Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Monday, March 17, 2014
Bitcoin news March 17 , 2014 - Regulatory statements and related actions -- China ( Temporary QR Code Ban ) , South Africa and Germany ( Bundesbank member comment ) , investment fron ( Bitstamp item ) , Blockchain.info Is Down For Unscheduled Maintenance, Due To Issue With Database
The People’s Bank of China (PBOC) has placed a temporary ban on payments made by scanning quick-response (QR) codes with mobile devices.
The move by China’s central bank, which was announced on 14th March, is aimed at stopping, at least for the moment, the upcoming launch of ‘virtual credit cards’ by major Internet companies.
Alibaba, China’s leading e-commerce company, and Tencent, a popular Internet platform hosting social and mobile services, recently announced that they would seek to launch such virtual credit cards – which will utilize QR codes – as an alternative to traditional credit cards.
The PBOC cited security concerns as the reason for the decision. Both Alibaba and Tencent are currently communicating with the PBOC in the hopes of getting the green light for the launch of the services. However, reports suggest the companies are facing substantial hurdles in their deliberations.
Estimates suggest that Alipay processes around $660bn in payments annually from roughly 300 million users, while Tenpay has more than 100 million users and has gained significant ground in 2013 and 2014.
Although the halt in payments using such technology was not aimed at bitcoin or other digital currencies, QR codes remain an active part of the bitcoin peer-to-peer and customer-to-merchant transaction process globally.
As such, many in the digital currency community have debated whether such measures, if prolonged permanently, would have a positive or negative impact on bitcoin users.
Impact on bitcoin
Due to continued uncertainty about bitcoin’s use in China, some in the community were troubled by the news. Reddit message boards debated such topics as whether digital currency exchanges would be targeted for similar reasons, though others maintained that due to bitcoin’s decentralized nature, China could do little to stop overall use.
Eric Gu, co-founder of BitAngelsClub, indicated that he sees the move as a troubling attempt to turn the clocks back on recent innovation in the financial services sector, and that it signals future concerns for bitcoin and other digital currencies.
“As a hardcore bitcoiner I am deeply troubled by the news, I think it is back paddling from the Internet financial innovations in recent years, and the probability is much higher for the central bank to release tougher regulations against bitcoin.”
Bobby Lee, CEO of BTC China, however, disagrees, telling CoinDesk that the measures “won’t really affect the bitcoin industry in China”, adding that this is because the ecosystem itself remains underdeveloped.
“Down the road, if bitcoin payments were to be made available in China, it would also very likely be affected by this disallowance of QR code payments. We are still far from that today.”
QR code risks
With many watching the events closely, there has been new interest in the PBOC’s claims regarding QR code security.
Still, awareness of the risks, and the ways to protect against them, arguably remains low among those looking to take advantage of the system’s benefits.
On 17th March, the PBOC revealed that it may enact regulations that severely limit the ability of Internet companies to conduct financial services, barring them from all offline transactions.
The bank is also considering restrictive new caps on the kinds of payments that Alipay and Tenpay, the top emerging alternatives to China UnionPay, can transact. This includes setting a per-transaction limit of 1,000 RMB ($163), and a 10,000 RMB ($1,630) limit on annual spending for individual accountholders.
UnionPay, the world’s largest card issuer, has been described as having a “virtual monopoly” on bankcard services in China, and is in the process of expanding its reach internationally.
Though the QR code halt may only be temporary, these moves signal that the PBOC is looking to restrict the growth of new, technology-enabled payment services. This could ultimately mean more hurdles are likely to arise for Alibaba and Tencent, as well as for alternative technologies such as bitcoin and related businesses.
CoinDesk will continue to monitor this developing story.
Bundesbank Board Member Warns Against ‘Highly Speculative’ Bitcoin
Deutsche Bundesbank board member Carl-Ludwig Thiele has issued his second warning on bitcoin this year.
In an interview with the Frankfurter Allgemeine Zeitung published on Sunday, Thiele reiterated his position that bitcoins are not a means of payment, but are instead a highly speculative financial tool.
He pointed to several high-profile bitcoin heists over the last few weeks to back up his statements, German financial magazine Handelsblatt reports.
Thiele also talked about volatility, which is perhaps hardly surprising, since the price of bitcoin has dropped by almost half since he made his original statementin early January.
He further said that such volatility can undermine the seemingly cheaper online payments offered by bitcoin payment processors:
“Bitcoin users often assume that Internet payments with bitcoin are cheaper than international bank transfers or paying with a credit card. They forget, however, that the price of bitcoins fluctuates greatly, among other things. Ultimately, the losses can quickly become considerably higher than transfer or credit card fees.”
Call for regulation
Thiele pointed out that digital currencies are a relatively recent phenomenon and that there is no regulatory framework that can deal with them. He added that the Bundesbank’s Executive Board would like to see an appropriate way of dealing with them internationally.
Such regulations that exist are not harmonised, he said, and different states have different laws, or different ways of interpreting and applying them to digital currencies.
Thiele added that discussion about digital currencies among EU regulators is still in the early stages and that the European Banking Authority has formed a workgroup tasked with looking at digital currencies.
Today’s warning is not Thiele’s first. Back in January, Thiele told Handelsblatt that bitcoins are a highly speculative investment and pointed out that European regulators have not taken any concrete steps to regulate digital currencies.
Thiele said the price of digital currencies is not being driven by fundamentals – a factor that breeds volatility. He also warned that there is simply no guarantee investors will be able to exchange their bitcoins in the future, adding that the Bundesbank has “warned emphatically” against these risks.
Previously, in December 2013, Bundesbank President Jens Weidmann said that bitcoin is not an alternative to national currencies and that the driving factor behind demand for bitcoin is a purely speculative hope of big payouts for investors.
While the EU has done little to address digital currencies, regulators in some parts of the world are a bit more proactive.
New York State is at the forefront of the regulatory push. Last week the state started accepting applications for digital currency exchanges, which will be regulated under new state legislation that is expected to be enacted by the end of the second quarter of 2014.
Bitstamp Got $10m From Fortress-Linked Hedge Fund Last Year: Bloomberg
The money came from Pantera Capital Management LP, “the hedge fund that manages money forFortress Investment Group LLC (FIG) executives”, Bloomberg said. If true, it would be one of the largest single investments in a bitcoin-related business to date.
Bitstamp has been a huge beneficiary of the collapse of Mt. Gox, multiplying its share of dollar trades by up to 50% since February. It now has at least 35% of the total bitcoin trade market share, according to bitcoincharts.
Pantera’s path to investment was led by founder Dan Morehead, who took about 30 bitcoin entrepreneurs to Lake Tahoe in October last year to discuss his vision, among them Bitstamp CEO Nejc Kodric. Soon after that, Pantera formed a $147m fund called Pantera Bitcoin Advisors and a principal at Fortress, Michael Novogratz, called Morehead “our man when it comes to bitcoin”.
When CoinDesk asked Kodric whether Bloomberg’s report was accurate, he merely said: “No comment”.
Bloomberg’s story highlighted the incredible potential of this and future link-ups between Wall Street and Silicon Valley, as expertise in finance met technological excellence. Funds like Pantera’s had the power to lift bitcoin businesses from startup obscurity into the big time.
“Finance people are now recognizing the force multiplier of combining their deep knowledge of finance with new, possibly game-changing technologies,” said Chris Larsen, CEO of Ripple Labs.
Pantera also contributed a portion of Ripple Labs’ recent $9m funding round, along with Google and Lightspeed Ventures.
Pantera hasn’t commented on this week’s revelations, made by three people who knew of the deal, and the new fund has stayed quiet about other intentions and big deals.
Bitcoin startups, taking a lead from Silicon Valley startups, have appealed more to tech venture capitalists and corporations for their big break. They will probably in future pay extra attention to very deep-pocketed Wall Street players. Wall Street, in turn, will demand a new breed of financially-focused and compliance-willing management teams to match its own involvement.
“A group like that should be able to deliver the kinds of relationships that startups need. I’d take Pantera over a lot of other firms,” said Brock Pierce, a California VC.
Bitstamp is UK-registered but reportedly has most operations in Slovenia. It was founded in 2011 by Kodric and Damijan Merlak. Since then it has established a reputation for stability and good management, and has an advantage in its location in the European Union with its integrated money transfer system.
It has always been compliant with financial regulations and users must have verified identification, something that has become more or less standard at bitcoin exchanges around the world, especially the current crop of new startups in Asia.
Update: Blockchain.info has stated that the issue is a database one, and the site would not be back online for at least several hours.
It all started earlier today when Redditor /u/obione88 posted to /r/Bitcoin about a Shared Coin Transaction Error. Blockchain.info staff on Reddit promptly responded to the post. Additionally, they announced that the SharedCoin feature would be taken offline while they investigated.
We have temporarily suspended Shared Coin transactions while investigating some transactions that are “stuck”. The particular transaction in question is https://blockchain.info/tx-index/115315411/10. Rebroadcasting this transaction in bitcoind results in Error code -22.
At 1:14 CDT, Blockchain.info updated both their blog post and their official twitter account to announce that
“Shared Coin has been re-enabled.”
Less than half an hour after said announcement, at 1:35 PM, Blockchain.info posted to twitter announcing that they would be back shortly.
On Blockchain.info, this page currently stands with a link to the Twitter account as explanation:
Blockchain.info’s wallet is now inaccessible to thousands of users around the world. The Blockchain blog which originally had updates on the SharedCoin’s temporary suspension has not been updated. While I have the utmost faith that Blockchain.info will be back within a few hours with a full explanation, some Bitcoiners think otherwise.
Up until a few months ago, Blockchain.info only had an in-house Shared Send functionality that allowed users to “Route transactions through a shared wallet breaking the chain of transactions.” On November 17th 2013, Blockchain announced that they would be implementing the opensource CoinJoin to provide Shared Coin to its users. In short, Shared Coin allows Blockchain.info wallet users to obfuscate the trail of their Bitcoins by joining coins from many Shared Coin users, mixing them, before redistributing the coins.
For more information on CoinJoin, especially in contrast to Zerocoin and other Coin Mixing services, check out their Bitcointalk.org thread.
For more information on the difference between shared send and shared coin for Blockchain.info, visit this Bitcointalk.org thread.
Hlengani Mathebula of the South African Reserve Bank warns people for the dangers of using and trading Bitcoin.
The story of Bitcoin’s regulation continues. Today’s turn goes to beautiful country South Africa. The government had been talking about Bitcoin for some time now. They even ran a ‘Bitcoin trial’. In terms of willingness to accept, we love the idea of a trial. It beats saying no from the start without even considering.
The South African Reserve Bank is responsible for considering Bitcoin’s regulation. After reviewing the results of the Bitcoin trial, they decided to warn the South African people against the risks posed by cryptocurrency Bitcoin. The official statement being that the virtual currency had ‘no legal status or regulatory framework’. We’ve heard that one before, in fact, I think most people are getting tired of that reason by now. Still, the positive part of these conclusions is that these countries, even though they don’t like Bitcoin, still won’t ban it. People are allowed to use the cryptocurrency at their own risk.
The trial was developed by a company called Switchless. In order to see how Bitcoin would work from within a large multinational banking environment, the company developed a ‘fully operational and integrated Bitcoin portal system’. Basically, this would mean Standard Bank had an exchange and trading interface. A legitimate bank offering a service like this would be an enormous advantage for Bitcoin. It would stimulate worldwide mainstream acceptance. Because of the magnitude of this system, people were hoping Standard Bank would launch this platform to its customers.
Unfortunately, the system never made it to the public. During the testing, it was restricted for internal use only. Not a single customer had been able to use or even see it in action. After the testing phase, Standard Bank said that “although the testing was satisfactory and yielded interesting results, we are not planning a public release anytime soon”. A detailed explanation as to why there will be no official launch was not given. It’s possible the Mt. Gox situation made Standard Bank think twice about accepting Bitcoin, but that was never confirmed.
After this decision, the South African Reserve Bank warned the South-African people about Bitcoin. “Bitcoin has no legal status or regulatory framework. Thus, it poses a number of risks for those that would choose to transact with it such as the lack of guarantee of security, convertibility or value,” said Hlengani Mathebula, head of group strategy and communications at the South African Reserve Bank.
“The South African Reserve Bank is actively monitoring the developments around virtual currencies to inform any future regulatory approaches that may become necessary within the South African jurisdiction,” Mathebula said. The South African Reserve Bankand the National Treasury (the Ministry of Finance) together constitute the monetary authority in South Africa.
After South Africa’s warning, Israel responded by warning its people as well, but also adding that it was considering regulation of Bitcoin. Israel, home to pioneering firms in hi-tech fields such as cryptography, has emerged as a bitcoin hotspot.
It’s a shame South Africa didn’t add that last line about regulation, as well. The coin is becoming popular at a rapid pace in the country. According to CoinMap, South African companies have already started to accept Bitcoin. Bitcoin fanatics in the African country hope that this is just the start.
Regulation is an important topic, and lots of countries are shedding their light on the cryptocurrency. It’s only a matter of time before one country puts a fully functional legal framework around Bitcoin. Let’s hope this framework will respect Bitcoin’s characteristics because that will be the only way to gain the people’s respect.
With Bitcoin's erstwhile founder (according to NewsWeek) denying it all, we thought it might be useful to hear from 'the horse's mouth' just what Bitcoin is. While many have heard "shit bitcoin fanatics say", Conan O'Brian's interview ith the "Bitcoin COO" is full of clarifying knowledge...(and sadly reflects most people's perspective still on the virtual currency space)