumes of bitcoins, causing a panic and driving the price down. Mt. Gox has said it is working on a new trading engine that will run separately from its front-end website, making it less vulnerable to DDOS attacks.

Miscreants are also trying to manipulate the virtual currency's price by using Mt. Gox's API (application programming interface) to submit trades for very small fractions of bitcoins. It is possible to watch real-time trades on Mt. Gox through services such as Clark Moody's website, which shows Mt. Gox's order book, or the prices at which people want to either sell or buy bitcoins.

During heated trading, it is possible to see a rapid influx of very small quantities of bitcoin on both the buy and the sell side. A sell order for .0111 of a bitcoin, for example, would represent US$1.33 if one bitcoin is trading for $120.

It doesn't appear that buying or selling a $1.33 slice of a bitcoin would be very practical given the small economy so far for bitcoin services, although the market is growing. But entering lots of small sell orders, for example, can give the impression that bitcoin's price is falling even if it doesn't represent the broader market sentiment. Traders can submit more than one transaction using Mt. Gox's API.

Gonzague Gay-Bouchery , who heads marketing for Mt. Gox, said the exchange is slightly limiting the number of mini-transactions a trader can submit and capping the transactions during high trading times.

Mt. Gox has put in place elastic "throttles" that will allow some small trades but automatically limit the trades depending on the needs of its trading engine, Gay-Bouchery said.

Send news tips and comments to jeremy_kirk@idg.com. Follow me on Twitter: @jeremy_kirk

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