Category Archives: Cryptocurrency

WEEKLY DIGEST: DARK MARKETS, DARK WALLETS AND DARKER DAYS FOR BITCOIN

Bitcoin Weekly Digest

Here at CoinReport, we like to breakdown the week’s bitcoin news and headlines for our readers. This week’s digest, ending May 3rd 2014, has seen the mood surrounding bitcoin darken once more. Regulatory issues and opinions are among the current woes for bitcoin.

More Chinese bitcoin woes

The People’s Bank of China issued further remarks regarding the funding of BTC China by Chinese Banks this week. Whether directly or indirectly providing services to bitcoin related companies, the PBOC has warned that this must be stopped. The effect of this demand was an initial drop in bitcoin price to approximately $450.  Following the announcement,  BTC China halted chinese RMB deposits. BTC China stated:

Because of this morning’s announcement by the China Merchants Bank, BTC China, in the interest of its users and platforms security, has decided to suspend Chinese RMB recharges (deposits).

The decision to halt RMB deposits caused a Twitter backlash for BTC China. The drop in the price of bitcoin, according to decisions made in China, regarding the cryptocurrency, sparked accusations of price fixing by BTC China.

FinCEN Clarifies Position on Mining and Escrow Services

FinCEN issued a statement clarifying their position on escrow and cloud mining services. The release ruled that companies offering these particular services are not considered money transmitters. These businesses are not labelled under the Bank Secrecy Act. FinCEN stated:

“Renting of mining computer systems to third parties does not make the Company a money transmitter under BSA regulations.” With regard to digital currencies being treated as property, FinCEN added “All virtual currency mined by the third party remains the third party’s property, and the Company has no access to the third party wallet, nor receives or pays virtual currency on the third party’s behalf.”

Escrow services are exchanges between two parties, to ensure that both follow through with an arranged transaction, while remaining anonymous. The fact that escrow services physically hold bitcoins until specific conditions are met by both parties is not an activity covered by FinCEN law.

Stateside Warnings Against Bitcoin Usage

More warnings against bitcoin continue to be issued across the United States, this time in Wisconsin. The Wisconsin Department of Financial Institutions Consumers warned individuals considering investing in digital currencies that they could potentially be breaking the law.  Fear surrounding  the volatility of bitcoin and the risk of theft by third party institutions appear to have triggered the warnings.

On a wider scale the NASAA also warned against bitcoin usage.  The president of the North American Securities Administrators Association stated:

“The value of virtual currencies is highly volatile and the concept behind the currency is difficult to understand even for sophisticated financial experts.”

While the statement may be a little unfair to the intelligence of non-financial experts, the warning of bitcoins volatility is warranted. As with any investment, investing in bitcoin requires some homework to be done and some care to be taken. There is still no need to instill fear in potential investors.

Some Positive Outlooks Remain

Like his father Ron Paul, Rand Paul has revealed his outlook for bitcoin is positive. He acknowledged bitcoin does not have the true characteristics of money, but believes there is room for improvement and that technology like this could be beneficial. On the whole his philosophy on bitcoin is forward thinking.

Former United States Deputy Secretary of Treasury, Larry Summers, had some positive words regarding innovative new monetary systems this week. Though he is unsure whether digital currencies as they currently stand will work, he did say that those who rejected innovations in the field are on the “wrong side of history.” He admitted there were problems with the current monetary system and went on to say:

“The people who rejected the Internet as a curiosity for scientists were on the wrong side of history, the people who rejected digital photography as really an artificial thing were on the wrong side of history, and the people who felt that non-gimmicky tennis racquets were made with wood were on the wrong side of history. So it seems to me that the people who confidently reject all the innovation here [in new payment and monetary systems] are on the wrong side of history.”

Uncertainty is rife but it is not all negative. For most, like the Bank of Canada, it is simply too early to tell how successful bitcoin, and cryptocurrencies in general, will be. That is not to say the belief is that digital currencies will fail, just that there is a way to go before more serious discussion regarding new policies are needed.

DarkMarket rebranding to OpenBazaar

This week saw the DarkMarket launch online by developers Amir Taaki and Cody Wilson. The successor to Silk Road may be considered the new online black market. Though the Silk Road was brought down by federal government, the creators of DarkMarket have boldly claimed their site is completely invulnerable to law enforcement. The news may spark controversy for bitcoin as DarkMarket may provide a ground for illegal activity online. Unlike Silk Road, there is no owner, so every user on the peer to peer site would need to be arrested to shut it down. To distance DarkMarket from this illegal image and establish it as a decentralized online marketplace it has since been rebranded as OpenBazaar, following a petition by the bitcoin community on Reddit. The original developers now no longer have any association with the operation.

Following the launch of DarkMarket, or OpenBazaar, Amir Taaki and Cody Wilson released the highly anticipated Dark Wallet, a financial tool aimed at keeping payments and wallet addresses private and anonymous. The wallet, currently in alpha, is aimed at the bitcoin community, and keeps issues like cooperation for regulations in mind. Hopefully this change in name will have the desired effect, that those wanting to call it the Free Market, had in mind.

In Other News

Big news for Scrypt ASICs miners was announced this week. The race for the first ASICs miners capable of mining scrypt based altcoins, like Litecoin, is coming to an end. Scrypt based mining has traditionally been carried out using standard computers with GPU. Now, ZeusMiner have announced they are taking pre-orders on their new range of scrypt-based ASICs miners.

MtGox has also agreed to settle their lawsuit with the class action plaintiffs of the American case . Finally, Robocoin have opened the first global bitcoin bank, providing more familiar online banking service set up, through which customers can manage their accounts. All Robocoin bitcoin ATMs will feed back to the bitcoin bank and users will be able to send, store, and access bitcoins at any Robocoin ATM.

MTGOX HEARING BEGINS AS BITCOIN GETS BLOOMBERG ENDORSEMENT

Bitcoin has continued its steady recovery following a dip earlier this week that saw its value drop to as low as $425 (£251).

All other major cryptocurrencies have followed in bitcoin’s wake, with moderate gains of between 1% and 6% across the markets over the last 24 hours.

The biggest gain in value comes from flappycoin, the cryptocurrency named after the hit smartphone game FlappyBird. Its market capitalisation grew by almost 100%, taking it up to above $85,000.


Bloomberg gives bitcoin stamp of approval


Bloomberg has announced plans to list bitcoin prices on its financial data terminals, served to more than 320,000 subscribers.

The move by Bloomberg will be welcome news to the bitcoin community, giving the cryptocurrency a stamp of respectability following recent turmoil in China that drew into question bitcoin’s future.

“While bitcoin and other virtual currency markets are still nascent, they represent an interesting intersection of finance and technology,” said Tod Van Name, Bloomberg global head of fixed income, currencies and commodities, in a blogpost.

“Given that Bloomberg sits squarely at that intersection, providing pricing for this underdeveloped market is a natural fit for us.”


Preliminary hearing for MtGox


A US lawyer prosecuting MtGox has said that he believes the settlement proposal will be well-received by the supervising judge due to the benefits it provides to former users of the beleaguered bitcoin exchange.

The preliminary hearing for plans to revive MtGox is due to begin today. An investor group represented by Sunlot Holdings believes that it is possible to prevent the planned liquidation of the bitcoin exchange and in turn restore customer confidence.

“We think that the overall plan gives consumers and creditors the best chance of being made whole or even more than whole if things go well,” Jay Edelson, one of the lawyers heading the US class action suit, told CoinDesk.

MIT STUDENTS TO GET $100 WORTH OF BITCOIN FROM WALL STREET DONOR

Undergraduates at the Massachusetts Institute of Technology will be given $100 (£59) worth of bitcoins when they return to study this autumn, in an attempt to jumpstart a bitcoin ecosystem.

The project is being led by Jeremy Rubin, 19, an undergraduate in his second year at the university, and Daniel Elitzer, an MBA student at MIT’s Sloan School of Management. Between them, the pair have raised more than $500,000, principally from Alexander Morcos, an MIT alum who works in high-frequency trading in New York.

“We decided to announce this project now to give students lead time,” says Elitzer. “We want to issue a challenge to some of the brightest technical minds of a generation: ‘When you step on to campus this fall, all of your classmates are going to have access to bitcoin; what are you going to build to give them interesting ways to use it?'”

“Giving students access to cryptocurrencies is analogous to providing them with internet access at the dawn of the internet era,” adds Rubin.

Both Rubin and Elitzer have prior experience with bitcoin. The former is the developer of Tidbit, a project to replace online advertising with bitcoin mining, while the latter is the president and founder of MIT’s Bitcoin Club.

Created in a hackathon in November 2013, Tidbit was proof-of-concept that would let website owners mine bitcoins on visitors’ computers rather than show them adverts. The project ran into difficulty when it was targeted by the New Jersey division of consumer affairs, and Rubin iscurrently being supported by the EFF, the online-rights charity.

Rubin and Elitzer first met in the fallout of the Tidbit subpoena, and while the concept of the giveaway was initially Rubin’s idea, the pair expanded it together. “I am not super involved in the Bitcoin community,” says Rubin, “but it is one of the subjects which I frequently think about. Dan has many more ties in the community.”

Speaking to the Tech, MIT’s student newspaper, the university’s head of undergraduate education, Dennis Freeman, supported the bitcoin giveaway. “By bringing students and faculty together to inform members of the MIT community about what bitcoin is and to research its use, Rubin and Elitzer are helping everyone to better understand this emerging technology.”

Rubin and Elitzer’s plan echoes other giveaways common across the bitcoin community. In April 2013, a user on Reddit calling themselves the “Bitcoin Billionaire” gave away over $13,000 in the currency, using a function on the site that lets users “tip” each other in bitcoin. Normally, the tips are for around 50¢, but the anonymous user was giving away up to 20 bitcoin at once. At the time, bitcoin was worth around $200 a coin, making that single gift the equivalent of $4000.

In many cases, the aim is similar to Rubin and Elitzer’s: if more people own bitcoin, there is more chance that the currency will reach a critical mass where it will be able to support itself.

But for the MIT Bitcoin Club, there’s the additional benefit that making bitcoin popular in the middle of one of the highest concentrations of hackers, coders and engineers in the world could be key to building up infrastructure for the cryptocurrency. Part of the reason for announcing the giveaway early, they say, was to encourage local businesses to get set up to take bitcoin payments.

“This will spark new development,” says Rubin. “Even if students simply use their bitcoin to buy stuff, someone has to build an architecture to enable buying stuff. And what if buying with bitcoin is really convenient? Maybe there will be an active conversion into bitcoin.”