The value of Bitcoin plummeted 11% on January 21 following a report suggesting a critical flaw in the world’s most popular cryptocurrency.
Former President of the United States Donald Trump all but trademarked the phrase “fake news”, something he blamed for anything negative posted about him in the press. It was fake news, in the shape of incorrect reports, that resulted in Bitcoin’s value falling below $33,000, it’s lowest level in almost three weeks.
Cryptocurrency exchanges around the world are still awash in a sea of red as a $100 billion sell-off continues to drag Bitcoin’s price down. Investors are cashing in and locking in profit, limiting their losses, or a combination of both. An instrument’s value falls when more holders sell than buy, which is exactly what is happening here.
Report Suggesting a Costly Double Spend
A report from BitMEX Research on January 20 was responsible, in part, for the major sell off we are seeing now. BitMEX Research suggested it fund evidence of a major security flaw known in the industry as “double spend”.
Double spend is both a feared and dire situation for a cryptocurrency to find itself end. Essentially, double spend is when someone is able to spend the same Bitcoin twice, something that should never happen. Satoshi Nakamoto’s Bitcoin white paper in 2009 claimed the blockchain solved this damaging issue.
BitMEX Research sent out a tweet stating “It appears as if a small double spend of around 0.00062063 BTC ($21) was detected.”
Double Spend Theory Debunked
Apparent evidence of the double spend rocked investors’ confidence and a big sell-off ensued. BtMEX later tweeted the offending transaction was not a case of double spending but an instance of an RBF transaction, but the damage had already been done.
An RBF transaction is when an unconfirmed Bitcoin transaction gets replaced with a new transfer paying a higher fee.
Another tweet from BitMEX further explained the situation.
“A transaction in the losing chain sent 0.00062063 BTC to the address 1D6aebVY5DbS1v7rNTnX2xeYcfWM3os1va, and a transaction in the winning chain which spent the same inputs only sent 0.00014499 BTC to this address.”
Paolo Ardoino, the Chief Technical Officer for Bitfinex, a major cryptocurrency exchange, revealed the double-spend event never occurred and offered an explanation.
“In fact, what happened is that two blocks were mined simultaneously. As a consequence, there was a chain reorganisation, which did not result in double-spending.”
New US Administration Suggest Curtailing Bitcoin Use
Bitcoin was dealt a double-whammy when a press conference in the United States hinted at the new administration curtailing Bitcoin’s use.
Janet Yellen, President Joe Biden’s nominee for treasury secretary, suggested lawmakers in the US curtail the use of cryptocurrencies due to concerns about their usage. Yellen claimed Bitcoin is mainly used for illegal activities.
Her comments strongly hint that Biden’s administration will be hostile to cryptocurrencies and, therefore, regulation could be increased. The European Central Bank and the Financial Conduct Authority (FCA) in the United Kingdom recently voiced concerns about virtual currencies.
Yellen answered questions poised to her, including one from Senator Maggie Hassan who asked about terrorists using cryptocurrencies to fund their activities.
“You’re absolutely right that the technologies to accomplish this change over time, and we need to make sure that our methods for dealing with these matters, with terrorist financing, change along with changing technology. Cryptocurrencies are a particular concern. I think many are used – at least in a transaction sense – mainly for illicit financing. And I think we really need to examine ways in which we can curtail their use and make sure money laundering doesn’t occur through those channels.”
It isn’t only Yellen who is a Bitcoin detractor. Legendary investor Warren Buffet last year said “Bitcoin has been used to move around a fair amount of money illegally,” while the FCA in the united Kingdom warned Britons investing in cryptocurrency could easily lose all their money.