The European Union Has Issued A Warning About Buying Bitcoin
George Frey/Getty Images/AFP/File
A pile of Bitcoin slugs sit in a box ready to be minted on April 26, 2013 in Sandy, Utah.
"The European Banking Authority (EBA) is issuing this warning to highlight the possible risks you may face when buying, holding or trading virtual currencies such as Bitcoin," a statement said.
The EBA added: "We recommend that, if you buy virtual currencies, you should be fully aware and understand their specific characteristics.
Bitcoin has become a global phenomenon, with the price rising so much that a Norwegian man was able to buy an apartment with some of the 5,000 Bitcoins he bought for just $24 in 2009.
The explosive growth has raised alarm bells, with analysts warning of a potential crash due to a lack of fundamental underpinning.
The EBA urged users to "exercise the same caution with your digital wallet as you would do with your conventional wallet or purse."
The watchdog said people should not keep large amounts of money in their digital wallet for an extended period.
The warning comes as Chinese speculators have seen Bitcoin values plunge, soar and plunge again within days.
China is the world's biggest market for trading Bitcoins, but around $5.0 billion was wiped off the value of the currency's global stock within an hour of an announcement from Beijing's central bank in early December, banning financial institutions from dealing in it.
Bitcoin was invented in the wake of the global financial crisis by a computer scientist using the pseudonym Satoshi Nakamoto. It is based on cryptography and only 21 million units can ever be created, which can be stored either virtually or on a user's hard drive.
It offers a largely anonymous payment system with no centralised structure and transactions are publicly logged in what is known as the "block chain".
Producer Of Physical "Casascius" Bitcoins Is Being Targeted By The Feds
Submitted by Michael Krieger of Liberty Blitzkrieg blog,
Meet Mike Caldwell. He is the maker of what seems to be the most popular physical bitcoins on the market, the Casascius coin. All Mr. Caldwell does is have people who want the coins produced send him a certain quantity of bitcoin and then for a $50 fee he puts the private key on a physical coin and sends them back. For this horrible crime of ingenuity and creativity, the U.S. government naturally, has decided to target him. Because they are too busy ignoring the real financial crimes happening out out there…
From Wired:
Mike Caldwell spent years turning digital currency into physical coins. That may sound like a paradox. But it’s true. He takes bitcoins — the world’s most popular digital currency — and then he mints them here in the physical world. If you added up all the bitcoins Caldwell has minted on behalf of his customers, they would be worth about $82 million.Basically, these physical bitcoins are novelty items. But by moving the digital currency into the physical realm, he also prevents hackers from stealing the stuff via an online attack. Or at least he did. His run as the premiere bitcoin minter may be at an end. Caldwell has been put on notice by the feds.Just before Thanksgiving, he says, he received a letter from the Financial Crimes Enforcement Network, or FINCEN, the arm of the Treasury Department that dictates how the nation’s anti-money-laundering and financial crime regulations are interpreted. According to FINCEN, Caldwell needs to rethink his business. “They considered my activity to be money transmitting,” Caldwell says. And if you want to transmit money, you must first jump through a lot of state and federal regulatory hoops Caldwell hasn’t jumped through.
But HSBC launders billions for Mexican drug cartels and they can continue their operations no problem.
Caldwell doesn’t accept U.S. dollars or any type of fiat currency. You send him bitcoins via the internet, and he sends you back metal coins via the U.S. Postal Service. To spend bitcoins, you need a secret digital key — a string of numbers and letters — and when Caldwell makes the coins, he hides this key behind a tamper-resistant strip.So long as you can keep your Casascius bitcoins safe, nobody can learn the key. To date, Caldwell has minted nearly 90,000 bitcoins in various denominations. That’s worth about $82 million at today’s exchange rate.Because he runs a bitcoin-only business, Caldwell says there’s no Casascius bank account for authorities to seize. But he adds that he has no desire to anger the feds, whether he agrees with them or not. So he’s cranking out his last few orders and talking to his lawyer. He says this may spell the end of Casascius coins. “It’s possible. I haven’t come to a final conclusion,” he says.
What a complete and total joke this government is. Don’t they have anything better to do?
Full article here.
http://www.zerohedge.com/news/2013-12-12/fidelity-bans-ira-bitcoin-investments-days-after-permitting-them
( The policy reversal didn't take long... )
Fidelity Bans IRA Bitcoin Investments Days After Permitting Them
Following what we can only imagine was uproar following our discussion of Fidelity "allowing self-directed IRA holders to 'invest' in Bitcoin,"the company has very quickly reversed policy... As MarketWatch notes,
“On an individual basis, we allowed an investor to invest in that Bitcoin Investment Trust,”said Rob Beauregard, director of public relations at Fidelity, in a telephone interview Thursday morning. “We are no longer allowing that.”
The firm is not commenting on why that was allowed, and added "reviews are going on."
Fidelity Investments is no longer allowing clients to invest in the virtual currency bitcoin through SecondMarket’s Bitcoin Investment Trust, a representative for Fidelity told MarketWatch on Thursday....On Thursday, a Fidelity spokesman told MarketWatch that such investments are no longer allowed. The spokesman couldn’t confirm when or why the policy was changed.“On an individual basis, we allowed an investor to invest in that Bitcoin Investment Trust,” said Rob Beauregard, director of public relations at Fidelity, in a telephone interview Thursday morning. “We are no longer allowing that.”He continued: “We’re not commenting right now on why that was first allowed. There are reviews going on, and we’ll make a decision at a later date. At this time, it is not available on our retail platform.”SecondMarket maintained Thursday that certain Fidelity clients can invest in bitcoin through the Bitcoin Investment Trust. “It is only accredited investors [who] have IRA accounts that are eligible to invest through Fidelity,” SecondMarket’s Silbert said in an email.
http://www.zerohedge.com/news/2013-12-11/fidelity-now-allowing-bitcoins-iras
Fidelity Now Allowing Bitcoins In IRAs
We are sure this will all end well... but asMarketwatch reports, Fidelity has partnered with SecondMarket’s Bitcoin Investment Trust to allow its clients to save for their retirement by putting the virtual currency in self-directed IRAs.
Via Marketwatch,
“If you are a Fidelity client, you can now invest in the Bitcoin Investment Trust through an IRA,” said Barry Silbert, chief executive of SecondMarket, in an interview....MarketWatch previously reported that SecondMarket had teamed up with self-directed IRA providers PENSCO, Entrust and Equity Institutional to allow investors to save for retirement with bitcoin.Fidelity is the largest and most well-known company that SecondMarket has teamed up with for this, Silbert said, adding that he hopes to add a few more providers soon.
How long until other larger pension funds demand access (via mandate changes) to the cryto-currency? This evening's comments from CALSTRS CIO:
- *CALSTRS: `WE ARE UNDERFUNDED' SO NEED CONTRIBUTIONS, RETURNS
- *CALSTRS: TARGETS 7.5% RETURN ANNUALLY OVER 10-YEAR PERIOD
Implies he needs to be "saving" to fund his liabilities in more than simple old stocks...
Is Bitcoin the great white hope for the nation's under-funded pension schemes?
http://www.zerohedge.com/news/2013-12-10/chasing-bitcoin-jpm-preparing-unveil-its-own-electronic-currency
Chase-ing Bitcoin: Is JPM Preparing To Unveil Its Own Electronic Currency?
If you can't beat 'em, join 'em, copy 'em, and then beat 'em. While everyone's attention has been glued to Bitcoin (and its various smaller and less viable for now alternative digital currencies), JPMorgan has submitted a patent which appears to set the scene for a competing centralized network to Bitcoin. As LetsTalkBitcoin noted first, the "Method and system for processing internet payments using the electronic funds transfer network," states that Chase's technology is a "new paradigm." Moreover that it permits the creation of "virtual cash" (also referred to as "web cash") with a "real-time digital exchange of value."
Imagine paying for some product in a transaction directly with the seller that doesn’t include a costly third-party fee or the revelation of a personal account number — the current components that comprise credit card and debit card purchases. Imagine this system with a “real-time digital exchange of value.” And imagine that you can archive all the transactions in a personal digital wallet, with its own “Internet Pay Anyone (IPA)” account and inherent safeguards built-in, something that you could call “Virtual Private Lockbox (VPL),” according to JPMorgan’s patent.If this “web cash” system — as JPMorgan Chase calls it — seems familiar, it should. It smacks of the peer-to-peer transactions of bitcoins and other cryptocurrencies that increasingly are making the world’s biggest banks uneasy about the future of e-commerce.The patent, first revealed by LetsTalkBitcoin.com, is a fascinating look into JPMorgan’s veiled outlook on the evolving but growing bitcoin universe, and other more widely-accepted payment systems.JPMorgan’s proposed system offers another eerily familiar component, which seemingly mimics “blockchain,” a publicly available, permanent ledger of bitcoin transactions....Without naming the virtual currency or any competing payments system by name, the bank takes a swipe at the crytocurrency model.“None of the emerging efforts to date have gotten more than a toehold in the market place and momentum continues to build in favor of credit cards,” according to Chase’s patent application published by The United States Patent and Trademark Office (USPTO). It was filed August 5th, 2013....JPMorgan Chase sees “a new marketplace” emerging for “low dollar, high volume, real-time payments with payment surety for both consumers and producers.”As LetsTalkBitcoin.com points out, “Bitcoin has also been ballyhooed for it use with micro-payments and payments under ten dollars due to its zero to negligible fee structure.”JPMorgan Chase: “The present invention further enables small dollar financial transactions, allows for the creation of ‘web cash’ as well as provides facilities for customer service and record-keeping.”
While naming protocols for these vitual currencies is uncertain, we can't help but think "Dimons" would be appropriate as the web cash becomes increasingly more trusted.
Under The Hood: Internet Pay Anyone“…The structural components to the system of the present invention include:a Payment Portal Processor; a digital Wallet;
an Internet Pay Anyone (IPA) Account;
a Virtual Private Lockbox (VPL);
an Account Reporter;
the existing EFT networks;
and a cash card.“…The Payment Portal Processor (PPP) is a software application that augments any Internet browser with e-commerce capability. The PPP software sits in front of and provides a secure portal for accessing (finking to) the user’s. Demand Deposit Accounts (DDA) and IPA accounts. The PPP enables the user to push electronic credits from its DDA and IPA accounts to any other accounts through the EFT network…”“…The {technology} …includes freely publishing the payment address and making it available to users of an internet portal or search engine…”“…Currently, all Internet transactions use “pull” technology in which a merchant must receive the consumer’s account number (and in some cases PIN number) in order to complete a payment. The payment methods of the present invention conversely use “push” technology in which users (consumers or businesses) push an EFT credit from their IPA or DDA accounts to a merchant’s account, without having to provide their own sensitive account information…”A New Paradigm“…The present invention represents a new paradigm for effectuating electronic payments that leverages existing platforms, conventional payment infrastructures and currently available web-based technology to enable e-commerce in both the virtual and physical marketplace. The concept provides a safe, sound, and secure method that allows users (consumers) to shop on the Internet, pay bills, and pay anyone virtually anywhere, all without the consumer having to share account number information with the payee. Merchants receive immediate payment confirmation through the Electronic Funds Transfer (EFT) network so they can ship their product with confidence that the payment has already been received. The present invention further enables small dollar financial transactions, allows for the creation of “web cash” as well as provides facilities for customer service and record-keeping…”
and the implications:
I view this technology and patent application as an overwhelming good thing. Bitcoin is driving Innovation. It has been said that credit cards and the legacy banking system in use today was never meant for use over the internet. Chase’s updated Internet Pay Anyone technology appears to come head to head with Bitcoin....While it remains to be seen if this technology is a “Bitcoin Killer,” other players such as eBay/PayPal (which have been riding under Bitcoin’s coattails through marketing gimmicks) ought to pay close attention to this emerging technology. If Bitcoin does get a “toehold” in the marketplace, we just might see this technology activated. The Chase is on.
Finally, the patent application itself (source USPTO):
http://letstalkbitcoin.com/jpmorgan-chase-building-bitcoin-killer/
JPMorgan Chase Building Bitcoin-Killer
By BRIAN COHEN – Dec. 9, 2013
Thanksgiving day, while many of us were eating turkey, The United States Patent and Trademark Office (USPTO) published JPMorgan Chase’s (Chase) patent application20130317984, “Method and system for processing internet payments using the electronic funds transfer network.” The application was filed with the USPTO on August 5th, 2013.
Without mentioning Bitcoin or cryptocurrencies at all for that matter, Chase appears to be building a competing centralized network to Bitcoin. The application defines the problems that legacy banking has with online transactions and then provides a detailed explanation how Chase will address these problems with this new technology. The application states that Chase’s technology is a “new paradigm.” Moreover that it permits the creation of “virtual cash” (also referred to as “web cash”) with a “real-time digital exchange of value.”
I will start with extracting the problems that Chase identified which are strikingly similar to those addressed by the revolutionary Bitcoin payment protocol.
Bitcoin has been singled out as a game changer when it comes to the legacy cost of wire transfers:
“…to date, there is no efficient way for consumers to make payments to other consumers using the Internet. All traditional forms of person-to-person exchange include the physical exchange of cash or checks rather than a real-time digital exchange of value. In addition, the high cost of retail wire transfers (i.e., Western Union) is cost prohibitive to a significant portion of society…”
Bitcoin has been hailed as frictionless:
“…Two significant drawbacks with …Internet POS payments are that: 1) a pre-existing relationship between the consumer and the merchant must exist; and 2) the consumer is required to provide the merchant with his or her account and/or PIN. The first drawback of some of the above models cannot be practically overcome as it is impossible for a consumer to have pre-existing relationships with all of the potential merchants conducting business on the Internet….”
Bitcoin has also been ballyhooed for it use with micro-payments and payments under ten dollars due to its zero to negligible fee structure:
“…Although credit and debit cards have emerged as the most popular form of payment over the Internet, there are drawbacks associated with each of these payment types. Notably, each have a relatively high cost that includes a processing fee plus a merchant discount of 1.4% and up. The relatively high fees support the credit card business model. While credit and debit cards may continue to be a viable payment option for merchants selling relatively high ticket items over the Internet, credit and debit cards are not economically viable for purchases of lower cost items. For lower-cost items, the relatively high transaction processing fees plus the discount result in the transaction processing fee consuming a relatively high proportion of the total revenue generated by the product sale…”
No Stranger to Bitcoin
Chase took a swipe (pun intended) at Bitcoin by specifically not mentioning it in the patent application:
“…It is predicted that credit cards will be the dominant on-line point of sale (POS) payment choice for at least the next five years. While new Internet payment mechanisms have been rapidly emerging {Brian’s note: cough…cough…Bitcoin}, consumers and merchants have been happily conducting a growing volume of commerce using basic credit card functionality. None of the emerging efforts to date have gotten more than a toehold in the market place and momentum continues to build in favor of credit cards…”
However, Chase is no stranger to Bitcoin. Chase critic and Bitcoin pundit Max Keiser has been quite outspokenabout his dislike for the legacy institution. Kashmir Hill of Forbes also wrote how Chase bank effectively shuttered the once high flying Bitcoin player Bitinstant in “Bitcoin Companies and Entrepreneurs Can’t Get Bank Accounts:”
“{I}n Hong Kong in April, {BitInstant CEO Charlie} Schrem got notice from Chase that Bitinstant’s account was being suspended immediately…”
Bitcoin causing Friction
For a currency that has been lauded for its frictionless characteristics, Bitcoin sure has been causing a lot a friction over at the legacy banking institutions.
Chase noted in the patent the high cost of Western Union. Over at Bitcoin Magazine we broke the story “Western Union Says Bitcoin Not Ready For Primetime.” Western Union has since pulled the the presentation referenced in the story from their website and have distanced themselves from the cryptocurrency. Bitcoin statistics website Coinometrics recently revealed that Bitcoin has surpassed Western Union in volume and it appears to be catching up with other payment networks. Finally, Bank of America just surprised everyone by releasing a report “Bitcoin: a first assessment,” initiating coverage of the cryptocurrency and noting that “BTC surpasses Western Union in market capitalization.”
Chase is also the largest bank member of the Federal Reserve system (Reference Charter: NAT – Nationally chartered member bank). Said another way, the Federal Reserve has oversight of Chase. The The Federal Reserve Bank of Chicago recently released Chicago Fed Letter: Bitcoin a Primer. And outgoing Fed Chairman Ben Bernanke recently wrote to the U.S. Senate who held hearings on virtual currencies that:
“…In general, the Federal Reserve would only have authority to regulate a virtual currency product if it is issued by, or cleared or settled through, a banking organization that we supervise…”
and further stated that:
“{Bitcoin} may hold long-term promise, particularly if the innovations promote a faster, more secure, and more efficient payment system.”
Recently over at my Blog on Medium, I discussed how MasterCard created a tab based system (think “bar tab”, not “browser tab”) for micro-payments and payments under ten dollars. Through Mastercard Labs’, Mastercard filed for patent application 20130297485, “Crowd-Sourced Credit Rating and Debt Tracking System to Facilitate Small Purchases on Trust Based Credit:”
“…as merchants are charged fees for processing credit/debit card transactions the fee charged can reduce or even outweigh the profit made from the sale, especially in the case of small transactions. As such, many merchants impose a lower bound on credit/debit card transactions, accept credit/debit card transactions and incur a loss, or refuse credit/debit card transactions outright (for example, merchants for whom the majority of transactions are small)…”“…{With this invention the} purchaser can initiate a transaction and instead of paying using a credit card or cash, the consumer can use trust based credit “tab” with the merchant and pay its bill at a later time. Based on this selection, a credit transaction request (identifying the consumer, the merchant and the credit amount) can be transmitted to the system server. In response, the system server can generate a report with the consumer’s credit transaction history and credit profile and transmit the information back to the merchant. The merchant can elect to approve and finalize the credit transaction or decline…”
How It Works
Under The Hood: Internet Pay Anyone
“…The structural components to the system of the present invention include:
- a Payment Portal Processor; a digital Wallet;
- an Internet Pay Anyone (IPA) Account;
- a Virtual Private Lockbox (VPL);
- an Account Reporter;
- the existing EFT networks;
- and a cash card.
“…The Payment Portal Processor (PPP) is a software application that augments any Internet browser with e-commerce capability. The PPP software sits in front of and provides a secure portal for accessing (finking to) the user’s. Demand Deposit Accounts (DDA) and IPA accounts. The PPP enables the user to push electronic credits from its DDA and IPA accounts to any other accounts through the EFT network…”
“…The {technology} …includes freely publishing the payment address and making it available to users of an internet portal or search engine…”
“…Currently, all Internet transactions use “pull” technology in which a merchant must receive the consumer’s account number (and in some cases PIN number) in order to complete a payment. The payment methods of the present invention conversely use “push” technology in which users (consumers or businesses) push an EFT credit from their IPA or DDA accounts to a merchant’s account, without having to provide their own sensitive account information…”
A New Paradigm
“…The present invention represents a new paradigm for effectuating electronic payments that leverages existing platforms, conventional payment infrastructures and currently available web-based technology to enable e-commerce in both the virtual and physical marketplace. The concept provides a safe, sound, and secure method that allows users (consumers) to shop on the Internet, pay bills, and pay anyone virtually anywhere, all without the consumer having to share account number information with the payee. Merchants receive immediate payment confirmation through the Electronic Funds Transfer (EFT) network so they can ship their product with confidence that the payment has already been received. The present invention further enables small dollar financial transactions, allows for the creation of “web cash” as well as provides facilities for customer service and record-keeping…”
Ability to Process Credit Transaction Over Electronic Funds Transfer Network
“…only debit related transactions are currently initiated on the EFT system. The EFT credit message of the present invention thus represent a significant advancement in art which has no peers with respect to electronic commerce…”
Pay Anyone without Traditional Legacy Fees
“… providing the ability for anyone with an account at an institution to transfer funds to anyone else who also has an account at the same or a different institution. The pay anyone feature of the present invention allows parties to electronically transmit funds instantaneously without the expense of today’s wiring fees…”
Eliminates Chargebacks and Significantly Reduces Costs
“…For the merchant, the present invention significantly reduces the transactional cost as compared to the use of credit cards. The method also provides a reduction in fraud and credit losses, while the finality of the transaction virtually eliminates dispute and chargeback processing from the viewpoint of the financial institution. For financial institutions, the present invention all but eliminates the potential of fraud that is inherent with credit card transactions. As consumers are typically only responsible for the first $50 of fraudulent transactions, banks typically absorb the sometimes significant costs associated with fraud. The ability for hackers to steal consumer’s account numbers (e.g., credit card numbers) from an Internet merchant is completely eliminated since the merchant never receives such information…”
Virtual Cash
“…The majority of the prior art electronic Wallets on the Internet today are primarily used as a convenience vehicle, merely providing a method of storing account number information and other form filling functions (e.g., shipping addresses). In contrast to traditional Wallets, the PPP enhanced Wallet of the present invention is associated with one or more DDA and/or IPA accounts. The PPP thus provides the user with a form of virtual cash that is secure and guaranteed. The PPP further contains a receipt feature and archive feature that maintains a transaction history of all payment activity with respect to accounts linked to the PPP…”
“The Payment Portal Processor provides the user with a form of virtual cash that is secure and guaranteed.”
It Has Backbone
The IPA Technology has been in development since at least the year 2000 when 6,609,113 “Method and system for processing internet payments using the electronic funds transfer network” was filed (and subsequently granted) by the USPTO.
The Chase is On
I view this technology and patent application as an overwhelming good thing. Bitcoin is driving Innovation. It has been said that credit cards and the legacy banking system in use today was never meant for use over the internet. Chase’s updated Internet Pay Anyone technology appears to come head to head with Bitcoin. I previously discussed at eCommerceBytes in “How PayPal Almost Liberated Cyprus” how PayPal was the precursor to Bitcoin. While it remains to be seen if this technology is a “Bitcoin Killer,” other players such as eBay/PayPal (which have been riding under Bitcoin’s coattails through marketing gimmicks) ought to pay close attention to this emerging technology. If Bitcoin does get a “toehold” in the marketplace, we just might see this technology activated. The Chase is on.
http://www.zerohedge.com/news/2013-12-10/when-bitcoin-not-hands-bagholder
( Refusal to allow a purchase of 10 BitCoins by Coinbase - price too low at the time ? Would the sale have been okay if the price was $ 1200 ? How about sales ? )
Submitted by Tyler Durden on 12/10/2013 20:02 -0500
( Refusal to allow a purchase of 10 BitCoins by Coinbase - price too low at the time ? Would the sale have been okay if the price was $ 1200 ? How about sales ? )
When Bitcoin Is Not In The Hands Of The Bagholder
If the Bitcoin marketplace is this excited to accept people's fiat - especially those who have not blown up any bailed out banks, traded on SAC-type information, or abused the NAR's exemption from anti-money laundering provisions - one wonders just how is all the buying interest being funded? And also, whatever happened to the no transaction friction pledge surrounding the digital currency? Actually, scratch that: if there are no transactions, there can be no frictions.
Perhaps the delayed response had something to do with a purchase that took place near the bottom of the most recent selloff?
We wonder: is this how Coinbase would feel about selling at the "top" especially if Bitcoin's USD value were to be cut in half in two days, as happened just this past weekend?
http://www.theguardian.com/technology/2013/dec/10/apple-blocks-bitcoin-payments-on-secure-messaging-app-gliph
Apple blocks bitcoin payments on secure messaging app Gliph
Apple asks Gliph to remove the ability to send bitcoin despite allowing other ecommerce including PayPal and Square
Email
Apple has forced a secure messaging app to remove the ability to send bitcoin payments or be booted off the the iOS App Store. The move reinforces belief that the company has an unstated policy against allowing bitcoin apps on the store, despite allowing alternative forms of ecommerce such as apps from PayPal and Square.
The app, Gliph, lets users send secure texts back and forth, and also hooks up with online bitcoin services Coinbase and Blockchain.info to allow them to send money to friends. But that last feature was what raised Apple's ire.
"We were asked by Apple to remove the ability to send Bitcoin from the iOS app," the company's co-founder, Rob Banagale, confirmed in a blog post. "We fought to keep it in but it was not possible… You can still create wallets, view balances and receive Bitcoin in the Gliph app for iOS."
Coinbase itself, one of the two online wallets which Gliph uses to enable the Bitcoin payments, was also forced off the App Store in November, and Blockchain.info's wallet app was pulled from the App store in 2012.
Apple, which declined to comment on the issue, has been giving conflicting reasons to the developers of bitcoin apps. Blockchain were told that "the facilitation of trading of virtual currency is not appropriate for the App Store," a rule which has no counterpart in the company's own App Store guidelines.
Rob Sama, the creator of BitPak, another bitcoin app removed from the iOS store, says that he was told his app was removed because "that Bitcoin thing is not legal in all jurisdictions for which BitPak is for sale".
"I inquired as to which jurisdictions Bitcoin was deemed to be illegal in, and he told me 'that is up to you to figure out'. I asked him which laws Bitcoin violated, and again, he replied that 'that is up to you to determine'," Sama said after his app's demise.
A year before that, Bitcoin Express, an app with similar functionality, was also removed. That time, the app's developer was given a specific rule which was apparently being violated: 22.1 of the company's guidelines, which reads "Apps must comply with all legal requirements in any location where they are made available to users. It is the developer's obligation to understand and conform to all local laws."
The legal status of bitcoin remains hazy, but there is only one country where even making transactions in the currency has been clamped down on: Thailand. The Thai central bank, not knowing how to deal with bitcoin, issued a preliminary ruling in July 2013 which banned the currency until the bank could determine whether it could be used to speculate on the strength of the baht, which is illegal in the country.
Removing bitcoin apps from the store entirely, or curtailing their ability to send bitcoins, goes much further than merely removing them from the Thai App Store, and suggests that Apple considers the use of the currency legally questionable even in nations which haven't pronounced on the issue.
That may be due to bitcoin's long association with the black market – notoriously, the currency is mandatory on drug marketplaces like Silk Road 2.0.. But any payment system can be used for crime; Apple has yet to clamp down on Silicon Valley darlings Square, despite reports that sex workers in California are charging customers using the e-commerce app.
Banagale thinks that Apple's fear is simpler. "If you believe Apple’s repeated rejection criteria of section 22.1, you could take a view that the company believes the currency will ultimately be made illegal in the United States or other important markets. Rather than be forced to remove apps once theoretical regulation comes into play, Apple is simply not allowing them to exist in the first place."
http://www.theguardian.com/technology/2013/dec/09/recovering-stolen-bitcoin-sheep-marketplace-trading-digital-currency-money
Recovering stolen bitcoin: a digital wild goose chase
How the biggest heist in bitcoin history turned into a farcical attempt to retrieve the digital currency
Victims of the biggest theft in bitcoin history tried to put the much vaunted anonymity of the currency to the test as they attempted to recover their stolen money. But instead, they were left out of pocket and with egg on their faces.
In early December, Sheep Marketplace, a site which used bitcoin and the anonymising browser Tor to enable online sales of illicit goods, shut down. The site's administrator reported that a dealer had found a bug in the system which had been exploited to steal 5,400 bitcoins.
But users smelled a rat: they reckoned Sheep had probably been holding far more than that amount, and had returned none of the excess to users.
Former customers of Sheep banded together, and discovered a bitcoin wallet holding 96,000 bitcoins which seemed to be linked to the thefts. At the exchange rate at the time, that was worth a little over $100m.
Follow the money
What happened next was only possible due to the unique features of bitcoin. The money started to be transferred between accounts – and the users followed it.
Bitcoin's approach to privacy differs markedly from the traditional financial system. The conventional privacy model works by strongly linking personal identities to transactions, and then sharing those transactions only with the two parties involved and trusted third parties – normally payment providers such as Visa and Mastercard.
Bitcoin's decentralised nature means that all transactions are necessarily public, because they have to be verified by the peer-to-peer system. To counter that lack of anonymity, the network is designed to separate transitions from identities: users can see that one "wallet" - denoted by a string of random letters and numbers – has sent bitcoins to another wallet (another string of random letters and numbers), but can't easily find out who is behind those strings.
For small transactions, that leaves anonymity largely intact, although there remains a risk that a particular pattern of transactions may render users identifiable; and if someone posts their address publicly, they are no longer anonymous. But when a block of 96,000 bitcoins moves through the network, the public nature of all transactions becomes more difficult to overcome.
One member of the bitcoin subforum on Reddit was particularly tenacious in tracing the money. In a long series of posts on the subforum, "sheeproadreloaded2" detailed the many twists and turns the money took travelling through the systems.
Small bitcoin transactions can be laundered using a "tumbler", which takes money from multiple sources, mixes it all together in one wallet, and spits it out the other side. Someone following the cash sees it get split and recombined over and over, until it's impossible to separate from the money being tumbled by other users.
But that plan falls apart when trying to launder $100m of bitcoin. What the bitcoin thief found was that the sheer quantity of cash they were tying to hide overwhelmed every other transaction being tumbled at the same time: 96,000 bitcoins went in at one end, and 96,000 came out at the other. It seemed like their money had been successfully traced to one final address where it eventually came to rest.
But then, the edifice came tumbling down. Another user on the subforum noticed their own bitcoins being transferred to the same address.
And then the truth dawned: far from being a holding account for the biggest bitcoin theft in history, the wallet was actually part of the internal workings of BTC-E, an exchanges where users can trade bitcoins for conventional currency.
It turned out that for three days, the community had been following not the increasingly desperate attempts of a thief to cover their tracks, but the internal workings of a currency exchange.
Dead ends
At one point, at least, the internet detectives were on the right track. Sheep Marketplace really did shut down, and bitcoins were stolen. But rather than play a shell game to try and keep the money hidden, the thief appears to have done what any normal person would have: traded the digital currency for real money at the earliest opportunity.
It's not the first time a bitcoin exchange has had its internal workings thrust into the spotlight. In November, a 190,000 bitcoin transfer (then worth $147m) made the press as the largest in history. Speculation abounded as to who had moved the money, with the Zuckerberg-bothering, bitcoin-investing Winklevoss twins and the currency's mysterious creator Satoshi Nakamoto both being named as possibilities.
But in reality that transaction was probably just the result of Bitstamp, a popular exchange, shuffling its own funds: most of the money came from accounts known to be used by the exchange, and ended back in similar accounts later on.
Nor is it the first time a crowd-sourced manhunt on Reddit has gone awry. The site has such problems with its user base attempting to track down wrongdoers that it enforces a rule against posting personal information – known as doxxing – more thoroughly than practically any other rule it maintains.
Even that didn't prevent users wrongly accusing Sunil Tripathi, a missing student from Brown University, of being the Boston Bomber in April this year. Tripathi was cleared when the names of Tamerlan and Dzhokhar Tsarnaev were released, but that wasn't in time to stop vigilates vandalising a memorial Facebook page and "informing" his family that he was a terrorist. Tripathi was found dead a week after the bombs went off.
When it comes to Sheep Marketplace, the crowd is still working through the information. They think they've found the former moderator of the site, who has given an interview to the Czech Republic's biggest newspaper in an attempt to clear his name, and behind the scenes some users are trying to see if there are any other loose ends in the block chain.
Sheeproadreloaded2 has left the scene, refusing to accept that they were wrong: "You all stop [the thief] becoming the richest man in Europe in 20 years. I'm going home. I'm tired, I've got no milk in the fridge,and I need to go back to my day job of driving about in a van, solving mysteries. I think bitcoin is real, because I sell it. Most of you only buy it and change it into weed. It's the sort of money which not only buys political power - its enough to bend the fabric of space/time itself."
For the most part, though, things are back to normal. The second top post on the dying subforum is a review of some MDMA shipped by a vendor who moved to the Silk Road. "It just misses the mark as the best MDMA I have ever used… For the price, you can't beat it."
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