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An article titled "Researchers find that one person caused bitcoin to spike from $150 to $1,000 in 2013" (here) at CNBC discusses a paper titled "Price Manipulation in the Bitcoin Ecosystem" (here).

This article says about the paper that

They found that a majority of the price manipulation happened due to two bots with "??" listed as the name of the user country. They named these bots "Markus" and "Willy."

Markus bought and sold bitcoin at seemingly random prices and did not pay transaction fees. Upon further review, they found reason to believe that Markus was not actually paying for the bitcoins he was receiving. Markus acquired a total of 335,898 bitcoins and was active from February 14th, 2013 until September 27th, 2013.

On p.7 of that paper the authors wrote that

In the end, we have concluded that Markus did not actually pay for the bitcoins he acquired; rather, his account was fraudulently credited with claimed bitcoins that almost certainly were not backed by real coins. Furthermore, because transactions were duplicated, no legitimate Mt. Gox customer received the at currency Markus supposedly paid to acquire the coins.

Markus began buying bitcoin on 2013-02-14 and was active until 2013-09-27. He did not pay for the bitcoins he acquired nor did he pay fees for the transactions.

I am mainly interested in how a duplication of transaction would lead to the seller not getting paid.

This is not explained in the paper as it mainly focuses on how the activity by the bots drove up the price of BTC at Mt. Gox and elsewhere.

Questions:

  1. Isn't the purpose of the blockchain to avoid issues with transaction integrity, such as duplicate transactions?
  2. How would duplication of a transaction lead to the seller not getting paid?
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Isn't the purpose of the blockchain to avoid issues with transaction integrity, such as duplicate transactions?

Trades on an exchange do not happen on the blockchain. Those transactions are not Bitcoin transactions; they are internal to the exchange and are just updates to the exchange's internal database. Because of this, duplicate transactions could happen without anyone really knowing.

How would duplication of a transaction lead to the seller not getting paid?

The balance in an exchange account is just a number in a database and is not necessarily backed by that amount of actual currency. I believe what the authors are saying here is that the buyers and sellers would have their balances updated to say that they had X amount of money, but if they tried to withdraw, the funds wouldn't actually be there so that they could withdraw.

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