Mt. Gox fell victim to another DDoS attack yesterday. Anyone who’s been involved with Bitcoin for more than a week knows this is a relatively common occurrence. That said, there was something very different about this attack that if repeated consistently should lead to a reduction in frequency of DDoS downtime: your reaction.
The most commonly assumed incentive to DDoS a bitcoin exchange is to profit from the ensuing chaos. Remove the chaos and you remove the incentive to attack. That’s exactly what happened yesterday.
Why DDoS an exchange?
In a distributed denial of service (DDoS) attack, Malicious traders use botnets to overload the exchange’s servers, causing heavy latency. The goal of a DDoS is to cause a panic and drive other market participants into a fear-driven sell-off. After the price of BTC drops, the attacker buys in below true market value, waits for prices to normalize, and sells higher for a profit.
How was yesterday different?
Unlike past DDoS attacks, something very interesting happened yesterday: nothing. Trades trickled through and prices barely moved, remaining in a tight band for hours. The implications of that could be tremendously positive.
A DDoS attack isn’t free. The attacker could make a botnet, but it’s more likely they rented one. All in, a DDoS could cost up to or even above $1,000 – an amount that could be easily covered by trading the resulting swings – that is, of course, assuming a swing happens. Yesterday there was uncommonly low volatility (see chart below), meaning the attacker probably lost money.
If the financial gain is removed, theoretically the incentive to attack the exchange should wane similarly. Yesterday was surely not the last time Gox will be DDoS’d, but we should all hope the most recent market reaction was the beginning of a trend.
Why was yesterday different?
Most of the folks remaining post-bubble are longer-term players, rather than speculators looking to make a quick buck in the hottest new market and have a deeper understanding of exchange issues, so they’re less inclined to rush into a panicked frenzy during a DDoS. The result was a tightly-banded holding pattern as people realized this was another temporary blip and looked to consciously and deliberately take positions.
This is a sign of increasing market maturity, an important step in bitcoin’s broader adoption. Let’s hope it continues.