GUIDE
GUIDE
promises..............................................
Cruising for a bruising - it looks too good to be true....................
http://www.visualcapitalist.com/bitcoin-the-encryption-standard
( A good overview.... )
http://www.businessinsider.com/ddos-attack-on-mt-gox-bitcoin-servers-2013-4
Yesterday, the world's first and largest Bitcoin exchange, Mt. Gox, had an outage, and users couldn't access the trading platform.
and....
http://silverdoctors.com/charts-of-the-day-bitcoin-soars-50-in-48-hours-then-crashes/#more-24384
http://www.zerohedge.com/news/2013-04-03/bitcoins-go-parabolic
Submitted by Tyler Durden on 04/03/2013 10:30 -0400
http://www.businessinsider.com/why-bitcoin-is-like-no-other-bubble-weve-seen-before-2013-4
http://www.visualcapitalist.com/bitcoin-the-encryption-standard
( A good overview.... )
The Encryption Standard
Presented by Dollar Vigilante and Bitcoin ATM. Thanks to Gold.net for financial data.
Bitcoin: The Encryption Standard
What currency is feared by the European Central Bank as a threat to fiat monetary institutions? What currency is cash like but digitally transmittable allowing for ultimate anonymity and global mobility?
What digital currency is up over 2,200% over the last year?
The answer? Bitcoin.
http://www.businessinsider.com/ddos-attack-on-mt-gox-bitcoin-servers-2013-4
Yesterday, the world's first and largest Bitcoin exchange, Mt. Gox, had an outage, and users couldn't access the trading platform.
Today, Mt. Gox issued a press release on what happened.
Apparently, the exchange has been subjected to a massive "distributed denial of service" attack.
"Since yesterday, we are continuing to experience a DDoS attack like we have never seen," the company said on its website. "While we are being protected by companies like Prolexic, the sheer volume of this DDoS left us scrambling to fine-tune the system every few hours to make sure that things don’t go beyond a few 502 error pages and trading lag."
A distributed denial of service attack occurs when a large network of computers, usually controlled by a single operator, floods a website with traffic to the point where the website can't make new connections with other users trying to access the site.
Below is the full press release from the Mt. Gox website.
--------------------------------------------------------------------------
TOKYO - JAPAN - April 04, 2013
Dear Mt.Gox users and Bitcoiners,
It’s been an epic few days on Bitcoin, with prices going up as high as $142 per BTC. We all hope that this is just the beginning!
However, there are many who will try to take advantage of the system. The past few days were a reminder of this sad truth.
Mt.Gox has been suffering from its worst trading lag ever, 502 errors, and at one point some users were not able to log in their account. The culprit is a major DDoS attack against Mt.Gox.
Since yesterday, we are continuing to experience a DDoS attack like we have never seen. While we are being protected by companies like Prolexic, the sheer volume of this DDoS left us scrambling to fine-tune the system every few hours to make sure that things don’t go beyond a few 502 error pages and trading lag.
Why has Mt.Gox become the target of a DDoS attack?
It is not yet clear who is behind this DDoS and we may never know, but these actions seem to have two major purposes:
• Destabilize Bitcoin in general.
It is not a secret Mt.Gox is the largest Bitcoin exchange with more than 80% of all USD trades and more than 70% of all currencies. Mt.Gox is an easy target for anyone that wants to hurt Bitcoin in general.
• Abuse the system for profit.
Attackers wait until the price of Bitcoins reaches a certain value, sell, destabilize the exchange, wait for everybody to panic-sell their Bitcoins, wait for the price to drop to a certain amount, then stop the attack and start buying as much as they can. Repeat this two or three times like we saw over the past few days and they profit.
What can be done?
Believe it or not, there is pretty much nothing that can be done. Large companies are frequently victims of these kinds of attacks. Even though we are using one of the best companies to help us fight against these DDoS attacks, we are still being affected.
There are a few things that we can implement to help fight the attacks, such as disconnecting the trade engine backend from the Internet. By separating the data center from the Mt.Gox website, we will continue to be able to trade.
What can you do?
Like our favorite author here at Tibanne says… Don’t Panic!
“Panic-selling is a wide-scale selling of an investment which causes a sharp decline in prices. Specifically, an investor wants to get out of an investment with little regard of the price obtained. The selling activity is problematic because the investor is selling in reaction to emotion and fear, rather than evaluating the fundamentals.” (Source: Wikipedia)
I understand that many of you have a lot at stake here, but remember that Bitcoin, despite being designed to have its value increase over time, will always be the victim of people trying to abuse the system, or even the value of Bitcoin decreasing occasionally. These are not new phenomena and have been present since the beginning of time when humans first started trading.
Trade Engine Lags
Lag affects everyone, not only us, but also major, world-renowned exchanges like the NASDAQ and NYSE. We can fix lag, but we cannot eradicate lag. Only small exchanges with low volume and liquidity are immune to lag.
Does this mean that we are giving up fighting lag? Hell, no. We are working on it by creating a new trade engine that will solve many problems, but it’s not a magic bullet. We can always try to scale our servers, but we cannot predict what happens from external sources: DDoS, panic selling, immediate increase of buyers, etc. Lag will always be there, but our mission is to make lag as small as possible.
Account Verification
As if a major DDoS attack was not enough, we at Mt.Gox are victim of our own success!
Last year, Mt.Gox saw an average of 9,000 to 10,000 new accounts created every month. This number doubled in January, tripled in February, and sextupled in March. In this month alone (March), over 57,000 new accounts were created!
Our support and account verification team went from four people in January 2012 to twenty-two people working every day of the week. We are now hiring even more people to solve this problem by finalizing some deals with external companies.
Remember that even if you are waiting for your account to be verified, you can still deposit or withdraw funds via our Japanese account and make your trades! (Only accounts that we pro-actively required to be verified are limited to deposits and trade only.)
Finally
We have seen a significant amount of comments on the web (various forums, Reddit, etc.) that portray Mt.Gox as a company held by “idiots” and other rather rude words, complaining about inability to deal with lag and other system issues, without understanding the magnitude of work and attacks we are facing every day.
I understand the frustration many of you feel. We hate this situation as well. Since we took over Mt.Gox, we have been through Hell and back and we are still here. We are still the largest exchange with over 420,000 trades per month and USD $121 million monthly trade volume. We have worked our way through all the requirements needed to run our exchange legally.
Now, there are some things we can improve, but so far we are doing an incredible job that no other exchange has been able to do so far. While I understand a certain amount of frustration, realize what we have accomplished. I appreciate all the work you are doing everyday to push things forward and to help secure the future of Bitcoin.
And to all of you who are supporting us on a daily basis, thank you! We could not have done any of this without your help!
Regards
Mt.Gox Co. Ltd Team.
Mt.Gox Co. Ltd Team.
and....
http://silverdoctors.com/charts-of-the-day-bitcoin-soars-50-in-48-hours-then-crashes/#more-24384
CHART(S) OF THE DAY: BITCOIN SOARS 50% IN 48 HOURS…THEN CRASHES
After soaring in the aftermath of the Cyprus depositors confiscation, Bitcoin has gone parabolic, up over 50% in the past 48 hours to $150…and has subsequently showed signs of a bursting bubble, as it has 
http://www.zerohedge.com/news/2013-04-03/bitcoins-go-parabolic
Bitcoins Go Parabolic
In the last 48 hours, the price of the virtual currency has surged by 50% from $94 to $141 as the rate of expansion goes more than parabolic. This leaves us with the question, which line item on the Fed's Balance Sheet is 'Virtual Currency Transactions'... what better way to destroy an up and coming currency competitor than to blow a bubble in it and explode it?
That is a 14x rise since the start of the year...
http://www.businessinsider.com/why-bitcoin-is-like-no-other-bubble-weve-seen-before-2013-4
Why Bitcoin Is Like No Other Bubble We've Seen Before
We have no idea when the music will stop (it could go to $500 or $1000!) but at some point there will be a moment when it ends in tears, and people will wonder why they paid 40% more for something than what it was selling at the day before.
Here's what's really fascinating and unique about the Bitcoin boom.
This isn't the first time we've seen a bubble in something in a privately created thing that's off traditional financial markets.
For example, in the early 2000s, there was a legitimate bubble in the stuffed animals called Beanie Babies. It's not clear why suddenly people started paying through the nose through them, and why whole industries were created around them, but it happened, and then they died.
In the 90s there was something of a baseball card bubble.
Bitcoin is somewhere in the middle: A privately created financial instrument.
But what sets Bitcoin apart is the real-time data on it.
You can go here and watch Bitcoin trade tick-by-tick, which is not something you could ever do with these other unconventional micro-bubbles.
Meanwhile, the Bitcoin advocates (like all bubble apologists) have great stories (this is a response to Cyprus and wild central banks!) but in reality that's just an excuse. This is a fascination that people have, and the market is incredibly tiny, so it doesn't take too many new people wanting to dabble to make the price go nuts. That's all.
And it's enjoyable watching it in real time.
Bitcoin Currency Tops $1 Billion In Total Value
Digital currency bitcoin continues its remarkable and somewhat inexplicable run. It’s up 152% this month, and today the total value of all outstanding bitcoins topped $1 billion for the first time before settling back down.That’s quite a milestone, considering bitcoin isn’t backed by any real asset or faith in any government. What makes bitcoin so maddening to explain—no, there’s no central bank; yes, it really is just a bunch of people creating money out of thin air—is precisely what makes it so powerful.The estimated margin on “mining,” or creating, new bitcoins has already recovered from December, when the rate at which new bitcoins could be minted was cut in half, part of the currency’s intentionally deflationary design. Anyone, from hobbyists to bankers to thieves, can mine bitcoins, which requires raw computing power dedicated to solving cryptographic puzzles.
http://m.seekingalpha.com/article/1310031
Are Bitcoins Killing Gold's Price?
Mar 31 2013, 6:01 | by Mike the PhD | includes: GLD, ABX, AUY, GG, KGC, NEM
(Note: This article assume some knowledge of the Cyprus Crisis, for more on that issue see my recent article here.)
By now everyone has heard about Cyprus, Italy, and the EU's continuing battle to hold itself together (which frankly reminds me a lot of Sisyphus and his perpetual struggle to roll a boulder up a hill, but that's another story). However, one surprising result of the increased attention to the EU has been the relatively muted response in gold (GLD) and gold miners like Goldcorp (GG), Newmont Mining (NEM), Barrick Gold (ABX), Yamana Gold (AUY), Kingross Gold (KGC), and a herd of other smaller miners.
Historically, gold and to a lesser extent silver and the gold miners have displayed a strong negative correlation with the rest of the market. On some of the worst days in 2008, virtually the only S&P 500 companies in the green were the gold miners. This negative correlation between gold/gold miners and the rest of the market was extremely valuable for investors because it enabled them to easily hedge their portfolio without having to take on short positions. The correlation coefficient between the gold miners and the broader stock market over the last 5 years is -0.68. (See my blog for a further discussion of correlation coefficients over time and using correlations in market hedging). Essentially this just reinforces the casual observation that when the markets are down, gold and the miners are up. OK, so chaos is good for safe haven assets like gold, so what's the problem?
I think there is something else happening to the price of gold; something that isn't yet widely discussed, and which affects the value of gold as an investment asset. Recently, aCNBC reporter was discussing gold and espoused the view that gold is no longer a safe haven asset. Instead, the reporter's view was that gold has become securitized and now deserves to be treated like a common ETF asset rather than a separate store of value. But if this is the case, what are people using as a safe haven asset instead? Well, I'll get to that in a minute, but first let's talk about the recent performance of gold and the miners.
In the last 6-12 months, miners and gold in general have been performing abysmally. Part of this is because the stock market is up, but it is also worth noting that even on down days, miners and gold itself have frequently been down, or at best neutral. For example, Barrick Gold is off 20%+ in the last 3 months, and it hasn't seen any substantial rally even with the increased uncertainty surrounding Europe. Similarly, the correlation coefficient between gold and the markets has come down from around -0.7 to around -0.4 in the last month or so. So what is happening to gold? Is the price just going to keep dropping due to the metal falling out of favor as hedge funds and other investors bailout and return to equities or fixed income?
Well in theory, if inflation rises as the economy recovers, then gold should also start to recover. Most analysts don't see the metal falling much further this year, and some suspect it will rise. For example, Goldman Sachs is forecasting a 2013 price of $1,600/oz, while B of A has a price target of $1,680/oz. Similarly, many analysts are optimistic about the miners with CSFB and S&P both viewing miners like positively.
However, while I think the long run value of gold is probably fine, the metal may have lost some of its value as a safe haven because of a new alternative safe haven currency: Bitcoins. Now before we go any further, let me state clearly and for the record, that I am NOT advocating Bitcoins as an investment. I don't have a view on their value one way or the other, but I do think they are drawing some traditional holders of gold and thus lowering the price of gold.
For those who aren't familiar with Bitcoins, they are an electronic currency that trade completely online. They are not backed by any national government and in theory they have a fixed supply so their value can't be altered by governments or individuals. (That said, I'm not an expert on computer hacking, but it seems conceivable that a clever hacker could go online and "counterfeit" more Bitcoins thus increasing the supply and diminishing their value. Again though, I'm not a computer hacking expert, so I have no idea how feasible that is.)
Bitcoins have been in the news a lot lately as their usage seems to be on the upswing. A couple weeks ago the Associated Press and the BBC reported on a man in Canada who was selling his house and was willing to take Bitcoins in payment. Newsoutles have written stories about the use of Bitcoins by Iranians and North Koreans to avoid sanctions. The U.S. government even began issuing regulations surrounding the trade in Bitcoins and what legal requirements must be followed. With the increase in this type of stories, it shouldn't be a surprise that Bitcoins have increased in value (greater demand, same supply = higher price). However what is noteworthy is that Bitcoins seem to have usurped at least some of gold's status as a safe haven asset around the Cypriot Crisis.
The use of Bitcoins seems to have increased dramatically in Spain, Italy, Greece, Cyprus and elsewhere in Southern Europe over the last two weeks. This is most likely driven by increased concerns about the future value of the euro. Historically, these kinds of concerns would have had investors headed for the safety of gold. Instead, the value of Bitcoins has shot up in relation to the euro. The chart below shows the price of a single Bitcoin in euros. (All charts come from here: The right side axis is the price per Bitcoin, the left side axis is the volume on a given day).
What the chart details is that the value of Bitcoins, and the average transaction volume have both increased dramatically since Cyprus started making headlines. A similar chart for the Japanese yen shows the value of Bitcoins increasing after Abe became Prime Minister and started pushing to reinvigorate the Japanese economy by reversing that country's crippling deflation.
Now, neither of these charts alone is conclusive evidence that Bitcoin prices are responding to economic distress, and certainly there isn't enough data to say with conviction that Bitcoins are becoming even a partial substitute for the massive market in gold. To "prove" either of these things, I would need substantially more data in order to run a battery of multivariate regressions (Again, see my blog for more details on using multivariate regressions in investing). That kind of data simply isn't available at this time.
Instead, my point is simply to advance what I view as a plausible hypothesis: It is possible that Bitcoins are starting to steal some of gold's historic role as a safe haven asset, and if that comes to pass it will be a headwind for the metal and the miners of it going forward. In fact, there is some small possibility that hedging market risks in the future may be done in part with Bitcoins, and that would be a major change from the past with enormous ramifications for markets and monetary policy.
and is bitcoin a mania or being manipulated - to scalp the naive ?
http://www.zerohedge.com/news/2013-04-02/meanwhile-precious-metals-and-virtual-currencies
Meanwhile In Precious Metals And Virtual Currencies...
The old 'new normal' precious metals smackdown has made a few appearances since the Cyprus debacle started but this morning's drop is impressive (given the lack of movement elsewhere) as gold drops back below pre-Cyprus levels. There is one 'currency' that is surging in value though -Bitcoin is now trading at $107.36, up from $46 pre-Cyprus...
Gold is now back below Cyprus levels and Silver has been sliding...
But Bitcoin has been surging (looking somewhat parabolic longer-term)...
Charts: Bloomberg and BitCoinCharts
All of a sudden bitcoin is talked about everywhere.......
All of a sudden bitcoin is talked about everywhere.......
http://www.newyorker.com/online/blogs/elements/2013/04/the-future-of-bitcoin.html?mbid=social_retweet
On March 16th, the Cypriot President Nicos Anastasiades, who’d been in office for about a month, announced a strategy to solve the country’s banking crisis. This plan, which would be funded in part by confiscating money directly from every single bank account in Cyprus—even the very smallest—met with instantaneous and violent opposition from the country’s citizens. Offstage, the European Union, led by a group of adamant Germans, Finns, and Danes, as well as the I.M.F. and the European Central Bank, pointed a cannon at Anastasiades’s head: if he didn’t move forward with this plan, the Cyprus banks would go bust and their hapless customers would lose pretty much all their money, instead of a measly 6.75 per cent. However, under great pressure from their constituents, Cypriot M.P.s rejected the proposal and sent Anastasiades back to the drawing board.
The following Monday, the price of the decentralized electronic currency bitcoin rose from forty-five to fifty-five dollars on the major exchanges, and by Wednesday it had nipped up to sixty-five dollars. The financial media generally agreed that the two dramas are related. According to Bloomberg Businessweek, it appears that Spaniards are liable to have been particularly active buyers of bitcoins that week, having taken the debacle in Cyprus as the likely sign of a forthcoming governmental plunder of their own savings. The evidence coming out of Spain is circumstantial—a spike in Google searches for “bitcoin,” and another on mobile-app downloads of Bitcoin-related software were widely reported—but the pieces appear to fit. Subsequent developments (including the announcement of an eleventh-hour bailout deal for Cyprus) have so far failed to stabilize the euro or cool the bitcoin fever, with the price over a hundred and three at the time of writing.
That a number of panicked Europeans appear to have reckoned the wildly volatile, vulnerable, and tiny bitcoin market a preferable alternative to their own banking system, even temporarily, signals a serious widening of the cracks between the northern and southern E.U. countries in the wake of the euro-zone debt crisis. It also illustrates the broader collapse of trust that is threatening the world of global banking and fiat money.
The weakness in existing currencies stems from lack of faith in institutions—particularly central banks, which are often in league with commercial and investment banks. When a government bails out a failed bank or insurance company—in essence, by printing money—the net effect is that the currency as a whole is debased, in favor of a few and at the literal expense of everyone else, which amounts to a fair description of today’s global financial system. Hence the sudden appeal of bitcoins, which appear, for the moment, at least, to be immune to the machinations of inept or crooked bankers and politicians.
In many ways, bitcoins function essentially like any other currency, and are accepted as payment by a growing number of merchants, both online and in the real world. But they are generated at a predetermined rate by an open-source computer program, which was set in motion in January of 2009. This program produced each one of the nearly eleven million bitcoins in circulation (with a total value just over a billion dollars at the current rate of exchange), and it runs on a massive peer-to-peer network of some twenty thousand independent nodes, which are generally very powerful (and expensive) G.P.U. or ASIC computer systems optimized to compete for new bitcoins. (Standards vary, but there seems to be a consensus forming around Bitcoin, capitalized, for the system, the software, and the network it runs on, and bitcoin, lowercase, for the currency itself.)
Bitcoin releases a twenty-five-coin reward to the first node in the network that succeeds in solving a difficult mathematical problem requiring a certain amount of brute-force computation (known as a proof-of-work calculation.) The solution is then broadcast throughout the network, and competition for a new block and its twenty-five-coin reward begins. (There’s a good rundown of the technical aspects of Bitcoin on the Bitcoin wiki; there’s also a wonderfully pellucid explanation of the proof-of-work angle from Paul Bohm, on Quora.)
At first, anyone armed with an ordinary computer could download and run the Bitcoin software and gather (or “mine”) bitcoins. The more computing power you can dedicate to Bitcoin calculations, though, the better your chances of arriving first at each solution. This feature of the system, by design, resulted in a kind of computational arms race that strengthened the network by rewarding increased computing power. Four years into the Bitcoin project, only very powerful, purpose-built machines have enough muscle to keep pace with existing network nodes.
In this way, bitcoins are mined like gold used to be, in quantities that are small relative to the total supply, so that the supply grows slowly. There is an upper limit of twenty-one million new coins built into the software; the last one is projected to be mined in 2140. After that, it is presumed that there will be enough traffic to keep rewards flowing in the form of transaction fees rather than mining new coins. For now, the bitcoins are initially issued to the miners, but are distributed when miners buy things with them or sell them to non-miners (such as jumpy Spanish bank depositors) who desire an alternative currency. The chain of ownership of every bitcoin in circulation is verified and registered with a timestamp on all twenty thousand network nodes. This prevents double spending, since no coin can be exchanged without the authentication of some twenty thousand independent cyber-witnesses. In order to hack the network, you would have to deceive over half of these computers at the same time, a progressively more difficult task and, even today, a very formidable one.
In 2008, Satoshi Nakamoto, the founder of Bitcoin, whose real identity is not known, cleverly combined existing peer-to-peer network technologies, cryptographic techniques, digital signatures, and the potential power of network effects to design and develop the Bitcoin system. Nakamoto was very clearly motivated in this effort by the fallout from the 2008 financial crisis. When the experiment was launched and the first fifty bitcoins (the so-called genesis block) were mined, in January of 2009, he (or she, or they) included this line of text along with the data: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
Until his disappearance from the Web, around the spring of 2012, Nakamoto was a visible participant on cryptography forums, where he discussed Bitcoin freely, and published a nine-page paper outlining the details of the project. These posts reveal that even in 2008, Nakamoto was able to respond to concerns regarding the scalability of bitcoin with remarkable prescience; he clearly understood the ramp-up of computing power that would be required for producing bitcoins as the system grew.
Only people trying to mine new coins need to run network nodes And at first, most users ran network nodes, but as the network grew beyond a certain point, mining increasingly became the domain of specialists with server farms of specialized hardware.
A casual review of Nakamoto’s various blog posts and bulletin-board comments also confirms that, from the first, Bitcoin was devised as a system for removing the possibility of corruption from the issuance and exchange of currency. Or, to put it another way: rather than trusting in governments, central banks, or other third-party institutions to secure the value of the currency and guarantee transactions, Bitcoin would place its trust in mathematics. At the P2P Foundation, Nakamoto wrote a blog post describing the difference between bitcoin and fiat currency:
[Bitcoin is] completely decentralized, with no central server or trusted parties, because everything is based on crypto proof instead of trust. The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts… With e-currency based on cryptographic proof, without the need to trust a third party middleman, money can be secure and transactions effortless.
Much of what has been written so far about bitcoins has centered on the perceived dangers of their relative anonymity, the irreversibility of transactions, and on the fact that they can be used for money laundering and for criminal dealings, such as buying drugs on the encrypted Web site Silk Road. This fearmongering is a red herring, and has so far prevented the rational evaluation of the potential benefits and shortcomings of crypto-currency.
Cash is also anonymous; it is also used in money laundering and illegal transactions. Like bitcoins, stolen cash is difficult to recover, and a cash transaction can’t readily be traced back to the source. Nor is there immediate recourse for the reversal of transactions, as with credit-card chargebacks or bank refunds when one’s identity has been stolen. However, I find it difficult to believe that anyone who has written critically of the dangers of bitcoin would prefer an economy where private cash transactions are illegal.
Contrary to hysterical media reports, such as this recent video from the Guardian, the Bitcoin-software community is loosely governed not by wild-eyed kids camping out in half-deserted lofts but by what appears to be a rational and sober group of adult administrators who run the Bitcoin Foundation. This organization was modelled on the Linux Foundation, according to Gavin Andresen, who is currently the Bitcoin Foundation’s chief scientist. As the lead developer for the project, Andresen is paid a salary by the Bitcoin Foundation. He has been involved full-time in Bitcoin since the spring of 2011.
Like the Linux Foundation, the Bitcoin Foundation is funded mainly through grants made by for-profit companies, such as the Mt. Gox exchange, Bitinstant, and CoinLab, who depend on the stability and continued maintenance of the underlying open-source code.
“The Linux Foundation provides a bit of a center for Linux, and to pay the lead developer, Linus Torvalds, so that he can do nothing but concentrate on the kernel,” Andresen said. “It’s a tricky thing, once you get to be a certain size as an open-source project, how do you sustain yourself? Linux is the most successful open-source project in the world, so we thought it would make sense to use that as a model.”
Gavin Andresen is one of the few people in the world who are known to have corresponded directly with Satoshi Nakamoto. (Joshua Davis tried to track him down for The New Yorker in 2011.) When I said I’d like to know more about Nakamoto, Andresen burst out laughing.
“So would I!” His laughter had a credibly rueful edge to it.
He was active on the bitcoin forums through December of 2011. He told me he was going to get busy, and then he stopped posting on the forums. A few months later, he disappeared, and as far as I know nobody has heard from him since then.Whenever I corresponded with him, it was always on Bitcoin forums or e-mail, we never even real-time text chatted. He was always very businesslike, no personal details, always strictly about the project.
Indeed, a casual review of Nakamoto’s writings online reveals him to be unfailingly cool and collected; the only time I noticed him becoming a little heated was in a few forum posts in December of 2010, when WikiLeaks supporters began soliciting bitcoin donations for WikiLeaks. Nakamoto rejected the idea unequivocally. According to Andresen,
Satoshi just felt the project was still too small to take that much attention. He didn’t want WikiLeaks to jump in at that point, and they didn’t… but a year later they did, and it was fine. I think people realized once I got invited to speak at the C.I.A. that there was no kind of hiding. They, whoever “they” are, already knew about this project. Satoshi was obviously a lot more private, and more worried about what government would do than I am.
I asked Andresen to explain to me the degree to which he and his colleagues are worried about government interference in Bitcoin.
I think if the U.S. government decided that Bitcoin was a bad thing and told me, “Stop doing what you’re doing,” I’d stop doing what I’m doing, quite frankly. But that wouldn’t be very effective, because there are people all over the world who could pick up and reimplement it, for example in different programming languages; if you browse the Bitcoin forums you’ve seen the enormous chaos and energy there. There’s all sorts of people doing all sorts of things—many of them crazy things that will never succeed, but some of those will be the next big things in Bitcoin.
As it happens, a few days ago, the Financial Crimes Enforcement Network (FinCEN), the federal agency that enforces laws against money laundering, announced new guidelines requiring certain “virtual currency” trading entities to register as Money Services Businesses (M.S.B.s). Though the Bitcoin Foundation’s general counsel, Patrick Murck, was somewhat critical of the new guidelines, this move went a certain distance toward calming Bitcoin speculators and others who’d been worried that the government would take more drastic steps against the mining, transfer, and exchange of bitcoins. Andresen is among those who sees the new FinCEN guidelines as a positive development.
In my opinion, the FinCEN guidance is fantastic news: it gives Bitcoin users and businesses clear rules on how they will or won’t be regulated. It is great for ordinary users, because FinCEN said that using bitcoins to buy products or services is perfectly legal. And, long-term, it is great for businesses, because they now know how FinCEN will classify them and what regulations they must obey here in the U.S.That said, it might cause problems for some smaller U.S. bitcoin-based businesses, who might have been hoping that they wouldn’t be regulated at all. The bigger bitcoin businesses have been anticipating this for a while, so I don’t think it will affect them.
But what about new government regulations that may arise down the road: making it illegal to accept bitcoins as payment, for instance, or outlawing or regulating the exchanges? It might not be so difficult to shut Bitcoin down, and that has to be producing a lot of downward pressure on more widespread acceptance, I suggested.
If you’re asking me what I would expect to happen… I would expect that some country or another will try to do that. You have the same kinds of arguments about the Internet and the free flow of information across the world. And we’ve seen countries like China, that try to either ban the Internet or restrict it. I don’t think you can just hop on the Internet in North Korea.
Nope.
So I’d expect some countries that really want to control their currency, to control transactions, to do the same with bitcoin. The question is whether really big countries—like the United States or France or Russia—decide to do that or not. I don’t think anybody really knows.
A confluence of key factors is responsible for the current spike in bitcoin values—the situation in Cyprus and the recent FinCEN announcement are widely thought to be among them. But perhaps a more important development is that a number of high-profile online businesses, among them WordPress, Reddit, Namecheap, and Mega, have recently begun accepting bitcoins in payment for their services. There are now many thousands of individuals and businesses already doing business in bitcoins. At bitcoinstore.com, you can buy electronics—including cameras, musical instruments, blood-pressure monitors, and computers—using just bitcoins. There are bitcoin-only casinos, like SatoshiBet, and a bitcoin-based Intrade-style prediction market called Bets of Bitcoin. The infrastructure for implementing the storage and exchange of bitcoins, too, is exploding: vendors, exchanges, facilitators of in-hand trades, dealers in bitcoin debit cards. There are systems for producing “paper wallets” that you can print out for the safe storage of bitcoins, and secure e-wallets for those with a tendency to misplace papers.
The physical bitcoins illustrating most every bitcoin story on the Web are available for purchase, too. They are called Casascius coins, and they are sold by Mike Caldwell through his Web site, casascius.com. These coins contain a private key on a card embedded in the coin and sealed with a tamper-evident hologram.
Caldwell, who lives in Utah, owns a payroll-software business and has about thirty employees. He is not affiliated with the Bitcoin Foundation—he is simply an interested and highly informed participant in the bitcoin market. The name Casascius came from the acronym for “call a spade a spade,” with a vaguely Latinized suffix. The widely adopted Bitcoin motto often appears on Casascius coins: “Vires In Numeris,” which is a rough translation into Latin of the English phrase “strength in numbers.” He is a strong believer in the future of Bitcoin, and has been investing in the currency for a long time. He told me, “After the first crash”—in June of 2011—“there was a panic; people heard that one Web site had been hacked, and erroneously assumed that Bitcoin was a failure. I bought all the way down.”
But Caldwell also thinks the road ahead is likely to be a bumpy one.
I believe Bitcoin will have hiccups and issues in the future… scalability limits. And there will be bugs, and times where people experience delays getting their transactions confirmed. These will cause temporary crises of confidence as the developers team up to solve the various issues. But Bitcoin will also evolve and move past them. The day that Hollywood succeeds in using technology to stomp out the music and movie pirates on the Internet, that’s when they’ll stomp out Bitcoin. I think most people know Hollywood will never win. Bitcoin will always win in the long game.
Caldwell used to mine coins himself, but gave it up eventually: “I considered the maintenance too high in opportunity cost for me personally,” he told me. I asked him what, as an ordinary Bitcoin participant, he thought of the new FinCEN regulations. Are they the thin end of the wedge in terms of government interference? How does the “guidance” affect today’s bitcoin miners in practical terms? Will they all have to register as M.S.B.s? He doesn’t regard it as a threat yet.
Since mining yields pocket change for most, even if it were technically a violation of the way FinCEN sees the law, mining without registering would be like “laundering” a twenty-dollar bill by taking it to the grocery store and asking for two tens… it’s hardly worth the resources for anyone to care about it, no matter how illegal they decide it should be.
Where he does see an issue, however, is in the anonymity that is prized by bitcoin adherents.
Mining produces bitcoins that are extremely anonymous. The most anonymous bitcoins you can get, system-wide, are ones you mined yourself. The mined coins have no origin, no history, no nothing. They just appear out of thin air.
This anonymity becomes particularly problematic, from a regulator’s viewpoint, in the context of criminal activity—for example, hacking attacks that succeed in robbing people of their bitcoins:
We will see many more “man in the middle” attacks, and they will cause disruption; there will be times when it becomes possible to hack into a site or get in the middle of a transaction and hijack the payment address, causing people to send an irreversible payment to a criminal instead of who they thought they’d sent it to. Imagine getting a fake but realistic-looking invoice in the postal mail from a real vendor everyone pays (let’s use the electric company for my example), and you are tricked into sending the payment to a criminal’s P.O. box or mailing address. This doesn’t happen much today, because the criminal’s address would attract law enforcement, and so would their depository bank account. But with bitcoin, an address has no identifying quality and is unseizable, so criminals will do this and get away with it, and people are going to learn the hard way that they have to be vigilant about this.
Caldwell’s political views with respect to Bitcoin are connected, like Nakamoto’s, with a belief in the potential value of cryptography. “Until now, society has underutilized cryptography. If people accept it more broadly, cryptography can facilitate many things: the exchange of money, transparent elections, transparent government.”
The common picture of bitcoin users has been that they’re all long-haired anarchists, libertarians, and weirdos who would do away with government entirely, if they could. But in response to a question about his politics, Mike Caldwell had this to say:
I am not an anarchist; I believe in the rule of law and a civilized society. But I also believe that unchecked power is a threat to the common good, and that anything that the public can do to challenge that power is a benefit to society. As an individual, if you accept bitcoin in exchange for your goods or your work, that is a vote for economic fairness.
So is bitcoin going to save the global economy, or is it today’s answer to seventeenth-century tulip mania? Gavin Andresen offered a word of caution.
I still tell people that Bitcoin is an experiment: only invest time or money you can afford to lose, because Bitcoin is still an experiment. The longer it keeps going in the face of volatility and technical glitches happening, the more we’ll know.But trust takes time.
But keep in mind the " Regulators " are in play now......
US Begins Regulating BitCoin, Will Apply "Money Laundering" Rules To Virtual Transactions
- British Pound
- Central Banks
- European Central Bank
- FBI
- Federal Reserve
- Gambling
- M0
- M1
- M2
- M3
- Precious Metals
- Treasury Department
Last November, in an act of sheer monetary desperation, the ECB issued an exhaustive, and quite ridiculous, pamphlet titled "Virtual Currency Schemes" in which it mocked and warned about the "ponziness" of such electronic currencies as BitCoin. Why a central bank would stoop so "low" to even acknowledge what no "self-respecting" (sic) PhD-clad economist would even discuss, drunk and slurring, at cocktail parties, remains a mystery to this day. However, that it did so over fears the official artificial currency of the insolvent continent, the EUR, may be becoming even more "ponzi" than the BitCoins the ECB was warning about, was clear to everyone involved who saw right through the cheap propaganda attempt. Feel free to ask any Cypriot if they would now rather have their money in locked up Euros, or in "ponzi" yet freely transferable, unregulated BitCoins.
For the answer, we present the chart showing the price of BitCoin in EUR terms since the issuance of the ECB's paper:
Therein, sadly, lies the rub.
As central banks have been able to manipulate the price of precious metals for decades, using a countless plethora of blatant and not so blatant trading techniques, whether involving "banging the close", abusing the London AM fix, rehypothecating and leasing out claims on gold to short and re-short the underlying, creating paper gold exposure out of thin air with which to suppress deliverable prices, or simply engaging in any other heretofore unknown illegal activity, the parabolic surge in gold and silver has, at least for the time being - and especially since the infamous, and demoralizing May 1, 2011 silver smackdown- lost its mojo.
But while precious metals have been subject to price manipulation by the legacy establishment, even if ultimately the actual physical currency equivalent asset, its "value" naively expressed in some paper currency, may be in the possession of the beholder, to date no price suppression or regulation schemes of virtual currencies existed.
It was thus only a matter of time before the same establishment was forced to make sure that money leaving the traditional M0/M1/M2/M3 would not go into alternative electronic currency venues, but would instead be used to accelerate the velocity of the money used by the legacy, and quite terminal, monetary system.
After all, what if not pushing savers to spend, spend, spend and thus boost the money in circulation, was the fundamental purpose of the recent collapse in faith in savings held with European banks?
So, as we had long expected, the time when the global Keynesian status quo refocused its attention from paper gold and silver prices, to such "virtual" currencies as BitCoin has finally arrived.
The WSJ reports that, "the U.S. is applying money-laundering rules to "virtual currencies," amid growing concern that new forms of cash bought on the Internet are being used to fund illicit activities. The move means that firms that issue or exchange the increasingly popular online cash will now be regulated in a similar manner as traditional money-order providers such as Western Union Co. They would have new bookkeeping requirementsand mandatory reporting for transactions of more than $10,000. Moreover, firms that receive legal tender in exchange for online currencies or anyone conducting a transaction on someone else's behalf would be subject to new scrutiny, said proponents of Internet currencies.
And just like that, there goes a major part of the allure of all those virtual currencies such as BitCoin that consumers had turned to, and away from such rapidly devaluing units of exchange as the dollar and euro. Because if there was one medium of exchange that was untouched, unregulated, and unmediated by the US government and other authoritarian, despotic regimes around the insolvent "developed world", it was precisely transactions involving BitCoin.
That is no longer the case, as the bloodhound of the Federal Reserve has now turned its attention toward BitCoin, and will not stop until it crashes both its value to end-users, and its utility, in yet another attempt to force the USD, and other fiat, upon global consumers as the only forms of allowed legal tender.
The rising popularity of virtual currencies, while no more than a drop in the bucket of global liquidity, is being fueled by Internet merchants, as well as users' concerns about privacy, jitters about traditional currencies in Europe and the age-old need to move money for illicit purposes.The arm of the Treasury Department that fights money laundering said Monday that the standard federal banking rules aimed at suspicious dollar transfers also apply to firms that issue or exchange money that isn't linked to any government and exists only online.
Naturally, the actual object of US monetary persecution, is BitCoin:
"We are beyond the stage where this was just funny money and a fun online thing. This is used as a currency," said Nicolas Christin, associate director of Carnegie Mellon University's Information Networking Institute.Bitcoins can be used in a host of legitimate transactions—for example, website Reddit allows users to upgrade services using bitcoins and blog service Wordpress.com's store accepts them as a form of payment. Pizzaforcoins.com also lets bitcoin savers pay for deliveries through Domino's and other pizzerias.
The problem with virtual currencies is that defining what is permitted in a narrow regulatory sense, is impossible, which is why any definition will be as broad as possible: after all what better way to spook users than to make virtually any transaction borderline illegal:
Creating clear-cut rules for virtual currencies is difficult. A FinCen official said that anti-money-laundering rules would apply depending on the "factors and circumstances" of each business. The rules don't apply to individuals who simply use virtual currencies to purchase real or virtual goods.The new guidance "clarifies definitions and expectations to ensure that businesses…are aware of their regulatory responsibilities," said Jennifer Shasky Calvery, FinCen director.The FBI report last year said Bitcoin attracts cybercriminals who want to move or steal funds. "Bitcoin might also logically attract money launderers and other criminals who avoid traditional financial systems by using the Internet to conduct global monetary transfers," the report said. An FBI spokeswoman declined to comment when asked about the agency's concerns regarding virtual currencies.
We were not the only ones to expect imminent intervention from Big Brother:
Some firms say they anticipated the rules. Charlie Sherm, chief executive of bitcoin payment processor BitInstant, said his company is already compliant.Mr. Christin of Carnegie Mellon said that he believes Bitcoin's dominant use right now is speculation."When you have a commodity or currency whose value has grown as rapidly as Bitcoin it makes sense to hold on to it as a speculative instrument," he said. It also is commonly used for online black markets or gambling sites. "Whether used for money laundering…there is no smoking gun."
As to the question of timing - why now - the answer is simple. Europe. After all, it was only yesterday that we wrote that "In Spain, The Bitcoin Run Has Started." It is self-explanatory that if such an exodus away from legacy currencies and into BitCoin was left unchecked, more and more people would follow suit, which is why it had to be intercepted as early as possible.
The jump in the bitcoin exchange rate this week also coincides with concerns euros could be taken from retail bank accounts in Cyprus to fund a bailout. Internet blogs say speculators are looking toward currency alternatives.
Well, if internet blogs say... Of course, internet blogs also say that if and when the fascination with virtual currencies fizzles, all those who are disgusted with the abuse of fiat will not cease from seeking USD, EUR, JPY, GBP and CHF alternatives, but will merely go back to the safety of having hard assets as a currency, namely silver and gold, instead of electronic ones and zeroes, which the US government, in all its Orwellian benevolence may one day, for lack of a better word, hack right out of existence.
On the other hand, the regime's desperation is reaching such a level that a Executive Order 6102-type confiscation of all hard asset currencies may not be far behind.
Because forewarned, is forearmed.
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