New JPMorgan Report Weighs in on Bitcoin’s Mt. Gox Problem
Just weeks after JPMorgan released its first report on bitcoin, the US-based multinational financial services company has weighed in on ongoing issues related to major bitcoin exchange Mt. Gox.
Authored by the company’s head of global FX strategy, John Normand, the new one-page report – available publicly to JPMorgan’s clients – draws comparisons between bitcoin exchangesand traditional central banks.
Perhaps, most notably, Norman addressed the inability of Mt. Gox customers to transfer funds to third parties, writing:
He added: “From a corporate or investor perspective, an exchange control is any restriction which limits financial transfers or imposes a different exchange rate for certain transactions.”
Normand’s original report concluded that though bitcoin had some benefits, certain issues – including its price volatility and the lack of a central authority – would limit its usefulness for merchants, investors and consumers.
The latest report, while also critical of bitcoin, indicates interest in digital currencies remains at JPMorgan and that Normand’s report is not simply a one-off project.
The Mt. Gox saga
The report did pay particular attention to the ongoing Mt. Gox “saga”, ultimately concluding that recent events show virtual currencies can give rise to two-tier markets and convertibility risks.
JPMorgan spoke broadly about the challenges experienced by Bitstamp, BTC-eand Mt. Gox, and suggested that the DDoS attacks faced by the companies amounted to a “security breach”, though no bitcoins or customer personal information has been compromised by the attack.
It correctly noted that two exchanges have restarted transfers, and that Mt. Gox plans to do so.
Price volatility
Norman indicated that the current data shows prices are depressed across all exchanges because of the ongoing issues with Mt. Gox, and that this has lead to below-average trading volumes. Furthermore, he added that prices are likely down due to the belief Mt. Gox bitcoins will be later sold on other exchanges, potentially impacting the market.
The author credited this decline as “reflecting some discomfort with broader market architecture”, a claim that is given credence by the many reddit threadsdevoted to speculating on the company’s future as well as the future of the bitcoins still in its exchange.
Such speculation was likely heightened by CEO Mark Karpeles’ decision to step down from the Bitcoin Foundation board.
An optimistic conclusion?
Though Normand suggests his opinion differs, he did indicate it was possible to view the events at Mt. Gox in a positive light for bitcoin, saying:
Still, Normand suggested that he believes the events are proof virtual currencies will require intermediaries, and therefore not be able to deliver the sweeping cost savings they currently provide in the absence of such financial networks in the future.
“From that perspective, it will be difficult to ensure than virtual currencies deliver frictionless exchange as they evolve over time,” he concluded.
New JPMorgan Report Weighs in on Bitcoin’s Mt. Gox Problem
Just weeks after JPMorgan released its first report on bitcoin, the US-based multinational financial services company has weighed in on ongoing issues related to major bitcoin exchange Mt. Gox.
Authored by the company’s head of global FX strategy, John Normand, the new one-page report – available publicly to JPMorgan’s clients – draws comparisons between bitcoin exchangesand traditional central banks.
Perhaps, most notably, Norman addressed the inability of Mt. Gox customers to transfer funds to third parties, writing:
He added: “From a corporate or investor perspective, an exchange control is any restriction which limits financial transfers or imposes a different exchange rate for certain transactions.”
Normand’s original report concluded that though bitcoin had some benefits, certain issues – including its price volatility and the lack of a central authority – would limit its usefulness for merchants, investors and consumers.
The latest report, while also critical of bitcoin, indicates interest in digital currencies remains at JPMorgan and that Normand’s report is not simply a one-off project.
The Mt. Gox saga
The report did pay particular attention to the ongoing Mt. Gox “saga”, ultimately concluding that recent events show virtual currencies can give rise to two-tier markets and convertibility risks.
JPMorgan spoke broadly about the challenges experienced by Bitstamp, BTC-eand Mt. Gox, and suggested that the DDoS attacks faced by the companies amounted to a “security breach”, though no bitcoins or customer personal information has been compromised by the attack.
It correctly noted that two exchanges have restarted transfers, and that Mt. Gox plans to do so.
Price volatility
Norman indicated that the current data shows prices are depressed across all exchanges because of the ongoing issues with Mt. Gox, and that this has lead to below-average trading volumes. Furthermore, he added that prices are likely down due to the belief Mt. Gox bitcoins will be later sold on other exchanges, potentially impacting the market.
The author credited this decline as “reflecting some discomfort with broader market architecture”, a claim that is given credence by the many reddit threadsdevoted to speculating on the company’s future as well as the future of the bitcoins still in its exchange.
Such speculation was likely heightened by CEO Mark Karpeles’ decision to step down from the Bitcoin Foundation board.
An optimistic conclusion?
Though Normand suggests his opinion differs, he did indicate it was possible to view the events at Mt. Gox in a positive light for bitcoin, saying:
Still, Normand suggested that he believes the events are proof virtual currencies will require intermediaries, and therefore not be able to deliver the sweeping cost savings they currently provide in the absence of such financial networks in the future.
“From that perspective, it will be difficult to ensure than virtual currencies deliver frictionless exchange as they evolve over time,” he concluded.
Japan’s Top Regulators Suggest Mt. Gox Intervention Unlikely
With no timeline issued yet from Mt. Gox as to when it will once again allow the transfer of funds to third-party services – and signs of communication from the notoriously tight-lipped Japan-based companyappearing less likely, the exchange’s global customers began to turn to Japanese financial authorities on Monday for potential recourse.
However, the country’s financial authorities are reportedly distancing themselves from any potential responsibility, should the troubled exchange default on its service obligations.
The Wall Street Journal reported 24th February that Japan’s Financial Services Agency (FSA), which oversees the country’s banking, insurance, securities and exchange sectors, does not view the supervision of digital currency exchanges as part of its obligations.
Speaking to the Journal, representatives from the FSA said:
The news comes just hours after CEO Mark Karpeles resigned from the board of directors at Bitcoin Foundation, a move that caused a modest price recovery occurring on the network to stutter, and amid increasingly vocal protests from users.
Major financial agencies follow
While the news from the FSA is undoubtedly disheartening for exchange users, other government and private entities could still step in to provided relief if and when it’s needed. Though, many of these organisations are currently taking a similar position as the FSA.
The Journal revealed that Bank of Japan, Japan’s central bank, has stated it is “not in a position” to regulate bitcoin exchanges. Likewise, Japan’s Ministry of Finance, a cabinet-level government financial entity, adopted a similar sentiment in correspondences with the media outlet.
The Ministry of Internal Affairs and Communications, which has jurisdiction over IT issues, was less clear in its stance, saying.
The future of Mt. Gox
Despite the fact that Mt. Gox had previously suggested a relationship with the FSA, the agency told the report it has not issued the troubled exchange any operational advice in recent weeks, suggesting that intervention in the event of its potential failure is unlikely.
Still, despite the fact that fear of a Mt. Gox default is spreading, sources close to Mt. Gox suggest that the exchange may be near a solution.
Former BitInstant CEO Charlie Shrem indicated on reddit today that “good news [is] on the horizon for people who have funds stuck in MtGox”, though he did not elaborate on the announcement.
Bitcoin Prices Slide After Mt.Gox CEO Resigns From Foundation Board
Submitted by Tyler Durden on 02/23/2014 23:42 -0500
In what appears yet another straw on the camel's back of Mt.Gox (following the re-freeze of account withdrawals), the Bitcoin Foundationthis evening reported that:
"effective immediately, Mt. Gox has submitted their resignation from the board of directors."
Bitcoin prices on the dying exchange tumbled on the announcement after quite an extreme volatility day - which saw prices swing from $151 to $239 and then down to $190 on the news.
Mt. Gox Resigns Bitcoin Foundation Board SeatJon Matonis Feb 23 2014Effective immediately, Mt. Gox has submitted their resignation from the board of directors. We are grateful for their early and valuable contributions as a founding member in launching the Bitcoin Foundation. MtGox Co. Ltd. (Japan) held one of the three elected industry member seats.Further details, including election procedures, will be forthcoming.
There is still no further updates on when Mt. Gox will resume withdrawals.
This is the second time in recent months that a senior Bitcoin Foundation member and Board Member has resigned from the position under a cloud. BitInstant CEO Charlie Shrem, who was the Board’s vice chairman, also resigned in late January after his arrest over allegations of money laundering.
Mt. Gox CEO Mark Karpeles Resigns from Bitcoin Foundation Board
Published on February 24, 2014 at 04:14 GMT | Bitcoin Foundation,Companies, Exchanges, Mt. Gox, News
Mt. Gox CEO Mark Karpeles has resigned from his position as a board member with the Bitcoin Foundation.
The Foundation posted this announcement on its blog today at 3:30AM GMT:
“Effective immediately, Mark Karpeles has submitted his resignation from the board of directors. We are grateful for his early and valuable contributions as a founding member in launching the Bitcoin Foundation.”
“As CEO of MtGox Co. Ltd. (Japan), he held one of the three elected industry member seats. Further details, including election procedures, will be forthcoming.”
No updates, tweets gone
There has still been no notice since 20th February as to when and if Mt. Gox will resume bitcoin withdrawals for its users. While there were reports of tests and customers receiving withdrawals over the weekend, the company had not made any formal announcement on the issue at the time of writing.
In a move that may unsettle users, Mt. Gox has also deleted all posts from its official Twitter feed.
The price of bitcoin on Mt. Gox also rose from its sub-$100 level on Friday to more than $300 by the end of Sunday. It fell from around $250 to $220 in the hours after the announcement was posted.
Membership issues
Mt. Gox is also one of only two Bitcoin Foundation Gold Members, the second-highest tier of membership (Circle is the other Gold Member and BitcoinStore is a Platinum Member). Despite resigning from the board, Karpeles remains a Founding Member of the Foundation and Mt. Gox’s industry membership is still valid. There have been no formal requests to remove these memberships.
There had been some hand-wringing at the Foundation and its online forums over what sort of action, if any, it should take against Karpeles and Mt. Gox, and there was also a petition at Change.org to remove Karpeles from his Board position.
Other senior Foundation members defended him as a Founding Member and Mt. Gox for its support of bitcoin over the years, saying neither should be removed forcibly but that Karpeles could always resign for personal reasons if he felt it necessary.
Still functioning
Neither Mt. Gox nor its management have been formally accused of any criminal activity, staff continue to work at the office daily and the company claims to be working hard to fix its technical problems.
Both have, however, come under strong criticism from several angles recently first for suspending withdrawals, then for damaging bitcoin’s public image by blaming a long-known transaction malleability issue in the bitcoin protocol for the problem.
There has also been a general lack of communication with customers – many of whom have large sums of money locked in the exchange – and the value of bitcoin on other exchanges has fallen from over $930 on 11th January to less than $600 since Gox announced its “temporary pause” on 7th February.
Mt. Gox has long had issues with withdrawals for US-resident customers, a problem that was often blamed on banking issues and account seizures by US authorities.
This is the second time in recent months that a senior Bitcoin Foundation member and Board Member has resigned from the position under a cloud. BitInstant CEO Charlie Shrem, who was the Board’s vice chairman, also resigned in late January after his arrest over allegations of money laundering.
Bitcoin Core Development Falling Behind, Warns BitcoinJ’s Mike Hearn
Published on February 24, 2014 at 05:57 GMT | Analysis, Bitcoin protocol, Technology, Wallets
Say what you like about Google, but it isn’t an easy place to get hired at. The entrance interviews are notoriously tough, and it is a highly desired employer – which makes Mike Hearn’s departure all the more notable.
Hearn is an expert in low-level software development, who worked as a site reliability engineer at Google, and focused on account security and antispam. He has also been one of the leading lights in the bitcoin community, heading up the open source development team for bitcoinj, which is the Java implementation of the bitcoin protocol.
He is leaving in part because of his growing interest in and commitment to bitcoin. Hearn sees a challenge ahead for the virtual currency: the core development team is shrinking.
Honey, I shrunk the team
“The long tail has grown longer, but the heavy lifting and design work has been done by a handful of people. That’s quite concerning,” says Hearn, highlighting a few key players on the team. He uses the team’s page on Github, the open source code repository on which Github is hosted, to see who’s most heavily involved.
Gavin Andresen, the lead developer, is an obvious mainstay. Others include Philip Kaufmann, who does a lot of GUI development. Wladimir J. van der Laan also works on the front end.
But then, that’s a general problem with open source projects. Most people are not paid, meaning that participation can be patchy, and burnout rates can be high. Andresen is paid a salary by the Bitcoin Foundation, and Jeff Garzik, another programmer who has been heavily involved with core development, is in his first year at crypto currency payment processor BitPay, which has allowed him to focus at least partly on the protocol.
Quality, not quantity
Garzik says that Hearn has long been worried about team size, but says it’s overemphasized. And statistics on Github may not be the easiest way to assess what’s happening.
Open source projects are a question of quality, not quantity, says Garzik. For example, some of the most important features for bitcoin develop over months, meaning that their activity won’t show up in the Git data.
He gives Gregory Maxwell as an example. Maxwell has ‘commit access’ on Github, which enables him to push in code changes.
Garzik has also been busy behind the scenes, he says, coding contributions outside the core bitcoin project.
But the fact still remains that bitcoin is going through a revolution. Engineers used to rule the bitcoin world, but since then, the money has moved in, and agendas have changed.
Barry Silbert, head of the Bitcoin Investment Trust, has predicted that we are entering the third phase of development, with venture capital companies piling in. Institutional investors on Wall Street won’t be far behind, he has said. With hundreds of millions of dollars now piling into the bitcoin economy, can the current development approach keep up?
It would help if some of them gave something back, complains Garzik. “In general, I am disappointed at the large number of bitcoin companies that contribute nothing back to the original open source project, the software that runs the network we all use.
Last week, Gavin Andresen implied as much in a missive on the bitcoin mailing list, when he told companies using the bitcoin core not to treat the core development team “as if we were a commercial company that sold you a software library”.
Hearn agrees, and adds that companies can fall foul of technical changes if they don’t stay actively involved in helping with core development.
“The fact that Gox was unaware of malleability entirely and then blamed the bitcoin software is perhaps a good example of a company that treated bitcoin as if it was a perfect black box, and became so disconnected they weren’t even reading the mailing lists or release notes,” he says.
Key developments
In the meantime, Hearn says, enhanced payments are one of the main thrusts for bitcoin development. This added feature, destined for the bitcoin client software rather than the core protocol, have been on the table for a while, but haven’t yet made it into a release. They promise an easier way to make payments than dealing with long addresses, and they will also include support for memos.
Some people have also been working on subscription billing in the payment protocol, he says – this feature is badly needed in bitcoin. There has been some initial design work on this, which he would like to see turned into working code.
Smart transaction fees are also high on the agenda. Transaction fees today are not dynamic enough, he says. Instead, they are based on a set of arbitrary rules set by a core development team. This needs to be changed, (and is).
Smart fees are an attempt to make the fees float, and to formalise some of the rules about when fees are paid, explains Hearn.
“It’s not very dynamic today. It’s just some magic numbers chosen by Gavin and so on. It’s very inflexible. The bitcoin dollar price moves, but the fees don’t. “And the second problem is that it’s centralized, because they’re just some magic numbers chosen by the developers, which is not very feasible in the long run.”
This didn’t make it into the latest version of the core protocol, however, which Hearn takes as another example of lag in a resource-constrained project, while the commercial bitcoin community powers ahead.
A new kind of wallet
There are other developments afoot in the bitcoin community, too. Hearn is busy implementing hierarchical deterministic (HD) wallets in bitcoinj.
Traditionally, bitcoin wallets are designed to generate completely random addresses, encrypting the private keys for the user. These addresses are impossible to remember, and so the bitcoin wallet must be backed up frequently. Each backup includes all of the key pairs.
Instead, HD wallets use a single random number (also known as the extended address, or the seed), which can be written down as a series of twelve words. The wallet can then use a standard algorithm to derive many public keys from the seed, in the form of a tree.
This carries several benefits, including the ability to share a wallet between different devices. The tree structure also allows the seed’s owner to share some groups of addresses derived from the tree, but not others.
The HD wallet standard was finalized at the Bitcoin Conference last May, and Hearn hopes to have the bitcoinj integration completed in March. The mathematics are complete, he says. The tough part is integrating it into the bitcoinj software itself.
One of the challenges with HD wallets is privacy. Simply branching from an extended address means that anyone can iterate their way through all of the possible addresses in the tree, meaning that they could tell which payments had been made to or from any of them.
Hearn raises an alternative posited by Peter Todd, called stealth addresses. These allow you to distribute one address that can be used to generate new ones, but makes it impossible for people to make a connection between them.
“It’s not really clear to me that this is going to work in its current form because it’s not really compatible with lightweight wallets, at least in the form that it’s been proposed” he says. However, it’s still in the design stage, so this may change in the future.
Other developments include the use of the Tor network by default in bitcoinj. Traffic sent through Tor is encrypted most of the way. he would like to see this happen by the end of March, when he is back from his vacation.
When that vacation ends, Hearn has something else up his sleeve. He’ll announce it shortly, and CoinDesk will be there to cover it.
No comments:
Post a Comment