Apparently because of a bug, all Bitcoin transactions from and to Mt. Gox, one of the biggest and oldest Bitcoin exchange, have been indefinitely suspended. This suspension has caused a drop of 20% in Bitcoin value.

This suspension is interesting, because it highlights one of the drawbacks of a transaction system where base money rather than demandable debt is traded. Indeed, one of Bitcoin’s key feature is a secure, encrypted transaction system. When there is a problem with this transaction system, because it is inseparable from the currency, all transactions must come to a halt. Or, like it is the case here, if one exchange has a glitch all of its transactions must be suspended. This is different from how suspensions, or even so-called ‘bank holidays,’ have worked in the past.

Indeed, in monetary systems where transactions were made in notes, coins or scriptures redeemable in base money by the bank that emitted them, the suspensions were, in a sense, much less painful. These claims could still be traded without affecting the bank that emitted them, though they would sometimes stop being accepted at par, particularly if the bank that emitted them couldn’t participate in the clearing system. This is true if the bank had suspended because of solvency or liquidity issues, but it would also be true in the case of software glitch like it seems to be the case here. There could still be “Bitcoin” transactions through these claims, even though they might be temporarily irredeemable into Bitcoins.

One of Bitcoin’s key feature, an inseparable, secure and encrypted transaction system, can also be a weakness until some form of inside money emerges.