It’s hard out there for a virtual currency. Bitcoin prices collapsed 23 percent Monday night after a technical glitch forced developers to call for a temporary halt to Bitcoin-related transactions, but prices have since gone back up.
Bitcoin has been trading at record prices in recent weeks, likely due to a number of major deals to get more people and companies easy access to the currency. But the “miners” that create new Bitcoins from powerful computers must work on making new Bitcoins using the same rules or else it can cause havoc for all parties.
First reported by Ars Technica, a Bitcoin miner running the latest version of Bitcoin-mining software (version 0.8) created a large block that was apparently incompatible with earlier versions of Bitcoin. When this happened, Bitcoin transactions stopped and prices fell.
“After some emergency discussion on #bitcoin-dev, it seems best to try to get the majority mining power back on the ‘old’ chain, that is, the one which 0.7 accepts,” Bitcoin developer Pieter Wuille wrote in a widely circulated email. “That is the only chain every client out there will accept. BTC Guild is switching to 0.7, so majority should abandon the 0.8 chain soon. Short advice: if you’re a miner, please revert to 0.7 until we at least understand exactly what causes this. If you’re a merchant, and are on 0.8, stop processing transactions until both sides have switched to the same chain again. We’ll see how to proceed afterwards.”
Bitcoin prices hit a high of about $48 on Monday day but fell to $37 on Monday evening after the incident, a drop of about 23 percent. Prices have somewhat recovered, and one Bitcoin is worth about $43.40 on the Mt. Gox exchange.
See the sell-off and recovery of Bitcoin prices in the chart below.
Bitcoin photo via zcopley/Flickr, Bitcoin chart via Bitcoincharts.com