AB 129 Is Not California Law Yet… The Remaining Steps Before “Bitcoin Becomes Legal In California” And How You Can Help
Caleb Chen 24/02/2014 Posted 14 hours ago
A top post on /r/Bitcoin at the moment has quite the misleading title. The specific document linked is merely the latest revision of the bill with analysis from the State Assembly’s Banking and Financial Institutions Committee and dates to 1/23/14. The post has caused many to mistakenly believe that either the bill has become a law or the bill has been passed and is awaiting signing to become a law. Both of which are quite untrue and reveal ignorance of political processes.
While I understand that Reddit is a worldwide community without general understanding of the American legislative process, we must make concerted effort to not promote misleading information and validate those whom call our forums and news sites a perpetual echo chamber.
california state bitcoin
California currently has a bill going through its system that would “legalize” Bitcoin… Image courtesy of JJKBACH
News sources that had taken the massively upvoted post at face value, such as The Examiner, have taken down their stories which claimed that California had passed a law legalizing Bitcoin, others have decided to simply amend their titles. An example of proper reporting on this story is showcased by Bitcoin Magazine’s Brian Cohen, whom has also been campaigning against Bitcoin FUD for even longer than I have.
I want to take this opportunity to clear the air on AB 129 Lawful Money: Alternative Currency.
Where AB 129 stands as of 2/24/14
On 2/6/14 the California Senate Rules Committee referred AB 129 to the Senate Banking and Financial Institutions Committee which is currently chaired by State Senator Lou Correa. I expect the Senate’s Banking and Finance Committee to vote unanimously (8-0) to allow the bill to re-enter the Senate floor, as their Assembly counterparts did back in January.
The summary of AB 129′s latest revision reads as such:
Summary: Specifies that current law which bans the issuance or
circulation of anything but lawful money of the United States
does not prohibit the issuance and use of alternative currency.
Important to note is that Bitcoin is but one of the “alternative currencies” specifically mentioned in AB 129. The bill, when it becomes law, will clarify the legal status of all kinds of alternative currencies; including “community currencies” such as “Santa Monica hours,” centralized alternative currencies such as Ripple, and even Coinye and Dogecoin.
For up to date information on AB 129 directly from the California Legislature please check this site.
The Remaining Steps
Senate Banking and Financial Institutions Committee: Once the Senate committee OKs the bill to be presented to the Senate floor, the second hearing of the bill will occur. A third hearing will be scheduled and analysis, which includes supporting and dissenting organizations, will be provided.
At the third hearing, there will be a role call vote. AB 129 will need about 21 votes to make it to the next step, though the community is hoping for a unanimous decision from the State Senate as occurred in the State Assembly.
Once AB 129 has passed through the Senate it will then appear on Governor Brown’s desk for him to sign. There’s no foreseeable reason why he would choose to veto this bill, which has zero fiscal implication and also such backing from the state’s Assembly members.
For a summary, again straight from the California Legislature, of how a bill becomes a law, please check this site.
How You Can Help
Everyone:
Don’t promote misleading headlines, Bitcoin and its community has grown up enough to say “NO” to these types of media blunders. There’s already so much FUD and misinformation that appears in the media, and to add to it is an atrocity, to say the least.
If you’re in America, please stay to learn a little about Citizen’s Lobbying!
If you are a California resident, legal or not:
You should go to the California Legislature’s handy dandy website for identifying your State Assembly member and Senator.
Call, email, or snail mail your State Assembly member and thank him or her for their vote on AB 129; it’s likely that an intern will take your call but rest assured that your message will be cataloged and passed on up.
Redditor asciimo has graciously provided a template for a quick email that you can send to your Assembly member to recognize and encourage their support of AB 129
Dear Assembly Member [His or Her Name],
I just wanted to thank you for supporting AB 129, “Lawful money: alternative currency.” I am a technology worker who believes that digital currency such as Bitcoin is an important innovation that will improve the lives of many people. This bill affirms that sentiment, and helps to legitimize this new technology. I encourage you to learn more about Bitcoin, particularly its ability to hasten, simplify, and reduce the cost of transactions for goods and services.
Your constituent, [Your Name]
Call or email your State Senator and urge him or her to vote yes on AB 129; furthermore, urge both your Assembly member and your Senator to stay abreast of bleeding edge technology, such as Bitcoin.
If and only if you have time and commitment, call and schedule a face to face meeting! It is an obligation for these representatives to talk to their constituents. Usually, it is larger businesses and/or interests that take advantage of this but there is absolutely no reason why you can’t do it too. That being said, do not walk into a meeting without at least a brochure to add salience to your message. Don’t be too surprised if you are only able to meet with a staff member; but hey, that’s what the brochure is for.
Topic: BITCOIN NEWS EVRYDAY! From multiple sources. - page 24. (Read 51244 times)
Australian Government Tracks All Bitcoin to AUD Conversions
Nermin Hajdarbegovic | Published on February 24, 2014 at 17:00 GMT | Asia, Crime, News
The Australian government is keeping a close eye on bitcoin, but not on the regulatory front. Rather, it is tracking every conversion from bitcoin into Australian dollars, and vice-versa.
The government agency doing the snooping is the Australian Transaction Reports and Analysis Centre (Austrac). The centre is tasked with countering money laundering and terrorist finance, so it is only logical that it would track anonymous transactions.
Tracking bitcoin-related transactions
Austrac CEO John Schmidt told lawmakers that Australia collects data on all international fund transfers, including bitcoin conversions, ZDnet reports.
“At some point, a person will be purchasing bitcoin using Australian dollars, for example, and then if they are dealing in substances or services, will want to convert those bitcoins back into the legitimate currencies of where ever they are, so they can gain the benefit of them.”
This is where it gets interesting. Because the centre gets international transfer instructions, it is possible to identify transactions made by people purchasing bitcoins.
Schmidt added that most countries have the same capability as Australia, but it is unclear whether they use it. He added that some prosecutions have already resulted from intelligence collected by the centre.
The CEO argued that bitcoin is a commodity used to transfer value rather than a legitimate currency. When bitcoins are converted into AUD, Austrac can identify those transactions.
Bitcoin is not a threat, yet
Schmidt also issued a warning that if bitcoin gains more independence from fiat currency it will become more attractive to criminal organizations that need to channel money around. In that case, international cooperation will be necessary, as Schmidt points out:
“Because they will operate on servers in jurisdictions around the world, and use very sophisticated methods to move and hide their identities. It’s when you have the international cooperation [...] that is the answer to being able to stop that criminal behaviour.”
Interestingly, Schmidt pointed out that Austrac is still not able to quantify the size of the bitcoin market in Australia, but he doesn’t see it as a major threat. He pointed out that people are gambling on the prospective value of bitcoin rather than using it for transactions.
“At this point in time, when you consider all the existing threats we face from the criminal perspective, they are not top of the list,” Schmidt concluded.
My toughs: Jezzzz... This is bad
.
Nermin Hajdarbegovic | Published on February 24, 2014 at 17:00 GMT | Asia, Crime, News
The Australian government is keeping a close eye on bitcoin, but not on the regulatory front. Rather, it is tracking every conversion from bitcoin into Australian dollars, and vice-versa.
The government agency doing the snooping is the Australian Transaction Reports and Analysis Centre (Austrac). The centre is tasked with countering money laundering and terrorist finance, so it is only logical that it would track anonymous transactions.
Tracking bitcoin-related transactions
Austrac CEO John Schmidt told lawmakers that Australia collects data on all international fund transfers, including bitcoin conversions, ZDnet reports.
“At some point, a person will be purchasing bitcoin using Australian dollars, for example, and then if they are dealing in substances or services, will want to convert those bitcoins back into the legitimate currencies of where ever they are, so they can gain the benefit of them.”
This is where it gets interesting. Because the centre gets international transfer instructions, it is possible to identify transactions made by people purchasing bitcoins.
Schmidt added that most countries have the same capability as Australia, but it is unclear whether they use it. He added that some prosecutions have already resulted from intelligence collected by the centre.
The CEO argued that bitcoin is a commodity used to transfer value rather than a legitimate currency. When bitcoins are converted into AUD, Austrac can identify those transactions.
Bitcoin is not a threat, yet
Schmidt also issued a warning that if bitcoin gains more independence from fiat currency it will become more attractive to criminal organizations that need to channel money around. In that case, international cooperation will be necessary, as Schmidt points out:
“Because they will operate on servers in jurisdictions around the world, and use very sophisticated methods to move and hide their identities. It’s when you have the international cooperation [...] that is the answer to being able to stop that criminal behaviour.”
Interestingly, Schmidt pointed out that Austrac is still not able to quantify the size of the bitcoin market in Australia, but he doesn’t see it as a major threat. He pointed out that people are gambling on the prospective value of bitcoin rather than using it for transactions.
“At this point in time, when you consider all the existing threats we face from the criminal perspective, they are not top of the list,” Schmidt concluded.
My toughs: Jezzzz... This is bad
.
Penn State Students Launch Bitcoin Club with Grand Ambitions
Olivia Rudgard (@OliviaRudgard) | Published on February 24, 2014 at 14:36 GMT | Investors, Lifestyle, Mining, News
While many see cryptocurrencies merely as a means to personal gain via mining or investment, a group of students at Penn State University think that digital currencies can also offer a more philanthropic way of doing business.
To that end, Penn State University Bitcoin Club has been created by six ambitious young students with a strong positive vision for the future of bitcoin.
The club was co-founded by Patrick Cines and Ryan McCabe, both investors in bitcoin and litecoin, and who met on reddit.
McCabe has invested about $2,500, which he expects to make back over the next two months. In turn, Cines has spent $1,800 on an upmarket case for the miner in his dorm room, and says he has made a significant profit from mining – which he spends on computer gear.
The club isn’t about making profit, though, and the pair are keen to stress that it is not their aim to encourage new members into mining or investment. Instead, they have more philanthropic goals.
Encouraging bitcoin business
With their mix of business and tech backgrounds, they are joining a new generation of entrepreneurial bitcoiners using the digital currency for business development.
In the short term, their aims for the club include using bitcoin to help small businesses grow, said Cines:
“Small businesses are one of the cornerstones of America, so it would only be fair that we continue to support small businesses by helping them prosper.”
They plan to find help small businesses integrate bitcoin into their finances in order to expand revenue. Promoting the acceptance of digital currencies is also part of their plan.
“I think that, in the future, bitcoin will be further integrated into our society. It is only inevitable that we have a global currency to advance a continuing globalized economy,” said Cines. He added:
“As of now, a lot of regulatory agencies are cracking down on bitcoin. That’s why countries like the United States have to show the world that bitcoin should be viewed not as a threat, but an asset.”
Thinking big
The club’s not just about helping businesses, either. McCabe says they remain true to bitcoin’s idealistic roots: “You do have to have some sort of liberal mindset, because it is still a new thing that people don’t understand. You have to be open to new concepts.”
Penn
“As a long-term goal, we want to help other philanthropic organisations by donating bitcoin,” he added.
One of their aims is to eventually help support the annual Penn State ‘Thon’ – a dance marathon which last year raised $12.8m for the Four Diamonds Fund, a pancreatic cancer charity.
The pair are even converting their parents to bitcoin. McCabe convinced his dad to invest $1,300 in a mining computer at Christmas, which has already returned $550. “It’s making much more than the bluechips they’re invested in,” said Cines.
The pair are optimistic about the future. Cines has big dreams about where the digital currency might go next.
Olivia Rudgard (@OliviaRudgard) | Published on February 24, 2014 at 14:36 GMT | Investors, Lifestyle, Mining, News
While many see cryptocurrencies merely as a means to personal gain via mining or investment, a group of students at Penn State University think that digital currencies can also offer a more philanthropic way of doing business.
To that end, Penn State University Bitcoin Club has been created by six ambitious young students with a strong positive vision for the future of bitcoin.
The club was co-founded by Patrick Cines and Ryan McCabe, both investors in bitcoin and litecoin, and who met on reddit.
McCabe has invested about $2,500, which he expects to make back over the next two months. In turn, Cines has spent $1,800 on an upmarket case for the miner in his dorm room, and says he has made a significant profit from mining – which he spends on computer gear.
The club isn’t about making profit, though, and the pair are keen to stress that it is not their aim to encourage new members into mining or investment. Instead, they have more philanthropic goals.
Encouraging bitcoin business
With their mix of business and tech backgrounds, they are joining a new generation of entrepreneurial bitcoiners using the digital currency for business development.
In the short term, their aims for the club include using bitcoin to help small businesses grow, said Cines:
“Small businesses are one of the cornerstones of America, so it would only be fair that we continue to support small businesses by helping them prosper.”
They plan to find help small businesses integrate bitcoin into their finances in order to expand revenue. Promoting the acceptance of digital currencies is also part of their plan.
“I think that, in the future, bitcoin will be further integrated into our society. It is only inevitable that we have a global currency to advance a continuing globalized economy,” said Cines. He added:
“As of now, a lot of regulatory agencies are cracking down on bitcoin. That’s why countries like the United States have to show the world that bitcoin should be viewed not as a threat, but an asset.”
Thinking big
The club’s not just about helping businesses, either. McCabe says they remain true to bitcoin’s idealistic roots: “You do have to have some sort of liberal mindset, because it is still a new thing that people don’t understand. You have to be open to new concepts.”
Penn
“As a long-term goal, we want to help other philanthropic organisations by donating bitcoin,” he added.
One of their aims is to eventually help support the annual Penn State ‘Thon’ – a dance marathon which last year raised $12.8m for the Four Diamonds Fund, a pancreatic cancer charity.
The pair are even converting their parents to bitcoin. McCabe convinced his dad to invest $1,300 in a mining computer at Christmas, which has already returned $550. “It’s making much more than the bluechips they’re invested in,” said Cines.
The pair are optimistic about the future. Cines has big dreams about where the digital currency might go next.
Hong Kong to Get First Offline Bitcoin Store
Nermin Hajdarbegovic | Published on February 24, 2014 at 13:36 GMT | Exchanges, News
Hong Kong is about to get a rather unusual shop: an offline bitcoin store, launched by the Asia Nexgen Bitcoin Exchange (ANXBTC).
A 400-square-foot premises seems an unusual setting for the world of digital currency, but ANXBTC believes the move makes a lot of sense.
The exchange’s CEO Lo Ken-bon told the South China Morning Post that the biggest problem faced by bitcoin lovers in Hong Kong is that they simply can’t get a hold of them:
“So far, people have to put money in and trade it through an online exchange. Now, you can walk into the store, hand over your cash, and send the bitcoins to your digital wallet.”
Jumping through hoops
In order to buy bitcoins in the new shop, buyers will have to verify their identity and state their address – this is necessary to meet local anti-money laundering regulations.
There is another regulatory issue: Hong Kong views digital currencies as virtual commodities rather than currencies.
The Hong Kong Monetary Authority simply doesn’t want to deal with bitcoin, as it is not in its purview; therefore ANXBTC will have to operate the shop as a vending machine, with no exchange of money involved in its business.
That is to say, customers’ money will buy bitcoin the commodity, not bitcoin the currency.
This isn’t news to anyone who has been following developments in Hong Kong: the first Robocoin ATMs coming to Hong Kong are classified as vending machines too.
Regulation on its way?
Hong Kong hasn’t yet taken any drastic measures on bitcoin. Regulatory action does not appear very likely at this point, but the machinery of government may be about to slowly grind into action.
Hong Kong’s Customs and Excise Department is reportedly considering which government body is supposed to be investigating possible bitcoin regulation, the South China Morning Post has reported.
Furthermore, Hong Kong regulators issued a bitcoin warning earlier this year, saying that they are closely monitoring developments with regards to digital currencies and are cooperating with regulators in mainland China and the rest of the region.
However, since the new bitcoin shop is set to open on Friday, February 28th, we can assume that ANXBTC is fairly certain it will be able to operate in spite of any regulatory ambiguity in the near future.
Nermin Hajdarbegovic | Published on February 24, 2014 at 13:36 GMT | Exchanges, News
Hong Kong is about to get a rather unusual shop: an offline bitcoin store, launched by the Asia Nexgen Bitcoin Exchange (ANXBTC).
A 400-square-foot premises seems an unusual setting for the world of digital currency, but ANXBTC believes the move makes a lot of sense.
The exchange’s CEO Lo Ken-bon told the South China Morning Post that the biggest problem faced by bitcoin lovers in Hong Kong is that they simply can’t get a hold of them:
“So far, people have to put money in and trade it through an online exchange. Now, you can walk into the store, hand over your cash, and send the bitcoins to your digital wallet.”
Jumping through hoops
In order to buy bitcoins in the new shop, buyers will have to verify their identity and state their address – this is necessary to meet local anti-money laundering regulations.
There is another regulatory issue: Hong Kong views digital currencies as virtual commodities rather than currencies.
The Hong Kong Monetary Authority simply doesn’t want to deal with bitcoin, as it is not in its purview; therefore ANXBTC will have to operate the shop as a vending machine, with no exchange of money involved in its business.
That is to say, customers’ money will buy bitcoin the commodity, not bitcoin the currency.
This isn’t news to anyone who has been following developments in Hong Kong: the first Robocoin ATMs coming to Hong Kong are classified as vending machines too.
Regulation on its way?
Hong Kong hasn’t yet taken any drastic measures on bitcoin. Regulatory action does not appear very likely at this point, but the machinery of government may be about to slowly grind into action.
Hong Kong’s Customs and Excise Department is reportedly considering which government body is supposed to be investigating possible bitcoin regulation, the South China Morning Post has reported.
Furthermore, Hong Kong regulators issued a bitcoin warning earlier this year, saying that they are closely monitoring developments with regards to digital currencies and are cooperating with regulators in mainland China and the rest of the region.
However, since the new bitcoin shop is set to open on Friday, February 28th, we can assume that ANXBTC is fairly certain it will be able to operate in spite of any regulatory ambiguity in the near future.
@ #85 - This is independent news from multiple sources. I don't chose news i post all i can find. On ur post i don't have real comment.
Bank-like Bitcoin Portal Neo Opens First Branch in Cyprus
Jon Southurst (@southtopia) | Published on February 24, 2014 at 12:32 GMT | Companies, Europe, News, Technology
The world’s first brick-and-mortar bitcoin deposit and financial services portal, Neo, opened the doors to its flagship branch in Cyprus at 10:30am local time today.
Neo is the ‘bank-like’ arm of bitcoin business twins Neo & Bee, with Bee serving as the payment processing network. Cypriot residents will have access to services “allowing them to interact with their money like they would with Euro deposits in any traditional bank”, including deposit, savings, business and merchant accounts.
If successful, Neo promises to engrave 24th February 2014 as a landmark date in bitcoin’s history. Economist, author, and bitcoin fan Tuur Demeester attended today’s launch and is hopeful it will set a precedent for similar bitcoin services everywhere:
“Bitcoin is a hero who gives financial autonomy back to the people, that’s the gist of Neo’s marketing campaign. This is a message that really speaks to the distressed population here in Cyprus, who are now realizing that not only can they use bitcoin to regain some essential personal freedoms, but also that they can turn this crisis into an opportunity.”
He continued: “I think we’re now in a period comparable to that of 1994-95, when companies like GeoCities, Yahoo, and Microsoft made the internet useful and easy to access for a broad segment of the population. In my view, Neo & Bee is making an admirable (and hitherto unprecedented) effort to bridge the gap from the geeky Bitcoin culture towards the general public.”
How Neo works
All customer deposits at Neo’s bank-without-a-bank are held in full reserve, in BTC. Customers may use either bitcoins or Euros, and can choose either Euro-pegged accounts with fiat value limits or ones that offer “full exposure to the bitcoin price level”.
This offers the public access to the benefits of bitcoin without needing to worry about wallet security, online service hacks, or even being technologically literate at all. Customers can consult face to face with service representatives.
neo
Neo will also help reduce the risk of those price-level exposed customers by offering time-locked accounts guaranteed to hold a certain amount of fiat value even if bitcoin’s value drops. For the company, there’s an advantage if the price rises instead.
Anyone can audit the company at any time and prove their funds are indeed being held in reserve, since Neo’s addresses will be available for inspection on the bitcoin block chain. Even if the company disappears, the bitcoins are still yours.
What Neo doesn’t do at this stage is lend money. Imagine a ‘physical bitcoin wallet’, or if you prefer, a bank that keeps your money safe and makes transactions simple (imagine!) and you have Neo & Bee.
About Bee
Bee functions like a bitcoin-based debit card system – offering merchant terminals and cards with EMV chip and PIN technology, with the added bonus of faster settlement processing times and lower fees. And, of course, no chargebacks.
Bee is technically a separate business entity but operates under the same umbrella as Neo. CEO Danny Brewster, who has personally invested €6m getting the business off the ground, described it to the Cyprus Mail as follows:
“Neo and Bee are two separate brands that fall under the same roof. Neo is a physical portal for people to get educated on the bitcoin technology. They can also buy bitcoins directly from us, but we won’t sell to them until we know they got the right understanding of the technology.”
Both Neo and Bee will comply with banking laws and regulations, but free from the influence of the EU Central Bank. The last part of that sentence should prick up plenty of ears in Cyprus, and it’s no accident the company chose it as the place to get things started.
The island nation has a history as a financial services center, but it was the 2012-13 Cypriot Banking/Financial Crisis that really ignited a desire for something other than traditional banking.
The crisis
The events of March-April 2013 have become infamous in the financial world.
Faced with widespread banking insolvency (a knock-on effect from Greece’s government debt crisis), Cyprus agreed to a bailout deal that would close the country’s second largest bank and planned a “bank deposit levy” of 6.7% for all accounts under €100,000 and 9.9% for those over.
Depositors at the closed bank would take a haircut of up to 40%. Local banks immediately suspended business to prevent a run. The deal, proposed by the International Monetary Fund (IMF) Eurogroup, European Commission (EC), and European Central Bank, was promoted as targeting wealthy foreign citizens of other countries (mainly Russia) using Cypriot banks for tax avoidance, but many around the world saw it as a harbinger of government confiscations to come as other Western world treasuries ran out of money.
The deal’s image wasn’t helped when news emerged that many of Cyprus’ wealthier depositors had been able to transfer money out of their accounts online through branches still open for business in the UK, leaving others to shake their fists at non-functional ATMs – or threaten to drive bulldozers through their windows.
Interest in bitcoin skyrocketed in Cyprus and around the world, driving prices to a record $266 average and even over $300 in China, and causing naysayers to scream “bubble!”. Though the value dropped shortly after, bitcoin’s status as a desirable asset and investment of serious value was sealed.
The future
Neo & Bee launched an IPO on bitcoin equities exchange Havelock Investments in September 2013, and it currently has a share price of 0.00328 BTC and a market cap of 9016.0102 BTC ($5.21m at today’s prices).
neo
While its services are available only to Cypriot residents at present, the company has big plans to expand throughout the European Union in future. Neo says there are also plans to open a second branch in Cyprus within a month.
Neo & Bee, a subsidiary of UK based company LMB Holdings, intends to make money through value spreads, a trading desk and simply by ‘going long’ on bitcoin – buying the bitcoins of merchants it services in a similar fashion to other existing payment processing companies like Coinbase and BitPay.
CEO Brewster also claims to be interested in other block chain-based applications like autonomous legal contracts and derivatives, and has a grand vision to turn Cyprus into a Silicon Valley-like incubation hub for bitcoin businesses.
Jon Southurst (@southtopia) | Published on February 24, 2014 at 12:32 GMT | Companies, Europe, News, Technology
The world’s first brick-and-mortar bitcoin deposit and financial services portal, Neo, opened the doors to its flagship branch in Cyprus at 10:30am local time today.
Neo is the ‘bank-like’ arm of bitcoin business twins Neo & Bee, with Bee serving as the payment processing network. Cypriot residents will have access to services “allowing them to interact with their money like they would with Euro deposits in any traditional bank”, including deposit, savings, business and merchant accounts.
If successful, Neo promises to engrave 24th February 2014 as a landmark date in bitcoin’s history. Economist, author, and bitcoin fan Tuur Demeester attended today’s launch and is hopeful it will set a precedent for similar bitcoin services everywhere:
“Bitcoin is a hero who gives financial autonomy back to the people, that’s the gist of Neo’s marketing campaign. This is a message that really speaks to the distressed population here in Cyprus, who are now realizing that not only can they use bitcoin to regain some essential personal freedoms, but also that they can turn this crisis into an opportunity.”
He continued: “I think we’re now in a period comparable to that of 1994-95, when companies like GeoCities, Yahoo, and Microsoft made the internet useful and easy to access for a broad segment of the population. In my view, Neo & Bee is making an admirable (and hitherto unprecedented) effort to bridge the gap from the geeky Bitcoin culture towards the general public.”
How Neo works
All customer deposits at Neo’s bank-without-a-bank are held in full reserve, in BTC. Customers may use either bitcoins or Euros, and can choose either Euro-pegged accounts with fiat value limits or ones that offer “full exposure to the bitcoin price level”.
This offers the public access to the benefits of bitcoin without needing to worry about wallet security, online service hacks, or even being technologically literate at all. Customers can consult face to face with service representatives.
neo
Neo will also help reduce the risk of those price-level exposed customers by offering time-locked accounts guaranteed to hold a certain amount of fiat value even if bitcoin’s value drops. For the company, there’s an advantage if the price rises instead.
Anyone can audit the company at any time and prove their funds are indeed being held in reserve, since Neo’s addresses will be available for inspection on the bitcoin block chain. Even if the company disappears, the bitcoins are still yours.
What Neo doesn’t do at this stage is lend money. Imagine a ‘physical bitcoin wallet’, or if you prefer, a bank that keeps your money safe and makes transactions simple (imagine!) and you have Neo & Bee.
About Bee
Bee functions like a bitcoin-based debit card system – offering merchant terminals and cards with EMV chip and PIN technology, with the added bonus of faster settlement processing times and lower fees. And, of course, no chargebacks.
Bee is technically a separate business entity but operates under the same umbrella as Neo. CEO Danny Brewster, who has personally invested €6m getting the business off the ground, described it to the Cyprus Mail as follows:
“Neo and Bee are two separate brands that fall under the same roof. Neo is a physical portal for people to get educated on the bitcoin technology. They can also buy bitcoins directly from us, but we won’t sell to them until we know they got the right understanding of the technology.”
Both Neo and Bee will comply with banking laws and regulations, but free from the influence of the EU Central Bank. The last part of that sentence should prick up plenty of ears in Cyprus, and it’s no accident the company chose it as the place to get things started.
The island nation has a history as a financial services center, but it was the 2012-13 Cypriot Banking/Financial Crisis that really ignited a desire for something other than traditional banking.
The crisis
The events of March-April 2013 have become infamous in the financial world.
Faced with widespread banking insolvency (a knock-on effect from Greece’s government debt crisis), Cyprus agreed to a bailout deal that would close the country’s second largest bank and planned a “bank deposit levy” of 6.7% for all accounts under €100,000 and 9.9% for those over.
Depositors at the closed bank would take a haircut of up to 40%. Local banks immediately suspended business to prevent a run. The deal, proposed by the International Monetary Fund (IMF) Eurogroup, European Commission (EC), and European Central Bank, was promoted as targeting wealthy foreign citizens of other countries (mainly Russia) using Cypriot banks for tax avoidance, but many around the world saw it as a harbinger of government confiscations to come as other Western world treasuries ran out of money.
The deal’s image wasn’t helped when news emerged that many of Cyprus’ wealthier depositors had been able to transfer money out of their accounts online through branches still open for business in the UK, leaving others to shake their fists at non-functional ATMs – or threaten to drive bulldozers through their windows.
Interest in bitcoin skyrocketed in Cyprus and around the world, driving prices to a record $266 average and even over $300 in China, and causing naysayers to scream “bubble!”. Though the value dropped shortly after, bitcoin’s status as a desirable asset and investment of serious value was sealed.
The future
Neo & Bee launched an IPO on bitcoin equities exchange Havelock Investments in September 2013, and it currently has a share price of 0.00328 BTC and a market cap of 9016.0102 BTC ($5.21m at today’s prices).
neo
While its services are available only to Cypriot residents at present, the company has big plans to expand throughout the European Union in future. Neo says there are also plans to open a second branch in Cyprus within a month.
Neo & Bee, a subsidiary of UK based company LMB Holdings, intends to make money through value spreads, a trading desk and simply by ‘going long’ on bitcoin – buying the bitcoins of merchants it services in a similar fashion to other existing payment processing companies like Coinbase and BitPay.
CEO Brewster also claims to be interested in other block chain-based applications like autonomous legal contracts and derivatives, and has a grand vision to turn Cyprus into a Silicon Valley-like incubation hub for bitcoin businesses.
Bitcoin Core Development Falling Behind, Warns BitcoinJ’s Mike Hearn
Danny Bradbury (@dannybradbury) | Published on February 24, 2014 at 05:57 GMT | Analysis, Bitcoin protocol, Technology, Wallets
Say what you like about Google, but it isn’t an easy place to get hired at. The entrance interviews are notoriously tough, and it is a highly desired employer – which makes Mike Hearn’s departure all the more notable.
Hearn is an expert in low-level software development, who worked as a site reliability engineer at Google, and focused on account security and antispam. He has also been one of the leading lights in the bitcoin community, heading up the open source development team for bitcoinj, which is the Java implementation of the bitcoin protocol.
He is leaving in part because of his growing interest in and commitment to bitcoin. Hearn sees a challenge ahead for the virtual currency: the core development team is shrinking.
Honey, I shrunk the team
“The long tail has grown longer, but the heavy lifting and design work has been done by a handful of people. That’s quite concerning,” says Hearn, highlighting a few key players on the team. He uses the team’s page on Github, the open source code repository on which Github is hosted, to see who’s most heavily involved.
Gavin Andresen, the lead developer, is an obvious mainstay. Others include Philip Kaufmann, who does a lot of GUI development. Wladimir J. van der Laan also works on the front end.
“There are occasional fixes and things submitted by other people, but the bulk of the work is being done by Gavin and those guys,” says Hearn. “I am a bit concerned by the fact that we don’t have a lot of people turning up and doing really serious, useful work on the core.”
But then, that’s a general problem with open source projects. Most people are not paid, meaning that participation can be patchy, and burnout rates can be high. Andresen is paid a salary by the Bitcoin Foundation, and Jeff Garzik, another programmer who has been heavily involved with core development, is in his first year at crypto currency payment processor BitPay, which has allowed him to focus at least partly on the protocol.
Quality, not quantity
Garzik says that Hearn has long been worried about team size, but says it’s overemphasized. And statistics on Github may not be the easiest way to assess what’s happening.
Open source projects are a question of quality, not quantity, says Garzik. For example, some of the most important features for bitcoin develop over months, meaning that their activity won’t show up in the Git data.
He gives Gregory Maxwell as an example. Maxwell has ‘commit access’ on Github, which enables him to push in code changes.
“In terms of code output, Greg has produced very little. A pull request here, a few lines change there,” says Garzik. “Counting Greg’s commits or lines-of-code authored would rank him far below most other contributors, but we value his contributions very highly.”
Garzik has also been busy behind the scenes, he says, coding contributions outside the core bitcoin project.
But the fact still remains that bitcoin is going through a revolution. Engineers used to rule the bitcoin world, but since then, the money has moved in, and agendas have changed.
“The long tail has grown longer, but the heavy lifting and design work has been done by a handful of people. That's quite concerning.”
Barry Silbert, head of the Bitcoin Investment Trust, has predicted that we are entering the third phase of development, with venture capital companies piling in. Institutional investors on Wall Street won’t be far behind, he has said. With hundreds of millions of dollars now piling into the bitcoin economy, can the current development approach keep up?
It would help if some of them gave something back, complains Garzik. “In general, I am disappointed at the large number of bitcoin companies that contribute nothing back to the original open source project, the software that runs the network we all use.
Last week, Gavin Andresen implied as much in a missive on the bitcoin mailing list, when he told companies using the bitcoin core not to treat the core development team “as if we were a commercial company that sold you a software library”.
Hearn agrees, and adds that companies can fall foul of technical changes if they don’t stay actively involved in helping with core development.
“The fact that Gox was unaware of malleability entirely and then blamed the bitcoin software is perhaps a good example of a company that treated bitcoin as if it was a perfect black box, and became so disconnected they weren’t even reading the mailing lists or release notes,” he says.
Key developments
In the meantime, Hearn says, enhanced payments are one of the main thrusts for bitcoin development. This added feature, destined for the bitcoin client software rather than the core protocol, have been on the table for a while, but haven’t yet made it into a release. They promise an easier way to make payments than dealing with long addresses, and they will also include support for memos.
Some people have also been working on subscription billing in the payment protocol, he says – this feature is badly needed in bitcoin. There has been some initial design work on this, which he would like to see turned into working code.
Smart transaction fees are also high on the agenda. Transaction fees today are not dynamic enough, he says. Instead, they are based on a set of arbitrary rules set by a core development team. This needs to be changed, (and is).
Smart fees are an attempt to make the fees float, and to formalise some of the rules about when fees are paid, explains Hearn.
“It’s not very dynamic today. It’s just some magic numbers chosen by Gavin and so on. It’s very inflexible. The bitcoin dollar price moves, but the fees don’t. “And the second problem is that it’s centralized, because they’re just some magic numbers chosen by the developers, which is not very feasible in the long run.”
This didn’t make it into the latest version of the core protocol, however, which Hearn takes as another example of lag in a resource-constrained project, while the commercial bitcoin community powers ahead.
A new kind of wallet
There are other developments afoot in the bitcoin community, too. Hearn is busy implementing hierarchical deterministic (HD) wallets in bitcoinj.
Traditionally, bitcoin wallets are designed to generate completely random addresses, encrypting the private keys for the user. These addresses are impossible to remember, and so the bitcoin wallet must be backed up frequently. Each backup includes all of the key pairs.
Instead, HD wallets use a single random number (also known as the extended address, or the seed), which can be written down as a series of twelve words. The wallet can then use a standard algorithm to derive many public keys from the seed, in the form of a tree.
“The idea is that you can type in the same set of 12 words, and they will deliver the same sets of keys,” says Hearn. “With HD wallets, you can give me an extended address, and I can use that to derive fresh addresses. You only have to give me one piece of data, but I can generate new addresses from it each time.”
This carries several benefits, including the ability to share a wallet between different devices. The tree structure also allows the seed’s owner to share some groups of addresses derived from the tree, but not others.
The HD wallet standard was finalized at the Bitcoin Conference last May, and Hearn hopes to have the bitcoinj integration completed in March. The mathematics are complete, he says. The tough part is integrating it into the bitcoinj software itself.
One of the challenges with HD wallets is privacy. Simply branching from an extended address means that anyone can iterate their way through all of the possible addresses in the tree, meaning that they could tell which payments had been made to or from any of them.
Hearn raises an alternative posited by Peter Todd, called stealth addresses. These allow you to distribute one address that can be used to generate new ones, but makes it impossible for people to make a connection between them.
“It’s not really clear to me that this is going to work in its current form because it’s not really compatible with lightweight wallets, at least in the form that it’s been proposed” he says. However, it’s still in the design stage, so this may change in the future.
Other developments include the use of the Tor network by default in bitcoinj. Traffic sent through Tor is encrypted most of the way. he would like to see this happen by the end of March, when he is back from his vacation.
When that vacation ends, Hearn has something else up his sleeve. He’ll announce it shortly, and CoinDesk will be there to cover it.
Danny Bradbury (@dannybradbury) | Published on February 24, 2014 at 05:57 GMT | Analysis, Bitcoin protocol, Technology, Wallets
Say what you like about Google, but it isn’t an easy place to get hired at. The entrance interviews are notoriously tough, and it is a highly desired employer – which makes Mike Hearn’s departure all the more notable.
Hearn is an expert in low-level software development, who worked as a site reliability engineer at Google, and focused on account security and antispam. He has also been one of the leading lights in the bitcoin community, heading up the open source development team for bitcoinj, which is the Java implementation of the bitcoin protocol.
He is leaving in part because of his growing interest in and commitment to bitcoin. Hearn sees a challenge ahead for the virtual currency: the core development team is shrinking.
Honey, I shrunk the team
“The long tail has grown longer, but the heavy lifting and design work has been done by a handful of people. That’s quite concerning,” says Hearn, highlighting a few key players on the team. He uses the team’s page on Github, the open source code repository on which Github is hosted, to see who’s most heavily involved.
Gavin Andresen, the lead developer, is an obvious mainstay. Others include Philip Kaufmann, who does a lot of GUI development. Wladimir J. van der Laan also works on the front end.
“There are occasional fixes and things submitted by other people, but the bulk of the work is being done by Gavin and those guys,” says Hearn. “I am a bit concerned by the fact that we don’t have a lot of people turning up and doing really serious, useful work on the core.”
But then, that’s a general problem with open source projects. Most people are not paid, meaning that participation can be patchy, and burnout rates can be high. Andresen is paid a salary by the Bitcoin Foundation, and Jeff Garzik, another programmer who has been heavily involved with core development, is in his first year at crypto currency payment processor BitPay, which has allowed him to focus at least partly on the protocol.
Quality, not quantity
Garzik says that Hearn has long been worried about team size, but says it’s overemphasized. And statistics on Github may not be the easiest way to assess what’s happening.
Open source projects are a question of quality, not quantity, says Garzik. For example, some of the most important features for bitcoin develop over months, meaning that their activity won’t show up in the Git data.
He gives Gregory Maxwell as an example. Maxwell has ‘commit access’ on Github, which enables him to push in code changes.
“In terms of code output, Greg has produced very little. A pull request here, a few lines change there,” says Garzik. “Counting Greg’s commits or lines-of-code authored would rank him far below most other contributors, but we value his contributions very highly.”
Garzik has also been busy behind the scenes, he says, coding contributions outside the core bitcoin project.
But the fact still remains that bitcoin is going through a revolution. Engineers used to rule the bitcoin world, but since then, the money has moved in, and agendas have changed.
“The long tail has grown longer, but the heavy lifting and design work has been done by a handful of people. That's quite concerning.”
Barry Silbert, head of the Bitcoin Investment Trust, has predicted that we are entering the third phase of development, with venture capital companies piling in. Institutional investors on Wall Street won’t be far behind, he has said. With hundreds of millions of dollars now piling into the bitcoin economy, can the current development approach keep up?
It would help if some of them gave something back, complains Garzik. “In general, I am disappointed at the large number of bitcoin companies that contribute nothing back to the original open source project, the software that runs the network we all use.
Last week, Gavin Andresen implied as much in a missive on the bitcoin mailing list, when he told companies using the bitcoin core not to treat the core development team “as if we were a commercial company that sold you a software library”.
Hearn agrees, and adds that companies can fall foul of technical changes if they don’t stay actively involved in helping with core development.
“The fact that Gox was unaware of malleability entirely and then blamed the bitcoin software is perhaps a good example of a company that treated bitcoin as if it was a perfect black box, and became so disconnected they weren’t even reading the mailing lists or release notes,” he says.
Key developments
In the meantime, Hearn says, enhanced payments are one of the main thrusts for bitcoin development. This added feature, destined for the bitcoin client software rather than the core protocol, have been on the table for a while, but haven’t yet made it into a release. They promise an easier way to make payments than dealing with long addresses, and they will also include support for memos.
Some people have also been working on subscription billing in the payment protocol, he says – this feature is badly needed in bitcoin. There has been some initial design work on this, which he would like to see turned into working code.
Smart transaction fees are also high on the agenda. Transaction fees today are not dynamic enough, he says. Instead, they are based on a set of arbitrary rules set by a core development team. This needs to be changed, (and is).
Smart fees are an attempt to make the fees float, and to formalise some of the rules about when fees are paid, explains Hearn.
“It’s not very dynamic today. It’s just some magic numbers chosen by Gavin and so on. It’s very inflexible. The bitcoin dollar price moves, but the fees don’t. “And the second problem is that it’s centralized, because they’re just some magic numbers chosen by the developers, which is not very feasible in the long run.”
This didn’t make it into the latest version of the core protocol, however, which Hearn takes as another example of lag in a resource-constrained project, while the commercial bitcoin community powers ahead.
A new kind of wallet
There are other developments afoot in the bitcoin community, too. Hearn is busy implementing hierarchical deterministic (HD) wallets in bitcoinj.
Traditionally, bitcoin wallets are designed to generate completely random addresses, encrypting the private keys for the user. These addresses are impossible to remember, and so the bitcoin wallet must be backed up frequently. Each backup includes all of the key pairs.
Instead, HD wallets use a single random number (also known as the extended address, or the seed), which can be written down as a series of twelve words. The wallet can then use a standard algorithm to derive many public keys from the seed, in the form of a tree.
“The idea is that you can type in the same set of 12 words, and they will deliver the same sets of keys,” says Hearn. “With HD wallets, you can give me an extended address, and I can use that to derive fresh addresses. You only have to give me one piece of data, but I can generate new addresses from it each time.”
This carries several benefits, including the ability to share a wallet between different devices. The tree structure also allows the seed’s owner to share some groups of addresses derived from the tree, but not others.
The HD wallet standard was finalized at the Bitcoin Conference last May, and Hearn hopes to have the bitcoinj integration completed in March. The mathematics are complete, he says. The tough part is integrating it into the bitcoinj software itself.
One of the challenges with HD wallets is privacy. Simply branching from an extended address means that anyone can iterate their way through all of the possible addresses in the tree, meaning that they could tell which payments had been made to or from any of them.
Hearn raises an alternative posited by Peter Todd, called stealth addresses. These allow you to distribute one address that can be used to generate new ones, but makes it impossible for people to make a connection between them.
“It’s not really clear to me that this is going to work in its current form because it’s not really compatible with lightweight wallets, at least in the form that it’s been proposed” he says. However, it’s still in the design stage, so this may change in the future.
Other developments include the use of the Tor network by default in bitcoinj. Traffic sent through Tor is encrypted most of the way. he would like to see this happen by the end of March, when he is back from his vacation.
When that vacation ends, Hearn has something else up his sleeve. He’ll announce it shortly, and CoinDesk will be there to cover it.
BTC China Lowers Trading Fees to 0.1%
Jon Southurst (@southtopia) | Published on February 24, 2014 at 10:01 GMT | BTC China, Companies, Exchanges, News
Chinese bitcoin exchange BTC China has announced it will lower trading commission fees from 0.3% to 0.1% for all trades executed after midday China time (4:00 am GMT) today, 24th February.
It will also retain its ‘maker-taker’ fee model, meaning those placing limit orders at prices set by them (market ‘makers’) will still be exempt from all fees, and actually receive a 0.1% rebate. The model is useful because it adds to market liquidity.
BTC China had previously reduced fees for withdrawal into Chinese yuan from 1% to 0.5% on 3rd January.
The company had been China’s largest and busiest bitcoin trader until December last year, when the People’s Bank of China (PBOC) placed a series of new restrictions on deposits to and withdrawals from exchanges via banks and third-party payment processors. Trading volumes at all exchanges fell together with bitcoin prices as traders rushed to cash out.
Market management
Since then bitcoin exchanges have jostled for market share with a series of innovations and interpretations of the rules, with some suggestions that true trading volumes were being manipulated to gain attention. Most exchanges are able to accept donations by channeling them through corporate bank accounts, and BTC China also offers a deposit-by-voucher system.
BTC China itself reduced trading fees to 0% in September 2013, before raising them to 0.3% in December in an attempt to mollify the central bank’s concerns that the market had become overheated and could cause disruption to the mainstream financial system.
They may not go any lower than the current model, though. BTC China CEO Bobby Lee admitted in January that the company would not have abolished fees altogether had it known the PBOC would react as it did, and said such 0% fee models benefited high-frequency traders and speculators over ordinary traders and bitcoin miners.
Besides ease of access, fees have offered another way for Chinese exchanges to compete. Rivals Huobi and OKCoin have maintained mostly 0% fee models even since the new restrictions.
Low trading fees brought in hordes of new traders and saw Chinese exchanges become wildly popular in 2013, probably even acting as a catalyst for bitcoin’s sudden value rise to record highs in the last quarter of that year.
Bitcoin value on Huobi and OKCoin was around the 3780 CNY ($620) mark at the time of writing, with BTC China marginally higher at 3801 CNY ($623).
Jon Southurst (@southtopia) | Published on February 24, 2014 at 10:01 GMT | BTC China, Companies, Exchanges, News
Chinese bitcoin exchange BTC China has announced it will lower trading commission fees from 0.3% to 0.1% for all trades executed after midday China time (4:00 am GMT) today, 24th February.
It will also retain its ‘maker-taker’ fee model, meaning those placing limit orders at prices set by them (market ‘makers’) will still be exempt from all fees, and actually receive a 0.1% rebate. The model is useful because it adds to market liquidity.
BTC China had previously reduced fees for withdrawal into Chinese yuan from 1% to 0.5% on 3rd January.
The company had been China’s largest and busiest bitcoin trader until December last year, when the People’s Bank of China (PBOC) placed a series of new restrictions on deposits to and withdrawals from exchanges via banks and third-party payment processors. Trading volumes at all exchanges fell together with bitcoin prices as traders rushed to cash out.
Market management
Since then bitcoin exchanges have jostled for market share with a series of innovations and interpretations of the rules, with some suggestions that true trading volumes were being manipulated to gain attention. Most exchanges are able to accept donations by channeling them through corporate bank accounts, and BTC China also offers a deposit-by-voucher system.
BTC China itself reduced trading fees to 0% in September 2013, before raising them to 0.3% in December in an attempt to mollify the central bank’s concerns that the market had become overheated and could cause disruption to the mainstream financial system.
They may not go any lower than the current model, though. BTC China CEO Bobby Lee admitted in January that the company would not have abolished fees altogether had it known the PBOC would react as it did, and said such 0% fee models benefited high-frequency traders and speculators over ordinary traders and bitcoin miners.
Besides ease of access, fees have offered another way for Chinese exchanges to compete. Rivals Huobi and OKCoin have maintained mostly 0% fee models even since the new restrictions.
Low trading fees brought in hordes of new traders and saw Chinese exchanges become wildly popular in 2013, probably even acting as a catalyst for bitcoin’s sudden value rise to record highs in the last quarter of that year.
Bitcoin value on Huobi and OKCoin was around the 3780 CNY ($620) mark at the time of writing, with BTC China marginally higher at 3801 CNY ($623).
All Mt. Gox Twitter Posts Removed
Jon Southurst (@southtopia) | Published on February 24, 2014 at 07:30 GMT | Companies, Exchanges, Mt. Gox
In a move sure to unsettle its waiting customers, Mt. Gox has removed all posts from its official Twitter feed. Readers started noticing the missing tweets just a short time after CEO Mark Karpeles resigned his seat on the Bitcoin Foundation’s Board of Directors.
The Twitter account has over 27,800 followers, making it one of the most followed in the bitcoin universe. According to Twittercounter, that total had increased from around 22,000 at the beginning of January. Although all past posts have been deleted, the account itself still exists.
Gox_Twitter
Like the company itself, Mt. Gox’s Twitter feed was somewhat reluctant to disseminate useful information or engage in two-way communication. Many user support queries received automated responses (usually beginning with “Dear Customer”) and sometimes weeks later. It has been silent throughout the company’s recent issues with bitcoin withdrawals.
There have not been any official updates on Mt. Gox’s support page or News section since 20th February, making customers increasingly nervous about the fate of their bitcoin wealth there. Mt. Gox bitcoins, which are still being actively traded, fell from around $300 at the start of 24th February (Japan time) to a low of $155 in the afternoon.
Motivation
With speculation already rampant that Mt. Gox is either insolvent or about to close its doors without reaching an acceptable solution, widespread skepticism met the deletions on forums like Reddit.
Some wondered if the company was preparing to rebrand itself in an attempt to regain trust, while others suggested removing public messages was for a small degree of legal protection in case customers decided to take action beyond office protests. A straw poll on the bitcointalk forum had 43% declaring Gox “dead in the water” and 23% expecting it to solve its problems and survive, with a minority of others expecting a major investor to step in and take over the company.
The notoriously secretive exchange may also just be following its long held pattern of falling silent in a crisis, due to legal concerns or what it regards as office security issues. It also announced it would be moving offices last week in response to recent events, without being clear as to why such action was necessary .
Until Mt. Gox makes another formal announcement or takes some other kind of definite action, however, all speculation must remain just that.
Jon Southurst (@southtopia) | Published on February 24, 2014 at 07:30 GMT | Companies, Exchanges, Mt. Gox
In a move sure to unsettle its waiting customers, Mt. Gox has removed all posts from its official Twitter feed. Readers started noticing the missing tweets just a short time after CEO Mark Karpeles resigned his seat on the Bitcoin Foundation’s Board of Directors.
The Twitter account has over 27,800 followers, making it one of the most followed in the bitcoin universe. According to Twittercounter, that total had increased from around 22,000 at the beginning of January. Although all past posts have been deleted, the account itself still exists.
Gox_Twitter
Like the company itself, Mt. Gox’s Twitter feed was somewhat reluctant to disseminate useful information or engage in two-way communication. Many user support queries received automated responses (usually beginning with “Dear Customer”) and sometimes weeks later. It has been silent throughout the company’s recent issues with bitcoin withdrawals.
There have not been any official updates on Mt. Gox’s support page or News section since 20th February, making customers increasingly nervous about the fate of their bitcoin wealth there. Mt. Gox bitcoins, which are still being actively traded, fell from around $300 at the start of 24th February (Japan time) to a low of $155 in the afternoon.
Motivation
With speculation already rampant that Mt. Gox is either insolvent or about to close its doors without reaching an acceptable solution, widespread skepticism met the deletions on forums like Reddit.
Some wondered if the company was preparing to rebrand itself in an attempt to regain trust, while others suggested removing public messages was for a small degree of legal protection in case customers decided to take action beyond office protests. A straw poll on the bitcointalk forum had 43% declaring Gox “dead in the water” and 23% expecting it to solve its problems and survive, with a minority of others expecting a major investor to step in and take over the company.
The notoriously secretive exchange may also just be following its long held pattern of falling silent in a crisis, due to legal concerns or what it regards as office security issues. It also announced it would be moving offices last week in response to recent events, without being clear as to why such action was necessary .
Until Mt. Gox makes another formal announcement or takes some other kind of definite action, however, all speculation must remain just that.
Mt. Gox CEO Mark Karpeles Resigns from Bitcoin Foundation Board
Jon Southurst (@southtopia) | Published on February 24, 2014 at 04:14 GMT | Bitcoin Foundation, Companies, Exchanges, Mt. Gox, News
Mt. Gox CEO Mark Karpeles has resigned from his position as a board member with the Bitcoin Foundation.
The Foundation posted this announcement on its blog today at 3:30AM GMT:
“Effective immediately, Mark Karpeles has submitted his resignation from the board of directors. We are grateful for his early and valuable contributions as a founding member in launching the Bitcoin Foundation.”
“As CEO of MtGox Co. Ltd. (Japan), he held one of the three elected industry member seats. Further details, including election procedures, will be forthcoming.”
No updates, tweets gone
There has still been no notice since 20th February as to when and if Mt. Gox will resume bitcoin withdrawals for its users. While there were reports of tests and customers receiving withdrawals over the weekend, the company had not made any formal announcement on the issue at the time of writing.
In a move that may unsettle users, Mt. Gox has also deleted all posts from its official Twitter feed.
The price of bitcoin on Mt. Gox also rose from its sub-$100 level on Friday to more than $300 by the end of Sunday. It fell from around $250 to $220 in the hours after the announcement was posted.
Membership issues
Mt. Gox is also one of only two Bitcoin Foundation Gold Members, the second-highest tier of membership (Circle is the other Gold Member and BitcoinStore is a Platinum Member). Despite resigning from the board, Karpeles remains a Founding Member of the Foundation and Mt. Gox’s industry membership is still valid. There have been no formal requests to remove these memberships.
There had been some hand-wringing at the Foundation and its online forums over what sort of action, if any, it should take against Karpeles and Mt. Gox, and there was also a petition at Change.org to remove Karpeles from his Board position.
Other senior Foundation members defended him as a Founding Member and Mt. Gox for its support of bitcoin over the years, saying neither should be removed forcibly but that Karpeles could always resign for personal reasons if he felt it necessary.
Still functioning
Neither Mt. Gox nor its management have been formally accused of any criminal activity, staff continue to work at the office daily and the company claims to be working hard to fix its technical problems.
Both have, however, come under strong criticism from several angles recently first for suspending withdrawals, then for damaging bitcoin’s public image by blaming a long-known transaction malleability issue in the bitcoin protocol for the problem.
There has also been a general lack of communication with customers – many of whom have large sums of money locked in the exchange – and the value of bitcoin on other exchanges has fallen from over $930 on 11th January to less than $600 since Gox announced its “temporary pause” on 7th February.
Mt. Gox has long had issues with withdrawals for US-resident customers, a problem that was often blamed on banking issues and account seizures by US authorities.
This is the second time in recent months that a senior Bitcoin Foundation member and Board Member has resigned from the position under a cloud. BitInstant CEO Charlie Shrem, who was the Board’s vice chairman, also resigned in late January after his arrest over allegations of money laundering.
CoinDesk is monitoring this developing story, and will post updates as they become known.
Jon Southurst (@southtopia) | Published on February 24, 2014 at 04:14 GMT | Bitcoin Foundation, Companies, Exchanges, Mt. Gox, News
Mt. Gox CEO Mark Karpeles has resigned from his position as a board member with the Bitcoin Foundation.
The Foundation posted this announcement on its blog today at 3:30AM GMT:
“Effective immediately, Mark Karpeles has submitted his resignation from the board of directors. We are grateful for his early and valuable contributions as a founding member in launching the Bitcoin Foundation.”
“As CEO of MtGox Co. Ltd. (Japan), he held one of the three elected industry member seats. Further details, including election procedures, will be forthcoming.”
No updates, tweets gone
There has still been no notice since 20th February as to when and if Mt. Gox will resume bitcoin withdrawals for its users. While there were reports of tests and customers receiving withdrawals over the weekend, the company had not made any formal announcement on the issue at the time of writing.
In a move that may unsettle users, Mt. Gox has also deleted all posts from its official Twitter feed.
The price of bitcoin on Mt. Gox also rose from its sub-$100 level on Friday to more than $300 by the end of Sunday. It fell from around $250 to $220 in the hours after the announcement was posted.
Membership issues
Mt. Gox is also one of only two Bitcoin Foundation Gold Members, the second-highest tier of membership (Circle is the other Gold Member and BitcoinStore is a Platinum Member). Despite resigning from the board, Karpeles remains a Founding Member of the Foundation and Mt. Gox’s industry membership is still valid. There have been no formal requests to remove these memberships.
There had been some hand-wringing at the Foundation and its online forums over what sort of action, if any, it should take against Karpeles and Mt. Gox, and there was also a petition at Change.org to remove Karpeles from his Board position.
Other senior Foundation members defended him as a Founding Member and Mt. Gox for its support of bitcoin over the years, saying neither should be removed forcibly but that Karpeles could always resign for personal reasons if he felt it necessary.
Still functioning
Neither Mt. Gox nor its management have been formally accused of any criminal activity, staff continue to work at the office daily and the company claims to be working hard to fix its technical problems.
Both have, however, come under strong criticism from several angles recently first for suspending withdrawals, then for damaging bitcoin’s public image by blaming a long-known transaction malleability issue in the bitcoin protocol for the problem.
There has also been a general lack of communication with customers – many of whom have large sums of money locked in the exchange – and the value of bitcoin on other exchanges has fallen from over $930 on 11th January to less than $600 since Gox announced its “temporary pause” on 7th February.
Mt. Gox has long had issues with withdrawals for US-resident customers, a problem that was often blamed on banking issues and account seizures by US authorities.
This is the second time in recent months that a senior Bitcoin Foundation member and Board Member has resigned from the position under a cloud. BitInstant CEO Charlie Shrem, who was the Board’s vice chairman, also resigned in late January after his arrest over allegations of money laundering.
CoinDesk is monitoring this developing story, and will post updates as they become known.
CCN Week in Review: Mt. Gox, Malware, Bitcoin ATMs, and More
Neil Sardesai 23/02/2014 Posted 5 hours ago
This week on CCN, we learned about Mt. Gox’s continuing woes with hints at recovery, a nasty trojan targeting cryptocurrency users, the first Bitcoin ATMs in the United States, (which our own Caleb Chen tested out!), and more. Here are some of our top stories this week in case you missed them.
Mt. Gox Recovery(?)
Just three days ago, the price of Bitcoin on Mt. Gox fell below $150, due to Mt. Gox suspending all Bitcoin withdrawals. This affected the value of BTC on other exchanges as well, with it being around $550 most of the week. However, there are rumours going around that Gox is planning to resume withdrawals soon, which has caused a recent price surge.
Bitcoin Malware
There’s been a recent increase in malware targeting Bitcoin users. Last week, a trojan called CoinThief targeted Mac users, with one redditor losing 20 BTC ($12,654 at the time of this post). This week, an application called CryptocoinTrader targeted PC users and used screen sharing software to broadcast infected computers’ screens to a location in Russia. Malware targeting Bitcoin users is particularly dangerous since it can result in the loss of thousands of dollars worth of BTC, which is why it’s a good idea to keep most of your Bitcoins in cold storage and only a small fraction for spending on a hot wallet.
First U.S. Bitcoin ATMs
This week, the first American Bitcoin ATMs arrived in Albuquerque, Boston, Austin, and Seattle. One of our writers, Caleb Chen, sold Bitcoin to an ATM in Austin. He reported that “Selling Bitcoin to a Robocoin ATM is a much longer process than buying Bitcoin.” You can read about the entire experience here.
Dogecoin Forks Up
Six days ago, the Dogecoin blockchain forked, resulting in two competing blockchains. This is similar to the Bitcoin fork of March 11th, 2013, which could have been catastrophic, but instead resulted in little to no damage. As such, the important thing is to not panic and make sure your Dogecoin client is updated to version 1.5+. To make sure you’re on the correct blockchain, follow these steps from reddit user “42points”
Go to your newly updated, synced dogecoin wallet and open it. Click on Help>>Debug
Now click the console tab and type getblockhash 104679 (“Block number out of range. (code -1)” means you need to wait for your wallet to sync)
If you see 35eb87ae90d44b98898fec8c39577b76cb1eb08e1261cfc10706c8ce9a1d01cf you are on the correct chain and the update is complete
If you see 5a01ea5380f14ec1571523e36b2f3e91747749be9ed216607fc49038a55d15b2 you are on the wrong chain please see [the rest of this post].
Italy’s 20% Tax on All Wire Transfers
The Italian government has decided to impose a huge 20% tax on all inbound wire transfers. Payment systems such as PayPal and Western Union will be affected. However, Bitcoin remains unaffected, which could compel Italian citizens to switch to Bitcoin to conduct business without facing such steep taxes.
That concludes this Week in Review, where we post our top stories of the week every Sunday.
My Toughs: This is great week review from http://www.cryptocoinsnews.com/ . I think i will be implementing this. I will be posting it at the end of evry week. So u guys can get news for whole week in short.
Neil Sardesai 23/02/2014 Posted 5 hours ago
This week on CCN, we learned about Mt. Gox’s continuing woes with hints at recovery, a nasty trojan targeting cryptocurrency users, the first Bitcoin ATMs in the United States, (which our own Caleb Chen tested out!), and more. Here are some of our top stories this week in case you missed them.
Mt. Gox Recovery(?)
Just three days ago, the price of Bitcoin on Mt. Gox fell below $150, due to Mt. Gox suspending all Bitcoin withdrawals. This affected the value of BTC on other exchanges as well, with it being around $550 most of the week. However, there are rumours going around that Gox is planning to resume withdrawals soon, which has caused a recent price surge.
Bitcoin Malware
There’s been a recent increase in malware targeting Bitcoin users. Last week, a trojan called CoinThief targeted Mac users, with one redditor losing 20 BTC ($12,654 at the time of this post). This week, an application called CryptocoinTrader targeted PC users and used screen sharing software to broadcast infected computers’ screens to a location in Russia. Malware targeting Bitcoin users is particularly dangerous since it can result in the loss of thousands of dollars worth of BTC, which is why it’s a good idea to keep most of your Bitcoins in cold storage and only a small fraction for spending on a hot wallet.
First U.S. Bitcoin ATMs
This week, the first American Bitcoin ATMs arrived in Albuquerque, Boston, Austin, and Seattle. One of our writers, Caleb Chen, sold Bitcoin to an ATM in Austin. He reported that “Selling Bitcoin to a Robocoin ATM is a much longer process than buying Bitcoin.” You can read about the entire experience here.
Dogecoin Forks Up
Six days ago, the Dogecoin blockchain forked, resulting in two competing blockchains. This is similar to the Bitcoin fork of March 11th, 2013, which could have been catastrophic, but instead resulted in little to no damage. As such, the important thing is to not panic and make sure your Dogecoin client is updated to version 1.5+. To make sure you’re on the correct blockchain, follow these steps from reddit user “42points”
Go to your newly updated, synced dogecoin wallet and open it. Click on Help>>Debug
Now click the console tab and type getblockhash 104679 (“Block number out of range. (code -1)” means you need to wait for your wallet to sync)
If you see 35eb87ae90d44b98898fec8c39577b76cb1eb08e1261cfc10706c8ce9a1d01cf you are on the correct chain and the update is complete
If you see 5a01ea5380f14ec1571523e36b2f3e91747749be9ed216607fc49038a55d15b2 you are on the wrong chain please see [the rest of this post].
Italy’s 20% Tax on All Wire Transfers
The Italian government has decided to impose a huge 20% tax on all inbound wire transfers. Payment systems such as PayPal and Western Union will be affected. However, Bitcoin remains unaffected, which could compel Italian citizens to switch to Bitcoin to conduct business without facing such steep taxes.
That concludes this Week in Review, where we post our top stories of the week every Sunday.
My Toughs: This is great week review from http://www.cryptocoinsnews.com/ . I think i will be implementing this. I will be posting it at the end of evry week. So u guys can get news for whole week in short.
Central Bank of Jordan Blocks Financial Companies from Bitcoin
Jon Southurst (@southtopia) | Published on February 23, 2014 at 17:50 GMT | Asia, News, Regulation
It was the Central Bank of Jordan’s (CBJ) turn to issue a digital currency warning this week, advising the public of the risks associated with the use of the financial tools, and blocking financial companies from engaging in bitcoin business.
“Recently, a global phenomenon of trading a virtual currency called bitcoin became active around the world,” the bank noted, adding:
“CBJ seeks to protect citizens and the investors, by warning them that virtual currencies are not legal tender and there is no obligation on any central bank in the world or any government to exchange its value for real money issued by them nor backed by underlying international commodities or gold.”
The Bank’s executive director of its payment services department, Maha Bahu, told The Jordan Times that the Kingdom’s banks, financial companies, payment processors and currency exchangers had also received a circular “prohibiting them from dealing with virtual currencies, particularly in bitcoins”.
She said the CBJ had been “following the issue of bitcoin very closely over the past two months”. Another official source told the paper that some people in Jordan and around the region were already trading digital currencies “using phoney names”.
Locals undeterred
A member of the Jordan Bitcoin Group told CoinDesk they were not too discouraged by the announcement, and would continue to advocate for bitcoin in the local media:
“The warning is unfortunate, but it isn’t stopping small businesses and merchants from accepting bitcoin. This Saturday, a cafe started accepting bitcoin, and is already attracting new customers.”
The CBJ’s statement is the latest in a string of similar decrees to come out of central banking authorities since the end of last year, and the third we’ve seen from the Middle East after the nearby central banks of Lebanon and Israel issued warnings on 19th December and 19th February, respectively.
Central banks and bitcoin
The central bank statements, which have ranged in tone from advisory to graver warnings of illegal activity and even bans, have all included the common themes that bitcoin and others are not officially regarded as currencies, cannot be guaranteed by central banks and may suffer dramatic price fluctuations.
However, bitcoin and digital currency news has been scarce from the Middle East, so the overall affect of the announcement is perhaps unclear.
Other than the bank warnings, the only other story to emerge recently was Dubai’s Pizza Guys starting to accept bitcoin just a few days ago.
My toughs: And then some bad news :/
Jon Southurst (@southtopia) | Published on February 23, 2014 at 17:50 GMT | Asia, News, Regulation
It was the Central Bank of Jordan’s (CBJ) turn to issue a digital currency warning this week, advising the public of the risks associated with the use of the financial tools, and blocking financial companies from engaging in bitcoin business.
“Recently, a global phenomenon of trading a virtual currency called bitcoin became active around the world,” the bank noted, adding:
“CBJ seeks to protect citizens and the investors, by warning them that virtual currencies are not legal tender and there is no obligation on any central bank in the world or any government to exchange its value for real money issued by them nor backed by underlying international commodities or gold.”
The Bank’s executive director of its payment services department, Maha Bahu, told The Jordan Times that the Kingdom’s banks, financial companies, payment processors and currency exchangers had also received a circular “prohibiting them from dealing with virtual currencies, particularly in bitcoins”.
She said the CBJ had been “following the issue of bitcoin very closely over the past two months”. Another official source told the paper that some people in Jordan and around the region were already trading digital currencies “using phoney names”.
Locals undeterred
A member of the Jordan Bitcoin Group told CoinDesk they were not too discouraged by the announcement, and would continue to advocate for bitcoin in the local media:
“The warning is unfortunate, but it isn’t stopping small businesses and merchants from accepting bitcoin. This Saturday, a cafe started accepting bitcoin, and is already attracting new customers.”
The CBJ’s statement is the latest in a string of similar decrees to come out of central banking authorities since the end of last year, and the third we’ve seen from the Middle East after the nearby central banks of Lebanon and Israel issued warnings on 19th December and 19th February, respectively.
Central banks and bitcoin
The central bank statements, which have ranged in tone from advisory to graver warnings of illegal activity and even bans, have all included the common themes that bitcoin and others are not officially regarded as currencies, cannot be guaranteed by central banks and may suffer dramatic price fluctuations.
However, bitcoin and digital currency news has been scarce from the Middle East, so the overall affect of the announcement is perhaps unclear.
Other than the bank warnings, the only other story to emerge recently was Dubai’s Pizza Guys starting to accept bitcoin just a few days ago.
My toughs: And then some bad news :/
AMD ‘could be devastated’ by Mining
William Blackwell 22/02/2014 Posted 22 hours ago
In an article published today, Daily Finance argues that cryptocurrency mining may be hampering development at AMD.
The AMD flagship graphics card, Radeon R9 290X, is a hard-to-find commodity out there. Online retailers such as NewEgg and Amazon either list it as ‘Out of Stock’ or ‘Special Order’. Trying to find any half-decent AMD graphics card at a Bitcoin-centric retailer is futile. They’re just not available – and when one is for sale – it is priced at a premium.
Everyone knows: these pieces of high-grade technology are the heart of the best – and most profitable – home-built mining rigs.
So, if their high-end graphics products are so sought after, how can this possibly be to the detriment of AMD?
Consider that the R9 290x was developed as a PC gaming card, specifically introduced into the market to compete with NVIDIA’s Geforce GTX780. However, cryptocurrency miners found that the R9 has excellent hashing performance and bought it up en masse. NVIDIA cards, for various reasons, do not compare well with equivalent AMD products and chip-for-chip, the AMD will always out-perform its rival.
Instead of the R9 fulfilling its role as competition to the Geforce GTX780, it was diverted into a new, unintended market as mining rig GPU. PC gamers, unable to find the R9 in the market opted for the next best thing, namely the Geforce, and NVIDIA retained dominance in the gaming ecosystem.
Nvidia and AMD, the two dominant players in the gaming market, have been locked in a strategic battle for market dominance. AMD’s Mantle API was supposed to be pervasive amongst gamers – had the R9 fulfilled its function of showcasing the new Mantle system, and it’s SDK. Dominance of gaming, on both the gamer PC and the game designer fronts, would have secured AMD’s market share for several years.
NVIDIA’s strategy is different and more far-reaching. NVIDIA is targeting the phenomenon whereby gamers tend to change cards a lot yet stick with the same monitor for years. G-Sync is a proprietary architecture whereby next generation NVIDIA cards will depend upon – yet enhance – NVIDIA G-Sync technology embedded in the monitor. By locking the gamer in via the monitor, NVIDIA hopes to secure its market share for longer.
The rapid rise of mining and the co-incidental suitability of AMD’s GPU products for the task have derailed their strategy in the gaming race. PC gamers, whom either cannot find or cannot afford, the R9 are diverted to the Geforce and AMD is left with a hugely invested market strategy gone wrong. Shareholders have to be calmed and informed, and somehow AMD must find a way to turn this setback into an opportunity.
Will they opt to rejoin the gaming race, having fallen behind a lap? Or will they choose to change their game and get in the mining rink with ASICs?
Given the daily escalation of mining difficulty, time is of the essence, and AMD will have to decide quickly in which pool to seek it’s fortunes.
My toughs: Heheh... This is cool
. We bought all AMD Radeons
William Blackwell 22/02/2014 Posted 22 hours ago
In an article published today, Daily Finance argues that cryptocurrency mining may be hampering development at AMD.
The AMD flagship graphics card, Radeon R9 290X, is a hard-to-find commodity out there. Online retailers such as NewEgg and Amazon either list it as ‘Out of Stock’ or ‘Special Order’. Trying to find any half-decent AMD graphics card at a Bitcoin-centric retailer is futile. They’re just not available – and when one is for sale – it is priced at a premium.
Everyone knows: these pieces of high-grade technology are the heart of the best – and most profitable – home-built mining rigs.
So, if their high-end graphics products are so sought after, how can this possibly be to the detriment of AMD?
Consider that the R9 290x was developed as a PC gaming card, specifically introduced into the market to compete with NVIDIA’s Geforce GTX780. However, cryptocurrency miners found that the R9 has excellent hashing performance and bought it up en masse. NVIDIA cards, for various reasons, do not compare well with equivalent AMD products and chip-for-chip, the AMD will always out-perform its rival.
Instead of the R9 fulfilling its role as competition to the Geforce GTX780, it was diverted into a new, unintended market as mining rig GPU. PC gamers, unable to find the R9 in the market opted for the next best thing, namely the Geforce, and NVIDIA retained dominance in the gaming ecosystem.
Nvidia and AMD, the two dominant players in the gaming market, have been locked in a strategic battle for market dominance. AMD’s Mantle API was supposed to be pervasive amongst gamers – had the R9 fulfilled its function of showcasing the new Mantle system, and it’s SDK. Dominance of gaming, on both the gamer PC and the game designer fronts, would have secured AMD’s market share for several years.
NVIDIA’s strategy is different and more far-reaching. NVIDIA is targeting the phenomenon whereby gamers tend to change cards a lot yet stick with the same monitor for years. G-Sync is a proprietary architecture whereby next generation NVIDIA cards will depend upon – yet enhance – NVIDIA G-Sync technology embedded in the monitor. By locking the gamer in via the monitor, NVIDIA hopes to secure its market share for longer.
The rapid rise of mining and the co-incidental suitability of AMD’s GPU products for the task have derailed their strategy in the gaming race. PC gamers, whom either cannot find or cannot afford, the R9 are diverted to the Geforce and AMD is left with a hugely invested market strategy gone wrong. Shareholders have to be calmed and informed, and somehow AMD must find a way to turn this setback into an opportunity.
Will they opt to rejoin the gaming race, having fallen behind a lap? Or will they choose to change their game and get in the mining rink with ASICs?
Given the daily escalation of mining difficulty, time is of the essence, and AMD will have to decide quickly in which pool to seek it’s fortunes.
My toughs: Heheh... This is cool
. We bought all AMD Radeons
BTC China Lowers Commission Fees
William Blackwell 22/02/2014 Posted 21 hours ago
BTC China is open for business and is offering lower trade commissions starting 24 February 2014.
From their website:
Starting at 12 noon (China time) on February 24, 2014, BTC China will lower the trading commission fee from 0.3% to 0.1% for all users.
For market-makers who place limit orders that add to market liquidity, they will be exempt from the trading commission, and will additionally get a 0.1% market-maker rebate!
Sign of Change
In an exclusive interview with CryptocoinsNews two weeks ago, Bobby Lee outlined the positive changes for China based exchanges. The current announcement is effectively BTC China swinging open its doors and saying: “Open for business!”
This is good news for Bitcoin, considering the masses of liquidity and sheer volume of trade BTC China brought to the Bitcoin market before the PBoC reigned in exuberance in November.
Popular opinion has it that BTC China could be the best candidate to take over the lead from Mt.Gox – along with its customers and market share. Additionally, many feel that BTC China, although having it’s own customer account validation process, does not have anybody in the West looking over it’s shoulder at customer’s private data, nor a stick big enough to demand that the Chinese exchange divulge personal information or transaction details.
In his recent CCN interview, Bobby Lee had the following to say:
It appears to us that the reason there was a hard government crackdown with a one punch, two punch in December is because they thought there was too much volatility. The government has a right to think it is too volatile.
We need a few months for the dust to settle, so the Chinese consumers regain confidence. There is demand for Bitcoin in China. Bitcoin’s features remain, it hasn’t become less scarce, less decentralised or less a store of value.
Hang dai, Mr Lee, Hang dai.
William Blackwell 22/02/2014 Posted 21 hours ago
BTC China is open for business and is offering lower trade commissions starting 24 February 2014.
From their website:
Starting at 12 noon (China time) on February 24, 2014, BTC China will lower the trading commission fee from 0.3% to 0.1% for all users.
For market-makers who place limit orders that add to market liquidity, they will be exempt from the trading commission, and will additionally get a 0.1% market-maker rebate!
Sign of Change
In an exclusive interview with CryptocoinsNews two weeks ago, Bobby Lee outlined the positive changes for China based exchanges. The current announcement is effectively BTC China swinging open its doors and saying: “Open for business!”
This is good news for Bitcoin, considering the masses of liquidity and sheer volume of trade BTC China brought to the Bitcoin market before the PBoC reigned in exuberance in November.
Popular opinion has it that BTC China could be the best candidate to take over the lead from Mt.Gox – along with its customers and market share. Additionally, many feel that BTC China, although having it’s own customer account validation process, does not have anybody in the West looking over it’s shoulder at customer’s private data, nor a stick big enough to demand that the Chinese exchange divulge personal information or transaction details.
In his recent CCN interview, Bobby Lee had the following to say:
It appears to us that the reason there was a hard government crackdown with a one punch, two punch in December is because they thought there was too much volatility. The government has a right to think it is too volatile.
We need a few months for the dust to settle, so the Chinese consumers regain confidence. There is demand for Bitcoin in China. Bitcoin’s features remain, it hasn’t become less scarce, less decentralised or less a store of value.
Hang dai, Mr Lee, Hang dai.
Following the Money: Trends in Bitcoin Venture Capital Investment
Garrick Hileman (@garrickhileman) | Published on February 23, 2014 at 16:00 GMT | Analysis, Companies, Investors, Startups
CoinDesk is releasing its ‘State of Bitcoin 2014′ report on Tuesday, which takes an in-depth look into the evolution of bitcoin and the potential hurdles it is still yet to face.
This article is the first of a two-part series drawn from the report. The series looks at the trends in venture capital investment in bitcoin.
It assesses how venture investment in bitcoin to date compares with other related investment sectors (eg financial technology), or previous major waves of investment (eg the Internet).
It also examines the types of bitcoin companies venture investors have focused their funding on.
Look out for part two, which will be published tomorrow and focuses on which regions have been receiving the lion’s share of venture investment in bitcoin.
Venture investment: early Internet vs early bitcoin
Venture capitalist and Internet pioneer Marc Andreessen recently compared the current understanding of bitcoin’s overall potential, as well as its current stage of development, to the Internet circa 1993 and the PC in 1975.
Does the level of venture capital invested in bitcoin to date reflect Andreessen’s assessment?
Table 1: VC Investments in Bitcoin Companies, 2012-Present
VC-investments-bitcoin-companies
Sources: CoinDesk, Dow Jones VentureSource, VentureScanner
Comparing this bitcoin investment to date with investment in the early Internet, (Table 2) reveals that that significantly less funding (approximately 20%) has been allocated to bitcoin compared to Internet startups, which pulled in just over $500m in venture investment in 1995.
Table 2: VC Investments in US Internet Companies, 1995
vc-investments-in-us-internet-companies
Sources: PricewaterhouseCoopers, National Venture Capital Association
With regards to the above comparison, there are several important caveats. First, due to data availability limitations there is no way to compare the Internet investments circa 1993 with bitcoin 2014, as 1995 is the earliest year in which we have Internet investment data.[1]
The above Internet investment data also reflect only US investments as global data are not available, so while the vast majority of early internet investment was US-based the $507m figure is likely understated for these reasons.
On the bitcoin side, the $97.5m in venture capital that has been publicly reported underestimates the total, which would include unreported venture investment, by tens of millions of dollars.
For example, we know that Andreessen Horowiz has invested just under $50m in bitcoin-related startups, and that Coinbase only received $25m in the Series B in which Andreessen Horowiz participated.
Another Andreessen Horowiz-backed startup, Ripple, has received two rounds of undisclosed funding, indicating that the company may have received upwards of $20m. CoinDesk is also aware of, but not privy to disclose, other bitcoin startups that have received million-dollar-plus funding rounds, and these figures are, therefore, excluded from this analysis.
Finally, it has been estimated that upwards of $200m has been invested in bitcoin mining hardware and infrastructure to date, a figure which exceeds even a less conservative estimate of the total venture capital invested in bitcoin to date. Perhaps the appropriate Internet analogy to this mining hardware investment is to compare it to the significant fiber optic and broadband infrastructure investments that were occurring alongside the growth in Internet startups.
Chart 1: Number of VC-backed Companies: early Internet vs early bitcoin
number-of-VC-backed-Companies-early-Internet-vs-early-bitcoin
Sources: PricewaterhouseCoopers, National Venture Capital Association, CoinDesk, Dow Jones VentureSource, VentureScanner
Looking at the number of deals from 1995, we can see a total of 156 total funding rounds, with nearly two-thirds of the rounds being first sequence financings.
In contrast, all but one bitcoin financing (Coinbase’s November 2013 $25m Series B) have been first or seed round investments.
In short, the data fit Andreessen’s story that the current bitcoin investment lifecycle is relatively less mature than the Internet’s circa 1995, and perhaps more akin to where the Internet investment environment stood in 1993.
Chart 2: VC Investment in 1995 Internet Companies vs bitcoin
VC-Investment-in-1995-Internet-Companies-vs-bitcoin
Sources: PricewaterhouseCoopers, National Venture Capital Association, CoinDesk, Dow Jones VentureSource, VentureScanner
Looking at the data on VC investments in Internet companies for 1995, we can also see that a much greater sum of funding was directed towards Internet companies than has been directed at bitcoin to date (Chart 2).
In 1995 there was $508m invested in Internet companies, an amount which was very close to an even split between first sequence and later stage financings. In other words, by 1995 over 50% of the funding was going to just one-third of the venture-backed Internet companies.
Overall, if VCs are proven correct that bitcoin represents an opportunity on par with the Internet then we can expect investment in bitcoin to increase by several orders of magnitude from current levels.
30 VC-backed bitcoin startups across five distinct sectors
There have been 30 bitcoin companies in total that have received publicly-reported venture funding to date (see Table 3).
Note: A number of additional companies not included in the table are rumoured to have received non-publicly disclosed venture capital investment.
The universe of venture-backed bitcoin companies can be broadly classified into the following five distinct sectors:
Exchanges – companies that operate a bitcoin trading platform (eg BTC China)
Financial Services – the broadest category, including everything from bitcoin ATM operators (eg BitAccess) to white label exchange providers (eg Buttercoin) to alternative payment networks (eg Ripple) to bitcoin gift cards (eg GogoCoin)
Mining Hardware – producers of bitcoin mining equipment like ASICs (eg BitFury)
Payment Processors – outsourced virtual alternative currency payment solutions (eg BitPay)
Wallets – secure storage and transfer mechanisms for digital alternative currency. Several payment processors also have wallets (eg Gliph)
Chart 3: Sector distribution of Bitcoin VC investment
Sector-distribution-Bitcoin-VC-investment
Payment Processors lead the way in terms of total share of VC investment (38%), followed by Financial Services (23%) and Exchanges (14%). Pure-play wallets are the smallest category at 1% of total VC investment.
It is interesting to note the relatively small VC investment in mining hardware companies (13%) given that it is very likely the largest legal revenue generating sector of the bitcoin economy with over $200m in mining hardware revenue to date.
Table 4: VC Investments by Industry, 2013 ($m) for United States
vc-investments-industry-2013
While by no means insignificant, the $97.5m in publicly disclosed venture capital invested in bitcoin companies to date (Table 1) is relatively small compared with other investment sectors that have been beneficiaries of significant venture capital investment (Table 4).
The grey shaded areas of Table 4 are intended to highlight bitcoin-related investment sectors. For example, investments in bitcoin wallets could perhaps fall into more than one category, including Software and Financial Services.
Part two of this series, which will be published tomorrow, examines where the majority of VC investment in bitcoin companies has come from. Silicon Valley, surely? Not necessarily …
——————————————————————————————————
[1] Notes on sources and methodology: unfortunately, the earliest industry-wide venture capital historical data is for 1995, two full years after the year Andreessen compares the Internet to bitcoin (1993). Bitcoin investment data spans 2012-early 2014 because the vast majority of bitcoin investments to date occurred in 2013.
Garrick Hileman (@garrickhileman) | Published on February 23, 2014 at 16:00 GMT | Analysis, Companies, Investors, Startups
CoinDesk is releasing its ‘State of Bitcoin 2014′ report on Tuesday, which takes an in-depth look into the evolution of bitcoin and the potential hurdles it is still yet to face.
This article is the first of a two-part series drawn from the report. The series looks at the trends in venture capital investment in bitcoin.
It assesses how venture investment in bitcoin to date compares with other related investment sectors (eg financial technology), or previous major waves of investment (eg the Internet).
It also examines the types of bitcoin companies venture investors have focused their funding on.
Look out for part two, which will be published tomorrow and focuses on which regions have been receiving the lion’s share of venture investment in bitcoin.
Venture investment: early Internet vs early bitcoin
Venture capitalist and Internet pioneer Marc Andreessen recently compared the current understanding of bitcoin’s overall potential, as well as its current stage of development, to the Internet circa 1993 and the PC in 1975.
Does the level of venture capital invested in bitcoin to date reflect Andreessen’s assessment?
Table 1: VC Investments in Bitcoin Companies, 2012-Present
VC-investments-bitcoin-companies
Sources: CoinDesk, Dow Jones VentureSource, VentureScanner
Comparing this bitcoin investment to date with investment in the early Internet, (Table 2) reveals that that significantly less funding (approximately 20%) has been allocated to bitcoin compared to Internet startups, which pulled in just over $500m in venture investment in 1995.
Table 2: VC Investments in US Internet Companies, 1995
vc-investments-in-us-internet-companies
Sources: PricewaterhouseCoopers, National Venture Capital Association
With regards to the above comparison, there are several important caveats. First, due to data availability limitations there is no way to compare the Internet investments circa 1993 with bitcoin 2014, as 1995 is the earliest year in which we have Internet investment data.[1]
The above Internet investment data also reflect only US investments as global data are not available, so while the vast majority of early internet investment was US-based the $507m figure is likely understated for these reasons.
On the bitcoin side, the $97.5m in venture capital that has been publicly reported underestimates the total, which would include unreported venture investment, by tens of millions of dollars.
For example, we know that Andreessen Horowiz has invested just under $50m in bitcoin-related startups, and that Coinbase only received $25m in the Series B in which Andreessen Horowiz participated.
Another Andreessen Horowiz-backed startup, Ripple, has received two rounds of undisclosed funding, indicating that the company may have received upwards of $20m. CoinDesk is also aware of, but not privy to disclose, other bitcoin startups that have received million-dollar-plus funding rounds, and these figures are, therefore, excluded from this analysis.
Finally, it has been estimated that upwards of $200m has been invested in bitcoin mining hardware and infrastructure to date, a figure which exceeds even a less conservative estimate of the total venture capital invested in bitcoin to date. Perhaps the appropriate Internet analogy to this mining hardware investment is to compare it to the significant fiber optic and broadband infrastructure investments that were occurring alongside the growth in Internet startups.
Chart 1: Number of VC-backed Companies: early Internet vs early bitcoin
number-of-VC-backed-Companies-early-Internet-vs-early-bitcoin
Sources: PricewaterhouseCoopers, National Venture Capital Association, CoinDesk, Dow Jones VentureSource, VentureScanner
Looking at the number of deals from 1995, we can see a total of 156 total funding rounds, with nearly two-thirds of the rounds being first sequence financings.
In contrast, all but one bitcoin financing (Coinbase’s November 2013 $25m Series B) have been first or seed round investments.
In short, the data fit Andreessen’s story that the current bitcoin investment lifecycle is relatively less mature than the Internet’s circa 1995, and perhaps more akin to where the Internet investment environment stood in 1993.
Chart 2: VC Investment in 1995 Internet Companies vs bitcoin
VC-Investment-in-1995-Internet-Companies-vs-bitcoin
Sources: PricewaterhouseCoopers, National Venture Capital Association, CoinDesk, Dow Jones VentureSource, VentureScanner
Looking at the data on VC investments in Internet companies for 1995, we can also see that a much greater sum of funding was directed towards Internet companies than has been directed at bitcoin to date (Chart 2).
In 1995 there was $508m invested in Internet companies, an amount which was very close to an even split between first sequence and later stage financings. In other words, by 1995 over 50% of the funding was going to just one-third of the venture-backed Internet companies.
Overall, if VCs are proven correct that bitcoin represents an opportunity on par with the Internet then we can expect investment in bitcoin to increase by several orders of magnitude from current levels.
30 VC-backed bitcoin startups across five distinct sectors
There have been 30 bitcoin companies in total that have received publicly-reported venture funding to date (see Table 3).
Note: A number of additional companies not included in the table are rumoured to have received non-publicly disclosed venture capital investment.
The universe of venture-backed bitcoin companies can be broadly classified into the following five distinct sectors:
Exchanges – companies that operate a bitcoin trading platform (eg BTC China)
Financial Services – the broadest category, including everything from bitcoin ATM operators (eg BitAccess) to white label exchange providers (eg Buttercoin) to alternative payment networks (eg Ripple) to bitcoin gift cards (eg GogoCoin)
Mining Hardware – producers of bitcoin mining equipment like ASICs (eg BitFury)
Payment Processors – outsourced virtual alternative currency payment solutions (eg BitPay)
Wallets – secure storage and transfer mechanisms for digital alternative currency. Several payment processors also have wallets (eg Gliph)
Chart 3: Sector distribution of Bitcoin VC investment
Sector-distribution-Bitcoin-VC-investment
Payment Processors lead the way in terms of total share of VC investment (38%), followed by Financial Services (23%) and Exchanges (14%). Pure-play wallets are the smallest category at 1% of total VC investment.
It is interesting to note the relatively small VC investment in mining hardware companies (13%) given that it is very likely the largest legal revenue generating sector of the bitcoin economy with over $200m in mining hardware revenue to date.
Table 4: VC Investments by Industry, 2013 ($m) for United States
vc-investments-industry-2013
While by no means insignificant, the $97.5m in publicly disclosed venture capital invested in bitcoin companies to date (Table 1) is relatively small compared with other investment sectors that have been beneficiaries of significant venture capital investment (Table 4).
The grey shaded areas of Table 4 are intended to highlight bitcoin-related investment sectors. For example, investments in bitcoin wallets could perhaps fall into more than one category, including Software and Financial Services.
Part two of this series, which will be published tomorrow, examines where the majority of VC investment in bitcoin companies has come from. Silicon Valley, surely? Not necessarily …
——————————————————————————————————
[1] Notes on sources and methodology: unfortunately, the earliest industry-wide venture capital historical data is for 1995, two full years after the year Andreessen compares the Internet to bitcoin (1993). Bitcoin investment data spans 2012-early 2014 because the vast majority of bitcoin investments to date occurred in 2013.
Market-Based Reactions to New Bitcoin Regulation
Jon Matonis (@jonmatonis) | Published on February 23, 2014 at 12:19 GMT | Analysis, Bitcoin protocol, News, Regulation
Every action has a reaction, and the world of government regulation is no different. Recently, the regulatory chatter has picked up around Bitcoin and it appears to be focused on two major mandates as perceived by the financial regulators.
Number one is the attempt to apply invasive technology-specific money transmitter regulation to a technology that doesn’t seem to fit into any of their other regulatory boxes. Licenses are being crafted to ensure the same level of AML (Anti-Money Laundering) and KYC (Know Your Customer) guidelines for bitcoin companies as for other types of existing financial institutions.
Number two is protecting us “from ourselves” under the standard guise of consumer protection and fraudulent operators. In an interview on The Bitcoin Group, Andreas Antonopoulos describes a self-regulating method where the consumer protection holes can be solved by free market-enforced exchange solvency and implemented cryptography solutions.
New York-Style Licensing
Yellow cab in Times Square New York
Regarding technology-specific regulation at the state level, New York has put forth a bad idea with an unfortunate name, mostly because it sounds like an innovative Silicon Valley startup which it definitely is not.
It is, however, a grand attempt from a local regulator to overlay an inappropriate technology-specific regulation within the confines of the great state of New York.
Unfortunately, this will cause greater hardship for New Yorkers than it will for the bitcoin businesses that will most likely seek out other favorable jurisdictions. If New York wanted to drive new growth businesses away from the state, then this would be the way to do it. These antics are not predicted to be emulated.
Markets perceive regulation as ‘damage’ and route around it. This is true with Internet-related damage and it is equally true with Bitcoin-related damage.
For example, artificial damage to bitcoin’s semi-anonymous properties could be inflicted by tracking specific bitcoin addresses at the exchange endpoint level and beyond. Perhaps mandated by law in the near future, this type of regulatory action would be akin to to registering bank note serial numbers during a routine cash withdrawal.
Most people would reel in horror at the prospect of this because they naturally believe that they have a right to use their cash as they see fit without serial number tracking.
Surveillance techniques
CCTV
Coin tracking and coin validation schemes are new types of surveillance techniques that Bitcoin’s public transaction ledger enables. Interestingly, either the free market or the law could spawn these invasive techniques as a business model.
In the case of an exchange seeking to bolster its compliance reputation, it might turn to an independent service provider that analyzes bitcoin address data and associated traffic patterns known to be involved in crimes.
Of course, the major underlying and still unresolved problem here is that subjective judgement must be exercised in data analysis of this type which could unduly harm the downstream owners of fungible bitcoin. That is, if anyone held title in bitcoin to begin with.
Markets provide solutions to these cases of bitcoin privacy ‘damage’ and this is where it becomes tricky for regulators. They are practically in a no-win situation because regulators must use their tools to regulate, but the more they do, the more they inadvertently encourage market-based responses.
Fortuitously, Bitcoin comes with built-in plausible deniability due to the many ‘mixing’ hops that can be traversed both on-block chain and off-block chain. Unless the user’s private key is seized, no one can prove with absolute certainty that a particular amount of bitcoin is owned by an individual without their consent. In financial privacy terms, this is referred to as “knowledge of balance” privacy and it is a key element of overall financial privacy.
Mixing services
As cited in ‘The Politics of Bitcoin Mixing Services’, mixing services for bitcoin may emerge as the next frontier in the battle for financial privacy. Coin mixing services for cryptocurrencies do not violate any laws and they merely attempt to re-balance natural deficiencies in the protocol.
According to CNBC, Ben Lawsky and New York’s Department of Financial Services are “still wrestling with whether to ban or restrict the use of ‘tumblers,’ which obscure the record and source of virtual currencies.” Lawsky said tumblers are a concern to law enforcement although they might have legitimate uses.
“Society can have hope that if privacy becomes disrespected, the market can and will provide cryptographic solutions to restore balance.”
Is it even possible for New York to ban tumblers that exist on the global Internet? How will the cryptographic free market respond to encroaching regulation into the market for Bitcoin?
Zerocoin and CoinJoin represent two attempts to restore the balance in making digital cash as private as physical cash today. They operate in a decentralized manner without requiring trust in a third party.
Originating from Johns Hopkins University, the first Zerocoin plan was a proposed extension to the Bitcoin payment network that added anonymity to Bitcoin payments and used provably secure cryptographic techniques to ensure that Bitcoins cannot be traced.
After refusing to gain traction among the bitcoin user and developer communities, creators Matthew Green and Ian Miers decided to launch Zerocoin as its own independent cryptocurrency complete with separate block chain and reward incentive system. The Economist refers to Zerocoin as “washing virtual money”.
CoinJoin, first described by Gregory Maxwell as a method of increased coin privacy for the real world, is an urgently needed improvement, because:
“Bitcoin is often promoted as a tool for privacy but the only privacy that exists in Bitcoin comes from pseudonymous addresses which are fragile and easily compromised through reuse, ‘taint’ analysis, tracking payments, IP address monitoring nodes, web-spidering, and many other mechanisms. Once broken this privacy is difficult and sometimes costly to recover.”
Involving no changes to the Bitcoin protocol but requiring specific wallet implementations, CoinJoin operates as a unique transaction style for Bitcoin users to dramatically improve their privacy.
Both efforts succeed where the original Bitcoin protocol stopped short. In direct response to increasing and potentially onerous regulations, Zerocoin and CoinJoin stand as pillars of financial privacy in a world where surveillance has run amok.
Ultimately, society can have hope that if privacy becomes disrespected, the market can and will provide cryptographic solutions to restore the balance. If Bitcoin is to succeed, that is the real challenge for the talented individuals and leading companies in the Bitcoin ecosystem.
Jon Matonis (@jonmatonis) | Published on February 23, 2014 at 12:19 GMT | Analysis, Bitcoin protocol, News, Regulation
Every action has a reaction, and the world of government regulation is no different. Recently, the regulatory chatter has picked up around Bitcoin and it appears to be focused on two major mandates as perceived by the financial regulators.
Number one is the attempt to apply invasive technology-specific money transmitter regulation to a technology that doesn’t seem to fit into any of their other regulatory boxes. Licenses are being crafted to ensure the same level of AML (Anti-Money Laundering) and KYC (Know Your Customer) guidelines for bitcoin companies as for other types of existing financial institutions.
Number two is protecting us “from ourselves” under the standard guise of consumer protection and fraudulent operators. In an interview on The Bitcoin Group, Andreas Antonopoulos describes a self-regulating method where the consumer protection holes can be solved by free market-enforced exchange solvency and implemented cryptography solutions.
New York-Style Licensing
Yellow cab in Times Square New York
Regarding technology-specific regulation at the state level, New York has put forth a bad idea with an unfortunate name, mostly because it sounds like an innovative Silicon Valley startup which it definitely is not.
It is, however, a grand attempt from a local regulator to overlay an inappropriate technology-specific regulation within the confines of the great state of New York.
Unfortunately, this will cause greater hardship for New Yorkers than it will for the bitcoin businesses that will most likely seek out other favorable jurisdictions. If New York wanted to drive new growth businesses away from the state, then this would be the way to do it. These antics are not predicted to be emulated.
Markets perceive regulation as ‘damage’ and route around it. This is true with Internet-related damage and it is equally true with Bitcoin-related damage.
For example, artificial damage to bitcoin’s semi-anonymous properties could be inflicted by tracking specific bitcoin addresses at the exchange endpoint level and beyond. Perhaps mandated by law in the near future, this type of regulatory action would be akin to to registering bank note serial numbers during a routine cash withdrawal.
Most people would reel in horror at the prospect of this because they naturally believe that they have a right to use their cash as they see fit without serial number tracking.
Surveillance techniques
CCTV
Coin tracking and coin validation schemes are new types of surveillance techniques that Bitcoin’s public transaction ledger enables. Interestingly, either the free market or the law could spawn these invasive techniques as a business model.
In the case of an exchange seeking to bolster its compliance reputation, it might turn to an independent service provider that analyzes bitcoin address data and associated traffic patterns known to be involved in crimes.
Of course, the major underlying and still unresolved problem here is that subjective judgement must be exercised in data analysis of this type which could unduly harm the downstream owners of fungible bitcoin. That is, if anyone held title in bitcoin to begin with.
Markets provide solutions to these cases of bitcoin privacy ‘damage’ and this is where it becomes tricky for regulators. They are practically in a no-win situation because regulators must use their tools to regulate, but the more they do, the more they inadvertently encourage market-based responses.
Fortuitously, Bitcoin comes with built-in plausible deniability due to the many ‘mixing’ hops that can be traversed both on-block chain and off-block chain. Unless the user’s private key is seized, no one can prove with absolute certainty that a particular amount of bitcoin is owned by an individual without their consent. In financial privacy terms, this is referred to as “knowledge of balance” privacy and it is a key element of overall financial privacy.
Mixing services
As cited in ‘The Politics of Bitcoin Mixing Services’, mixing services for bitcoin may emerge as the next frontier in the battle for financial privacy. Coin mixing services for cryptocurrencies do not violate any laws and they merely attempt to re-balance natural deficiencies in the protocol.
According to CNBC, Ben Lawsky and New York’s Department of Financial Services are “still wrestling with whether to ban or restrict the use of ‘tumblers,’ which obscure the record and source of virtual currencies.” Lawsky said tumblers are a concern to law enforcement although they might have legitimate uses.
“Society can have hope that if privacy becomes disrespected, the market can and will provide cryptographic solutions to restore balance.”
Is it even possible for New York to ban tumblers that exist on the global Internet? How will the cryptographic free market respond to encroaching regulation into the market for Bitcoin?
Zerocoin and CoinJoin represent two attempts to restore the balance in making digital cash as private as physical cash today. They operate in a decentralized manner without requiring trust in a third party.
Originating from Johns Hopkins University, the first Zerocoin plan was a proposed extension to the Bitcoin payment network that added anonymity to Bitcoin payments and used provably secure cryptographic techniques to ensure that Bitcoins cannot be traced.
After refusing to gain traction among the bitcoin user and developer communities, creators Matthew Green and Ian Miers decided to launch Zerocoin as its own independent cryptocurrency complete with separate block chain and reward incentive system. The Economist refers to Zerocoin as “washing virtual money”.
CoinJoin, first described by Gregory Maxwell as a method of increased coin privacy for the real world, is an urgently needed improvement, because:
“Bitcoin is often promoted as a tool for privacy but the only privacy that exists in Bitcoin comes from pseudonymous addresses which are fragile and easily compromised through reuse, ‘taint’ analysis, tracking payments, IP address monitoring nodes, web-spidering, and many other mechanisms. Once broken this privacy is difficult and sometimes costly to recover.”
Involving no changes to the Bitcoin protocol but requiring specific wallet implementations, CoinJoin operates as a unique transaction style for Bitcoin users to dramatically improve their privacy.
Both efforts succeed where the original Bitcoin protocol stopped short. In direct response to increasing and potentially onerous regulations, Zerocoin and CoinJoin stand as pillars of financial privacy in a world where surveillance has run amok.
Ultimately, society can have hope that if privacy becomes disrespected, the market can and will provide cryptographic solutions to restore the balance. If Bitcoin is to succeed, that is the real challenge for the talented individuals and leading companies in the Bitcoin ecosystem.
BREAKING: Bitcoin Price Surges Amid Rumored Testing of Withdrawals
Tom Boice 22/02/2014
MtGox has allegedly begun testing withdrawals, seeing a 200% surge in exchange rates.
This post’s updates have largely subsided, any additional breaks may be a separate article.
UPDATES:
http://www.cryptocoinsnews.com/wp-content/uploads/2014/02/mtgox-price-spike-300x143.png
Original Reddit thread about withdrawal signs here.
1:55am JST: 1400BTC buy order on BTC-e.
2:03am JST: MtGox exchange rate now up 215% in just under 2 hours. $280
2:12am JST: Massive sell-offs on MtGox dropping the exchange rate back to $200, still up a little for the hour. Rumors of market manipulation and also insider trading abound.
2:30am JST: Surges and sells each getting smaller, volume appears to be diminishing, price settling near $230, a 50% increase for the hour.
uncertainty chart
2:20 JST, MtGox, This is what uncertainty, rumors, and manipulation look like in a market.
2:50am JST: BTC China, which has also seen the price surging, announced a decrease in fees, the first since last December’s Chinese regulation scare.
http://www.cryptocoinsnews.com/wp-content/uploads/2014/02/uncertainty-chart-300x222.png
2:52am JST: Core developer Greg Maxwell, “MtGox still authoring invalid transactions”
3:21am JST: MtGox price falters as Greg Maxwell’s statement gains attention, below $200 at the moment, but gaining again.
3:38am JST: All exchange prices still trending down, no fresh announcements or news. Personally, I am beginning to see the manipulation narrative as the most accurate.
4:11am JST: All quiet with the exception of the Maxwell reddit thread, more updates will follow if something significant happens. Thank you for following this happening with CryptoCoinsNews.com.
Background:
Despite the entire bitcoin ecosystem being effected by a denial-of-service attack exploiting a characteristic of the Bitcoin protocol, MtGox received the brunt of consumer outrage after they suddenly halted bitcoin withdrawals and blamed a “bug in the bitcoin protocol.” Critics cited out of date and amateur programming in the exchange’s system for its woes, as MtGox is the only exchange still experiencing disrupted service since the attacks.
In the last week the MtGox price has skirted the $100 range, due to skepticism about MtGox’s solvency, and their continuing lack of information about when withdrawals will resume.
Tom Boice 22/02/2014
MtGox has allegedly begun testing withdrawals, seeing a 200% surge in exchange rates.
This post’s updates have largely subsided, any additional breaks may be a separate article.
UPDATES:
http://www.cryptocoinsnews.com/wp-content/uploads/2014/02/mtgox-price-spike-300x143.png
Original Reddit thread about withdrawal signs here.
1:55am JST: 1400BTC buy order on BTC-e.
2:03am JST: MtGox exchange rate now up 215% in just under 2 hours. $280
2:12am JST: Massive sell-offs on MtGox dropping the exchange rate back to $200, still up a little for the hour. Rumors of market manipulation and also insider trading abound.
2:30am JST: Surges and sells each getting smaller, volume appears to be diminishing, price settling near $230, a 50% increase for the hour.
uncertainty chart
2:20 JST, MtGox, This is what uncertainty, rumors, and manipulation look like in a market.
2:50am JST: BTC China, which has also seen the price surging, announced a decrease in fees, the first since last December’s Chinese regulation scare.
http://www.cryptocoinsnews.com/wp-content/uploads/2014/02/uncertainty-chart-300x222.png
2:52am JST: Core developer Greg Maxwell, “MtGox still authoring invalid transactions”
3:21am JST: MtGox price falters as Greg Maxwell’s statement gains attention, below $200 at the moment, but gaining again.
3:38am JST: All exchange prices still trending down, no fresh announcements or news. Personally, I am beginning to see the manipulation narrative as the most accurate.
4:11am JST: All quiet with the exception of the Maxwell reddit thread, more updates will follow if something significant happens. Thank you for following this happening with CryptoCoinsNews.com.
Background:
Despite the entire bitcoin ecosystem being effected by a denial-of-service attack exploiting a characteristic of the Bitcoin protocol, MtGox received the brunt of consumer outrage after they suddenly halted bitcoin withdrawals and blamed a “bug in the bitcoin protocol.” Critics cited out of date and amateur programming in the exchange’s system for its woes, as MtGox is the only exchange still experiencing disrupted service since the attacks.
In the last week the MtGox price has skirted the $100 range, due to skepticism about MtGox’s solvency, and their continuing lack of information about when withdrawals will resume.
Bitcoin price info from markets:
Bitcoin price average (bitcoinaverage.com):
*Note: I will be posting this twice per day at around 12:00 CET and 00:00 CET +-1h
Bitcoin price average (bitcoinaverage.com):
*Note: I will be posting this twice per day at around 12:00 CET and 00:00 CET +-1h
How Bitcoin Could Revolutionise Accountancy
Nick Chowdrey (@nickchef88) | Published on February 23, 2014 at 09:45 GMT | Analysis, Companies
Nick Chowdrey is a business and technology writer and proud digital native. Currently based in Brighton, UK, he is a technical writer at Crunch Accounting and co-founder of Brighton-based bitcoin community, Bitcoin Brighton. Here, he explores whether or not bitcoin could render accountants obsolete.
Towards the end of last year, CoinDesk published a piece suggesting four career fields bitcoin could replace. One of these careers was accounting. I wanted to investigate further into whether this could actually happen.
It’s no secret that online accounting firms are already disrupting the industry, offering a cheaper and often more convenient service than their ‘bricks and mortar’ ancestors.
Moving accounting online makes the process quicker and more convenient. Users can update their accounts using smartphone apps and ‘optical character recognition’ helps to automate data entry. It doesn’t take too much of a leap to see how the Bitcoin protocol could further enhance these processes.
How bitcoin can help
On a basic level, the payment network could be used by firms to more easily accept international customers. You’d expect this to increase competition and it could eventually lead to offline firms across the world being priced out of the market.
But even if this does happen, surely these online firms will still need to employ some human accountants? Actually, it seems that not only could Bitcoin be used to automate a lot of accounting functions, it could, in some cases, actually do a better job.
For example, one of the most important accounting tasks is balancing the books – checking that incoming and outgoing transactions match an individual or company’s actual bank balance. Modern financial accounting uses a ‘double entry’ system which requires two separate accounts to be updated depending on the transaction.
For example, if you receive a payment of £100 you increase a credits account by 100 and decrease a debits account by 100, and vice versa if you pay someone £100. If the books are balanced, the debit account plus the credit account should equal zero.
Every entry is dated, with additional information added if necessary, making it possible for accountants to go back through the records and find the problem if the books aren’t balanced. This is a straightforward way for people to trust their own accounts.
Increasingly, however, outside parties like tax collectors and investors also need to trust that a set of accounts is accurate and fully disclosed, requiring expensive audit services. This is where bitcoin comes in.
Triple entry
What would be required is for every transaction between a debtor/creditor to be processed through the Bitcoin network, as well as a record being kept in both the debtor and creditor’s private, offline accounts.
This creates a system of ‘triple entry’ bookkeeping where accounting entries are distributed across the Bitcoin network and cryptographically sealed, making the falsification or destruction of the records practically impossible and ultimately reducing fraud.
This would be an excellent way to save time and money for an open and transparent business that wants to, for example, publicly share its accounts with a potential investor; or for a freelancer who needs to submit a tax return.
Also, thanks to projects like Mastercoin and Ethereum, which will enable other properties to be transferred over the Bitcoin network, the cryptographic transactions wouldn’t even have to involve the transfer of any actual bitcoins, or anything of real monetary value.
It would be more like an exchange of contracts that each party cryptographically signs, saying: “I promise that I paid X party X amount of X currency.” Having said this, it would ultimately make more sense for these contracts to execute the actual payments too, which is also perfectly possible.
At this point, it’s worth saying that bookkeeping is by no means the only thing that accountants do. Certainly, at online accounting firms today, accountants take on a more advisory role, spending less time on tiresome data entry and more time speaking to actual clients and investigating their problems.
This could lead to better service, perhaps explaining the increasing popularity of online accountants.
So, will Bitcoin totally replace accountants? I’m not sure it’s possible. Will it streamline and optimise the industry, just as we expect it to do in other areas of finance? I think almost definitely.
Nick Chowdrey (@nickchef88) | Published on February 23, 2014 at 09:45 GMT | Analysis, Companies
Nick Chowdrey is a business and technology writer and proud digital native. Currently based in Brighton, UK, he is a technical writer at Crunch Accounting and co-founder of Brighton-based bitcoin community, Bitcoin Brighton. Here, he explores whether or not bitcoin could render accountants obsolete.
Towards the end of last year, CoinDesk published a piece suggesting four career fields bitcoin could replace. One of these careers was accounting. I wanted to investigate further into whether this could actually happen.
It’s no secret that online accounting firms are already disrupting the industry, offering a cheaper and often more convenient service than their ‘bricks and mortar’ ancestors.
Moving accounting online makes the process quicker and more convenient. Users can update their accounts using smartphone apps and ‘optical character recognition’ helps to automate data entry. It doesn’t take too much of a leap to see how the Bitcoin protocol could further enhance these processes.
How bitcoin can help
On a basic level, the payment network could be used by firms to more easily accept international customers. You’d expect this to increase competition and it could eventually lead to offline firms across the world being priced out of the market.
But even if this does happen, surely these online firms will still need to employ some human accountants? Actually, it seems that not only could Bitcoin be used to automate a lot of accounting functions, it could, in some cases, actually do a better job.
For example, one of the most important accounting tasks is balancing the books – checking that incoming and outgoing transactions match an individual or company’s actual bank balance. Modern financial accounting uses a ‘double entry’ system which requires two separate accounts to be updated depending on the transaction.
For example, if you receive a payment of £100 you increase a credits account by 100 and decrease a debits account by 100, and vice versa if you pay someone £100. If the books are balanced, the debit account plus the credit account should equal zero.
Every entry is dated, with additional information added if necessary, making it possible for accountants to go back through the records and find the problem if the books aren’t balanced. This is a straightforward way for people to trust their own accounts.
Increasingly, however, outside parties like tax collectors and investors also need to trust that a set of accounts is accurate and fully disclosed, requiring expensive audit services. This is where bitcoin comes in.
Triple entry
What would be required is for every transaction between a debtor/creditor to be processed through the Bitcoin network, as well as a record being kept in both the debtor and creditor’s private, offline accounts.
This creates a system of ‘triple entry’ bookkeeping where accounting entries are distributed across the Bitcoin network and cryptographically sealed, making the falsification or destruction of the records practically impossible and ultimately reducing fraud.
This would be an excellent way to save time and money for an open and transparent business that wants to, for example, publicly share its accounts with a potential investor; or for a freelancer who needs to submit a tax return.
Also, thanks to projects like Mastercoin and Ethereum, which will enable other properties to be transferred over the Bitcoin network, the cryptographic transactions wouldn’t even have to involve the transfer of any actual bitcoins, or anything of real monetary value.
It would be more like an exchange of contracts that each party cryptographically signs, saying: “I promise that I paid X party X amount of X currency.” Having said this, it would ultimately make more sense for these contracts to execute the actual payments too, which is also perfectly possible.
At this point, it’s worth saying that bookkeeping is by no means the only thing that accountants do. Certainly, at online accounting firms today, accountants take on a more advisory role, spending less time on tiresome data entry and more time speaking to actual clients and investigating their problems.
This could lead to better service, perhaps explaining the increasing popularity of online accountants.
So, will Bitcoin totally replace accountants? I’m not sure it’s possible. Will it streamline and optimise the industry, just as we expect it to do in other areas of finance? I think almost definitely.
How Cash Would Be Seen by the Media if Invented Today
Antonis Polemitis (@polemitis) | Published on February 23, 2014 at 10:50 GMT | Analysis, Crime, Lifestyle, Wallets
Antonis Polemitis is Managing Director of Ledra Capital. He has written a series of blog posts about bitcoin which can be found here. In this article, he casts a satirical eye over how a new currency ‘cash’ would be described by the press if invented today.
Breaking News: Bizarre, Shadowy, Paper-Based Payment System Being Rolled Out Worldwide!
World governments announced a plan today to allow citizens to anonymously carry parts of their wealth on their person and exchange it with others using small pieces of colourful paper.
The paper is printed with nationalistic and Masonic imagery, along with numbers that purportedly represent the amount of wealth each piece of paper represents (if the paper is not a counterfeit).
Each of these pieces of paper is formally a ‘note’ from each nation’s central bank, but they are also attracting the term ‘cash’. This is a technical matter that is too complex to cover in our basic primer. Suffice it to say, that it is representative of the complexity and user-unfriendliness of this new system.
one million dollar bills
So-called ‘dollar bills’, or ‘notes’, as they are formally known.
Are ‘bills’ too complex?
These pieces of papers (also known as ‘bills’, ‘dollar bills’, ‘George Washingtons’ or ‘Dead Presidents’ among the shadowy community of anti-banking libertarians who have been the primary users of cash to date) will differ from country to country and are not redeemable outside national borders.
In what will come as a surprise to generations who have grown up with calculators and computers, bills only come in fixed denominations, requiring users to maintain a large number of these pieces of paper that must be aggregated to execute a transaction and then re-aggregated to ‘make change’.
The latter is a complex process of returning to the payee the excess of the payment using yet other bills. (Don’t worry if this sounds complex, we had trouble understanding it ourselves at first and it is certainly not ready for the average consumer in its current form.)
Mike Smith, VP of Employee Training at Sears has said:
“I cannot imagine training tens of thousands of our employees to use cash, verify that it is genuine, and learn to ‘make change’ without making errors. This is going to require a wholesale installation of special change-making hardware – so-called ‘cash registers’ – and millions of dollars of employee training, while creating long lines and delays for consumers. Furthermore, we would need to adopt new security procedures and armed guards to avoid theft of the physical bills while in the store or during transport to our bank. We cannot see ourselves adopting cash under these conditions.”
Perfect tool for criminals
Criminal with cashThe launch of cash has provoked an immediate reaction from law-enforcement agencies worldwide that universally condemned the development.
Mike Smith, the recently confirmed FBI Director, had this to say:
“‘Cash’ is a 100% anonymous and untraceable payments technology. It is like a weapon of mass destruction launched against law enforcement. It is the perfect payment mechanism for criminals, drug cartels, terrorists, prostitution rings and money launderers. We don’t know how we will be able to combat such a technology and we fully expect that a new generation of super-criminals will emerge, working in the shadows of a world where they can conduct their illicit affairs without leaving a trace.”
Even officials within the banking system have their doubts about the new plan.
Banking Superintendent of New York State Mike Smith said: “I can’t think of any reason that a law-abiding individual would want to use ‘cash’. At a bare minimum, we believe there should be a licensing procedure for individuals or businesses that plan to use cash – a ‘cash license’, as it were.”
This license would limit cash to trustworthy individuals who keep detailed, auditable records of all their cash transactions in order to keep New York safe from criminals, he added.
Others have concerns about forgery and counterfeiting.
“Ultimately, even with all the fancy inks, ‘cash’ is just a piece of paper. We fully expect criminal groups and rogue nation states to print fake cash in order to profit or to disrupt the economies of their enemies,” said Mike Smith, an analyst at Stratfor.
“In the interim, we are certain that cash will trade a discount in the real world, given the risk to a counterparty of accepting a forged piece of paper; no doubt cash is a huge step back from the modern cryptography in place throughout our current financial system.”
Consumers unprotected
Though hard to imagine, cash operates with no consumer protection at all. If your ‘bills’ are stolen or lost, they are gone forever.
“I just don’t understand why there is nobody that I can call to reinstate my ‘cash’ if I lose it,” says Mike Smith, a businessman from Toledo. “What type of idiotic wealth and payment system doesn’t maintain transaction and ownership records?”
Moreover, there appears to be no authentication mechanism associated with cash payments or transfers, let alone one that matches modern security standards. Once someone has gained physical control of your ‘bills’, they are free to spend or use them as they wish and there is no way to reverse the transaction, stop them or even identify who has stolen them.
Even simple destruction of a bill, which, as you recall, is just a piece of paper, could result in losses. According to the Director of the newly founded Bureau of Engraving and Printing, mutilated bills that are more than 51% destroyed must be mailed in for a special investigation that will determine if they should be replaced or not.
‘Physical wallets’ reveal security flaw
WalletProponents of cash have dismissed these concerns saying that various hardware manufacturers, such as Coach and Gucci, will shortly be releasing ‘hardware wallets’ in leather and suede. These wallets are meant to hold the bills and fit into a pocket or purse.
“Once your bills are safely ensconced in your Gucci wallet and securely placed in your pants pocket [the front pocket is recommended as a ‘best practice’ for security], it is almost impossible for them to be stolen, lost or destroyed,” said Mike Smith, VP of Communications for Gucci NA.
Some early adopters, however, have reported that the hardware wallets have security flaws.
“I was out in Bangkok two weeks ago, at a bar, and I forgot my Gucci wallet there,” said Mike Smith, a visiting tourist. “When I returned the next morning, my wallet was there but my cash was gone!”
We contacted Gucci regarding this hacking attack, but a spokesperson would not comment “about confidential customer financial matters”.
Even criminals have not been immune to the risks of cash. The notorious ‘Silk Road’ drug-dealing marketplace mysteriously closed last week, after vendors and customers left envelopes full of cash (on which they had very clearly written their names) in an anonymous drop-box managed by the exchange.
“Theft of the cash due to a bug in the envelope-sealing process,” was cited as the cause.
While technical experts believe that it might be possible that the glue on the envelope was not correctly applied, they also warn that a ‘bill’ is basically a private and public key at the same time, and note that there might be dangers involved in letting anonymous criminals hold the private keys to your wealth.
Physical presence required
In what might be most unusual limitation on cash, it only works for payments within 26 inches or less (the so-called ‘arm’s length transaction’, as hackers in the community have colourfully dubbed it), because it has to be handed from one (human) party to another to execute the transaction.
This requirement for the exchange of cash is widely thought to be a fatal flaw by traditionalists.
Mike Smith, VP of Retail Banking at Chase said:
“A form of payment that cannot be used at a distance, cannot be used for e-commerce, cannot be used by mobile devices, cannot be used for machine-based transactions, or cannot be scripted or programmed, cannot be thought of as a payment system. I will admit, as a form of performance art, ‘cash’ transactions are an amusing experiment, but this has no applicability in the real world of banking, finance or commerce.”
He added: “Furthermore, given cash’s association with criminal activities, we will be refusing to offer banking services and terminating the accounts of any customer that uses cash in a business or personal capacity. It is the only way we can ensure we remain compliant with our regulatory obligations.”
Remarkably, if you attempt to use cash in a different country from the one that issued it, it will categorically be rejected.
In order to use cash abroad, you will have to go to designated points, usually in airports or certain banks, with limited hours of operation, that will ‘exchange’ your bills for others printed by the country that you are visiting.
These ‘exchanges’ have high fees – usually 2-3% for each exchange, meaning that tourist will lose 5% of their cash or more on a typical trip just in these exchange costs. This seems extraordinarily high for what is, ultimately, an exercise in multiplication or division.
A step backward for economics
Economists are flabbergasted that lawmakers have allowed cash to be adopted despite their strong objections. A key policy tool of central banks has been the use of positive and negative interest rates to manage economic growth. It appears that this will not be possible with cash.
Mike Smith, a leading economics blogger for the New York Times said: “This is a sad day for macro-economics. If cash ever catches on in any meaningful sense, it will reduce our control over the levers of the economy significantly, by providing a mechanism for depositors to opt out of negative interest rates. Given the fact that it might keep us from preventing the next depression and will definitely reduce tax collections, one could even consider it ‘evil’.”
Environmental and health impacts
Environmental damageEnvironmentalists expressed concerns about the impact of cash on the environment.
Mike Smith, recently appointed Executive Director of the Sierra Club said: “You would have thought that in 2014, we would have moved beyond pesticide- and water-intensive cotton farming [retracted: cutting down trees], treating the cotton with dangerous inks, and transporting it with fossil fuels, only to represent a value, such as ‘20’, that can be represented electronically at effectively no cost to the environment. When will we ever learn?”
Public health officials also warned that cash could be an excellent vector for disease transmission.
“We tested several ‘bills’ in our labs recently and discovered that the average bill has 20 times more bacteria than a toilet seat,” said Mike Smith, Director of Research at the Mayo Clinic. “Our advice is that people should avoid cash in general and only handle it if absolutely necessary.“
“Children, the elderly and immuno-compromised individuals should not handle cash under any circumstances.”
What comes next?
Proponents of cash think it will ultimately be a widely adopted technology that will spread around the world, enabling in-person, mid-tier transactions (not micro-payments, but not mega-payments either) in a manner that is invulnerable to electric or Internet outages and that will usher in a new era of more ‘human’ commerce.
We try to keep an open mind at this publication toward new technology, but, to date, we have a hard time seeing the positive case for cash.
Certainly criminal groups will take advantage of cash’s perfect anonymity to wreak havoc on law enforcement and tax collection, something that is deeply undesirable.
Among law-abiding citizens, we can envision some possible adoption in dense urban hipster communities like Williamsburg, where ‘wallets’, ‘cash’ and ‘making change’ could be yet another reflection of their tongue-in-cheek view of modern societal systems.
Other than that, it would be hard to recommend that the average consumer or merchant becomes involved in what is still today a very buggy system, filled with risk, inconvenience, high transaction costs, and possible disease transmission.
Even if handled perfectly, cash will certainly tar your business and personal life with the seedy reputation of the drug dealers, terrorists, money launderers and anti-establishment anarchists who use it today, threatening business and banking relationships, and raising eyebrows among law enforcement and your community.
Antonis Polemitis (@polemitis) | Published on February 23, 2014 at 10:50 GMT | Analysis, Crime, Lifestyle, Wallets
Antonis Polemitis is Managing Director of Ledra Capital. He has written a series of blog posts about bitcoin which can be found here. In this article, he casts a satirical eye over how a new currency ‘cash’ would be described by the press if invented today.
Breaking News: Bizarre, Shadowy, Paper-Based Payment System Being Rolled Out Worldwide!
World governments announced a plan today to allow citizens to anonymously carry parts of their wealth on their person and exchange it with others using small pieces of colourful paper.
The paper is printed with nationalistic and Masonic imagery, along with numbers that purportedly represent the amount of wealth each piece of paper represents (if the paper is not a counterfeit).
Each of these pieces of paper is formally a ‘note’ from each nation’s central bank, but they are also attracting the term ‘cash’. This is a technical matter that is too complex to cover in our basic primer. Suffice it to say, that it is representative of the complexity and user-unfriendliness of this new system.
one million dollar bills
So-called ‘dollar bills’, or ‘notes’, as they are formally known.
Are ‘bills’ too complex?
These pieces of papers (also known as ‘bills’, ‘dollar bills’, ‘George Washingtons’ or ‘Dead Presidents’ among the shadowy community of anti-banking libertarians who have been the primary users of cash to date) will differ from country to country and are not redeemable outside national borders.
In what will come as a surprise to generations who have grown up with calculators and computers, bills only come in fixed denominations, requiring users to maintain a large number of these pieces of paper that must be aggregated to execute a transaction and then re-aggregated to ‘make change’.
The latter is a complex process of returning to the payee the excess of the payment using yet other bills. (Don’t worry if this sounds complex, we had trouble understanding it ourselves at first and it is certainly not ready for the average consumer in its current form.)
Mike Smith, VP of Employee Training at Sears has said:
“I cannot imagine training tens of thousands of our employees to use cash, verify that it is genuine, and learn to ‘make change’ without making errors. This is going to require a wholesale installation of special change-making hardware – so-called ‘cash registers’ – and millions of dollars of employee training, while creating long lines and delays for consumers. Furthermore, we would need to adopt new security procedures and armed guards to avoid theft of the physical bills while in the store or during transport to our bank. We cannot see ourselves adopting cash under these conditions.”
Perfect tool for criminals
Criminal with cashThe launch of cash has provoked an immediate reaction from law-enforcement agencies worldwide that universally condemned the development.
Mike Smith, the recently confirmed FBI Director, had this to say:
“‘Cash’ is a 100% anonymous and untraceable payments technology. It is like a weapon of mass destruction launched against law enforcement. It is the perfect payment mechanism for criminals, drug cartels, terrorists, prostitution rings and money launderers. We don’t know how we will be able to combat such a technology and we fully expect that a new generation of super-criminals will emerge, working in the shadows of a world where they can conduct their illicit affairs without leaving a trace.”
Even officials within the banking system have their doubts about the new plan.
Banking Superintendent of New York State Mike Smith said: “I can’t think of any reason that a law-abiding individual would want to use ‘cash’. At a bare minimum, we believe there should be a licensing procedure for individuals or businesses that plan to use cash – a ‘cash license’, as it were.”
This license would limit cash to trustworthy individuals who keep detailed, auditable records of all their cash transactions in order to keep New York safe from criminals, he added.
Others have concerns about forgery and counterfeiting.
“Ultimately, even with all the fancy inks, ‘cash’ is just a piece of paper. We fully expect criminal groups and rogue nation states to print fake cash in order to profit or to disrupt the economies of their enemies,” said Mike Smith, an analyst at Stratfor.
“In the interim, we are certain that cash will trade a discount in the real world, given the risk to a counterparty of accepting a forged piece of paper; no doubt cash is a huge step back from the modern cryptography in place throughout our current financial system.”
Consumers unprotected
Though hard to imagine, cash operates with no consumer protection at all. If your ‘bills’ are stolen or lost, they are gone forever.
“I just don’t understand why there is nobody that I can call to reinstate my ‘cash’ if I lose it,” says Mike Smith, a businessman from Toledo. “What type of idiotic wealth and payment system doesn’t maintain transaction and ownership records?”
Moreover, there appears to be no authentication mechanism associated with cash payments or transfers, let alone one that matches modern security standards. Once someone has gained physical control of your ‘bills’, they are free to spend or use them as they wish and there is no way to reverse the transaction, stop them or even identify who has stolen them.
Even simple destruction of a bill, which, as you recall, is just a piece of paper, could result in losses. According to the Director of the newly founded Bureau of Engraving and Printing, mutilated bills that are more than 51% destroyed must be mailed in for a special investigation that will determine if they should be replaced or not.
‘Physical wallets’ reveal security flaw
WalletProponents of cash have dismissed these concerns saying that various hardware manufacturers, such as Coach and Gucci, will shortly be releasing ‘hardware wallets’ in leather and suede. These wallets are meant to hold the bills and fit into a pocket or purse.
“Once your bills are safely ensconced in your Gucci wallet and securely placed in your pants pocket [the front pocket is recommended as a ‘best practice’ for security], it is almost impossible for them to be stolen, lost or destroyed,” said Mike Smith, VP of Communications for Gucci NA.
Some early adopters, however, have reported that the hardware wallets have security flaws.
“I was out in Bangkok two weeks ago, at a bar, and I forgot my Gucci wallet there,” said Mike Smith, a visiting tourist. “When I returned the next morning, my wallet was there but my cash was gone!”
We contacted Gucci regarding this hacking attack, but a spokesperson would not comment “about confidential customer financial matters”.
Even criminals have not been immune to the risks of cash. The notorious ‘Silk Road’ drug-dealing marketplace mysteriously closed last week, after vendors and customers left envelopes full of cash (on which they had very clearly written their names) in an anonymous drop-box managed by the exchange.
“Theft of the cash due to a bug in the envelope-sealing process,” was cited as the cause.
While technical experts believe that it might be possible that the glue on the envelope was not correctly applied, they also warn that a ‘bill’ is basically a private and public key at the same time, and note that there might be dangers involved in letting anonymous criminals hold the private keys to your wealth.
Physical presence required
In what might be most unusual limitation on cash, it only works for payments within 26 inches or less (the so-called ‘arm’s length transaction’, as hackers in the community have colourfully dubbed it), because it has to be handed from one (human) party to another to execute the transaction.
This requirement for the exchange of cash is widely thought to be a fatal flaw by traditionalists.
Mike Smith, VP of Retail Banking at Chase said:
“A form of payment that cannot be used at a distance, cannot be used for e-commerce, cannot be used by mobile devices, cannot be used for machine-based transactions, or cannot be scripted or programmed, cannot be thought of as a payment system. I will admit, as a form of performance art, ‘cash’ transactions are an amusing experiment, but this has no applicability in the real world of banking, finance or commerce.”
He added: “Furthermore, given cash’s association with criminal activities, we will be refusing to offer banking services and terminating the accounts of any customer that uses cash in a business or personal capacity. It is the only way we can ensure we remain compliant with our regulatory obligations.”
Remarkably, if you attempt to use cash in a different country from the one that issued it, it will categorically be rejected.
In order to use cash abroad, you will have to go to designated points, usually in airports or certain banks, with limited hours of operation, that will ‘exchange’ your bills for others printed by the country that you are visiting.
These ‘exchanges’ have high fees – usually 2-3% for each exchange, meaning that tourist will lose 5% of their cash or more on a typical trip just in these exchange costs. This seems extraordinarily high for what is, ultimately, an exercise in multiplication or division.
A step backward for economics
Economists are flabbergasted that lawmakers have allowed cash to be adopted despite their strong objections. A key policy tool of central banks has been the use of positive and negative interest rates to manage economic growth. It appears that this will not be possible with cash.
Mike Smith, a leading economics blogger for the New York Times said: “This is a sad day for macro-economics. If cash ever catches on in any meaningful sense, it will reduce our control over the levers of the economy significantly, by providing a mechanism for depositors to opt out of negative interest rates. Given the fact that it might keep us from preventing the next depression and will definitely reduce tax collections, one could even consider it ‘evil’.”
Environmental and health impacts
Environmental damageEnvironmentalists expressed concerns about the impact of cash on the environment.
Mike Smith, recently appointed Executive Director of the Sierra Club said: “You would have thought that in 2014, we would have moved beyond pesticide- and water-intensive cotton farming [retracted: cutting down trees], treating the cotton with dangerous inks, and transporting it with fossil fuels, only to represent a value, such as ‘20’, that can be represented electronically at effectively no cost to the environment. When will we ever learn?”
Public health officials also warned that cash could be an excellent vector for disease transmission.
“We tested several ‘bills’ in our labs recently and discovered that the average bill has 20 times more bacteria than a toilet seat,” said Mike Smith, Director of Research at the Mayo Clinic. “Our advice is that people should avoid cash in general and only handle it if absolutely necessary.“
“Children, the elderly and immuno-compromised individuals should not handle cash under any circumstances.”
What comes next?
Proponents of cash think it will ultimately be a widely adopted technology that will spread around the world, enabling in-person, mid-tier transactions (not micro-payments, but not mega-payments either) in a manner that is invulnerable to electric or Internet outages and that will usher in a new era of more ‘human’ commerce.
We try to keep an open mind at this publication toward new technology, but, to date, we have a hard time seeing the positive case for cash.
Certainly criminal groups will take advantage of cash’s perfect anonymity to wreak havoc on law enforcement and tax collection, something that is deeply undesirable.
Among law-abiding citizens, we can envision some possible adoption in dense urban hipster communities like Williamsburg, where ‘wallets’, ‘cash’ and ‘making change’ could be yet another reflection of their tongue-in-cheek view of modern societal systems.
Other than that, it would be hard to recommend that the average consumer or merchant becomes involved in what is still today a very buggy system, filled with risk, inconvenience, high transaction costs, and possible disease transmission.
Even if handled perfectly, cash will certainly tar your business and personal life with the seedy reputation of the drug dealers, terrorists, money launderers and anti-establishment anarchists who use it today, threatening business and banking relationships, and raising eyebrows among law enforcement and your community.
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