Thursday, March 13, 2014

Key bitcoin news and views March 13 -14 , 2014 -- Is UCC Article 9 the Achilles Heel of Bitcoin ? Yves Smith on whether bitcoin is a currency ( in her view , no ) ..... Singapore to regulate bitcoin , ATMs and exchanges ............... BOE issues paper on digital currencies , indicates digital currencies like a commodity

3/14/14 items.....

US Mulls Regulating Bitcoin Under Rules for Commodities

 | Published on March 14, 2014 at 15:26 GMT | LawNewsRegulationUS & Canada
The US Commodity Futures Trading Commission (CFTC) has announced that it is investigating whether it has the authority to regulate bitcoin and other digital currencies, Reutersreports.
“We are looking into that,” Mark Wetjen, the CFTC’s acting chairman, said at an industry conference. “It’s been initiated, there’s been an internal discussion at the staff level.”
The CFTC, which regulates the swaps and futures market, is studying whether bitcoin falls under the same rules as commodities markets, according to Wetjen. He said:
“I think people [within the CFTC] believe there’s a pretty good argument that it would fit that definition.”

Issues remain

“Then there’s a separate question about whether or not there is some derivative contract based on, or denominated in, a virtual currency and whether that’s listed on an exchange,” Wetjen stated, adding that the issue remains to be looked at in detail.
Wetjen said he could not predict the outcome of the discussions or give a timeframe for regulation. The chairman has previously spoken out about cryptocurrencies. In a statement before the US Senate Committee he said:
“Virtual currency [...] does present new risk, as a firm would be interacting outside of bank payment channels, increasing the risk of hacking or fraud, among other cybersecurity issues. The CFTC is working with registrants that are seeking to accept virtual currencies to educate them about best practices.”

Change of attitude

The comments follow New York State’s recent decision to commence regulating bitcoin exchanges this week.
Referencing the collapse of Mt. Gox and other exchanges, New York’s Superintendent of Financial Services, Benjamin M. Lawsky, announced that the state is accepting applications for digital currency exchanges, with such submissions representing a formal commitment to the regulatory process.
Lawsky said that these businesses will be regulated under new New York regulation, anticipated to be in place by the middle of 2014.
Wetjen’s comments seem to indicate that regulation is now very much on the horizon across the US as a whole, which will come as a relief to many bitcoin business that had complained of a lack of regulations to abide by.


Iranian Government Could Move Quickly to Regulate Bitcoin, Reports Suggest

 (@pete_rizzo_) | Published on March 14, 2014 at 13:33 GMT | NewsPricesRegulation
A new report from Fars News Agencyhas surfaced, suggesting that Iran’s National Center of Cyberspace (NCC) may consider implementing regulation regarding digital currencies, possibly as soon as this year.
Founded in 2012, the NCC is a government body responsible for implementing policies created by the Supreme Council of Cyberspace (SCC), which oversees Internet issues. The organisation has been described as a major decision-making authority in the hardware and software fields.
Informal translations of the text, corroborated by CoinDesk sources in Iran, suggest that the document provides an overview of bitcoin’s benefits, noting that it is not controlled by governments, features irreversible payments and comes with very low transaction fees.
Statements from Saeed Mahdyoon, described in past reports as a telecommunications official with the Irani government, indicate that the nation sees regulation as necessary, given that the world is quickly adopting digital currency payments and that the positive and negatives of their use are still unknown.
Further, he suggests high-level officials in the Ministry of Economic Affairs and Finance and the Central Bank of Iran may be involved in the deliberations.

Community reaction

A spokesperson for Iran-based bitcoin exchange CoinAva suggested that the reports seemed credible given that the Fars News Agency has ties to the Irani government. Though, he doesn’t believe this is an accurate representation of the agency’s internal thinking.
“I see this news as testing the water to get feedback and reaction from other authorities in power rather than an official stance.”
Mor Roghani, CEO of Iran-based e-commerce business Persian Shoes, was more positive about the announcement, suggesting also that this won’t be the last of Iran’s statements on bitcoin.
Said Roghani:
“The fact that someone in the government has positive attitude toward bitcoin is fascinating. I think we will see more in the coming months.”

Bitcoin ecosystem

Though the current bitcoin ecosystem in Iran remains small, the country’s population is predominantly young, meaning more than 50% of the population now uses the Internet.
Estimates from The Washington Post suggest Iran has the highest number of Internet users in the Middle East, and perhaps unsurprisingly, some of these individuals have become interested in bitcoin.
The business sector remains small as well. CoinAva launched in July, while merchants like Persian Shoes and musician Mohammad Rafigh are using the payment tool to open up paths to new customers.
Notably, speculation on reddit centered on how bitcoin could potentially gain significant inroads given issues with the domestic currency, the rial. In 2012, the currency suffered from severe hyperinflation, though more recent reports now suggest the currency has stablized. Discussions also theorized bitcoin could help the country hedge against harsh sanctions imposed by other nations.

Bitcoin in the Middle East

Though on-the-ground reports are scarce, some companies and countries in the Middle East have acknowledged bitcoin, suggesting awareness may be small but growing.
For example, Anghami, a streaming music platform serving the Middle East and North Africa, recently began accepting bitcoin.
The Central Bank of Jordan, the Bank of Lebanon and the Bank of Israel have also commented on digital currency regulation, with Israel and Lebanon issuing warnings to consumers and Jordan limiting its banks ability to work with the sector.


Australian Tax Office Explains Bitcoin, Intends to Tax it

 (@southtopia) | Published on March 14, 2014 at 11:36 GMT | AsiaNewsRegulation
The Australian Tax Office (ATO) has provided businesses with some more guidelines on how it intends to deal with bitcoin, stating that income and profits derived from bitcoin transactions are taxable.
The letter, sent to an Australian bitcoin entrepreneur in response to a request made last June, was a private ruling to specific questions and noted its contents were valid only to that case. But it gives digital currency businesses in the country a better idea of how they should act to comply with tax regulations.
The first question asked if transferring bitcoins to a private company in return for shares would count as income, either ordinary or that from a for-profit undertaking. The answer was simply “Yes”.
As to whether transferring bitcoins to another party would be subject to Goods and Services Tax (GST), the answer was also a one-word “Yes”.
Bitcoin profits would also be subject to capital gains tax, though deductions depending on the individual case would apply.

Clear understanding

The letter also laid out a series of explanations showing the ATO has a very clear understanding of what bitcoin is, as well as the technology and processes behind it.
It acknowledges that bitcoin is “based on an open source cryptographic protocol, which is not under the control of a central authority”.
According to the ATO’s definition:
“A Bitcoin is a numerical amount that is allocated to a ‘Bitcoin address’. A Bitcoin address is a long string of numbers and letters, each one unique. The process through which Bitcoins are created and enter into circulation is called Bitcoin mining.
Mining involves using freely downloadable Bitcoin software to solve complex cryptographic equations that essentially verify and validate blocks of Bitcoin transactions. The first ‘miner’ to successfully solving an equation receives a specified number of newly created Bitcoins as a reward to their Bitcoin address.
Accordingly, Bitcoins rely on a network of Bitcoin miners using the system to validate transactions and collectively implement a replicated ledger of Bitcoin transactions. The security of this ledger is protected by this mining process.
Bitcoins are circulated using a peer-to-peer computer network. Bitcoin users store their Bitcoins in a software program called a ‘Bitcoin wallet’.
A transaction involving Bitcoins requires an account, which is in essence a ‘public-/private-keypair’. A Bitcoin address derived from the public key is used to identify the account. To transfer Bitcoins to an account a transaction is created with the address of the account as the destination. To send Bitcoins from an account, the transaction has to be signed with the private key associated with the sending account.”
It also identified that participants in the bitcoin economy did so with the intention of making money, particularly those who mined:
“You invested a substantial amount of money in computer hardware and advanced scientific computing systems with the purpose of making substantial profit from mining and selling Bitcoins.”
An ATO representative had said in early February that the department would publish guidelines on bitcoin for the current tax year, which ends in June. Transactions would be taxed according to their value in Australian dollars.

Permissive atmosphere

Australia has provided some of the more level-headed responses to bitcoin and bitcoin business so far. Compared to other nations, warnings from Australia’s regulators have been comparatively mild and so far unofficial.
While the country’s corporate banks have reacted in different ways, there have been no central bank moves to block those banks or other financial institutions from working with digital currency. There are no longer any government-owned banks in Australia.
So far the response has been similar to that of Singapore, which has also provided some guidelines on how bitcoin businesses should approach tax time.

Polish Bitcoin Exchange Bitcurex Targeted by Hacking Attack

 | Published on March 14, 2014 at 14:52 GMT | CompaniesCrimeNews,Technology
UPDATE, 14th March, 17:37 GMT: Bitcurex official statement added.
Poland’s leading bitcoin exchange Bitcurex temporarily shut down its site today following a hack which targeted funds in its users’ bitcoin wallets.
The exchange’s staff published a message on Facebook which stated that due “to an error and ongoing maintenance works” the platform had decided to “temporarily shut down [its] service”.
Company representatives told CoinDesk that the decision to temporarily close the website will allow the platform’s IT team to “perform a necessary verification”.
More details on the incident will be disclosed shortly once the maintenance works are completed, the representatives said, adding that there are reasons for optimism on their final outcome.
Filip Godecki, a representative of Bitcurex, told CoinDesk: ”Based on what our IT team has been able to determine, it seems that the worst-case scenario can be ruled out.”
The site reportedly halted all transactions at 09:37 am local time.
A statement from the company said:
“We successfully blocked a hacking attack on Bitcurex, preventing mass theft of BTC funds of our users. Thanks to automatic safety procedures, hackers managed to defraud only a portion of the funds stored in operational Hot Wallet Bitcurex. The majority of funds from Hot Wallet, as well the entirety of funds from Cold Wallet and FIAT monetary funds remained intact.
Our team located and removed the source of the problem. We are working on resuming normal service, at the same time an external audit is being conducted: we will soon provide the exact date of resuming all Bitcurex functionalities. More information will be provided in further statements.
We are sorry for the inconvenience, and most of all we thank the whole BTC community for the support we received: we were put to a test that will make us stronger.”
When asked exactly how many bitcoins had been stolen, Godecki would not part with the specifics, replying: “It’s managable – it was only a part of our hot wallet.”

Community reaction

Meanwhile, the platform’s users have been discussing the incident on various Polish cryptocurrency forums, and a user’s account of what happened was published by local news site According to the information obtained, the attack targeted digital currency worth several million dollars. The user said:
“At about 09:34 am, someone placed an offer to buy bitcoins at PLN 5,000 per unit, for a total of at least PLN 94m, and after a while offers to sell for the same price were also made.”
As a confirmation of the presented account, a screenshot taken from the website prior to the shutdown by another user shows an offer to buy 18,978.5 BTC for the total amount of PLN 94.89m ($31.1m), which translates into roughly PLN 5,000 ($1,637) per BTC.

About Bitcurex

According to data obtained from Bitcoincharts on 14th March, Bitcurex had a 30-day volume of 18,359.3 BTC and PLN 36.61m ($12m). The platform’s six-month volume is 131,617.4 BTC and roughly PLN 229m ($75m).
The attack comes several weeks after Bitcurex released a statement designed to calm its users following the meltdown of Mt.Gox.
“Out of concern for the safety of transactions made by our customers and their funds … we repeated a series of internal audits, as we always treat such incidents very seriously, regardless of how efficient our system is and how much we trust our solutions.”
It added: “Bitcurex has always absolutely prioritized the safety of the service and the mechanics of its operation. This is why we always choose solutions that we are 100% sure [of], and it does not matter how much time and effort it takes to implement them.”
The incident is not the first attack to target a Poland-based bitcoin exchange. As earlier reported, in November 2013, Poland’s digital currency exchange was hacked and its customers’ bitcoin and litecoin wallets were emptied.
The amount of digital currency stolen was not disclosed by the Polish platform, which was founded in 2013. Following the attack, the site was shut down by its owner and put up for sale for a minimum price of 170 BTC.
Set up in July 2012, Bitcurex is based in Łódź, Poland. The cryptocurrency exchange is operated by local company Digital Future Ltd.

Is UCC Article 9 the Achilles Heel of Bitcoin?

posted by Bob Lawless
Bitcoin imageLast week, Professor Lynn LoPuckicalled me up and asked a good question. Why hasn’t Bitcoin fallen apart because of the operation of Article 9 of the Uniform Commercial Code (UCC)? It is a really good question. With Lynn’s permission, I am writing up a blog post about our conversation, but it was Lynn who first identified the issue.
As many readers will know, all 50 states have enacted the UCC with only minor variations. Article 9 governs security interests in personal property – that is, movable and intangible property as opposed to land and buildings. The bank that gave you a car loan has an Article 9 security interest in the automobile serving as collateral for the loan, and the bank providing operating capital for your corner bakery similarly may have an Article 9 security interest in the inventory, equipment, and accounts at the store. Article 9 is one of those laws that only specialists tend to know, but it plays an important role in the flow of commerce.

The bakery example was deliberate given this news about a Durham, NC, bakeryaccepting bitcoins. I have no idea about the financial circumstances of this particular bakery, but to understand the point assume it has loan from a bank secured by the bakery’s “inventory, goods, equipment, accounts, and general intangibles.” Such an arrangement would not be uncommon and would effectively give the bank an Article 9 security interest in all of the bakery’s property that is not real estate, sometimes referred to as a “blanket lien.”
When a customer pays the bakery with bitcoins, those bitcoins certainly now become part of the bank’s collateral. Given that one bitcoin is worth over $600 today, the customer either has ordered the world’s most expensive donut or technically will have paid with bitcoin subunits. For ease of exposition, let’s just call them “bitcoins.”
The bank’s security interest will attach to the bakery’s bitcoins. When the bakery uses bitcoins to buy flour from a supplier, the bank’s security interest will continue to encumber them. UCC section 9-315(a)(1) provides that the bank’s security interest “continue in collateral notwithstanding . . . disposition thereof unless the security party authorized the disposition free of the security interest. The supplier is not protected by the “buyer in ordinary course” provision of 9-320(a) because that provision only strips security interests from “goods.” 
Further, the security interest will remain with the bitcoins through subsequent transfers (UCC § 9-325). A remote transferee of the bitcoins will take the bitcoins subject to the bank’s security interest. Assuming the bank has taken the easy steps to perfect its security interest, which it almost always will have, the bank can seize the bitcoins as collateral if the bakery’s debt goes unpaid. The possibility of another party with superior property interest in a bitcoin would seem to substantially dampen their utility as a medium of exchange.
Transferees of money take free of a preexisting security interest (UCC § 9-332). Thus, you do not have to worry that the U.S. currency the bakery gives you as change for your transaction is encumbered by a security interest.  That way, money circulates like . . . well, money.
A Bitcoin defender might respond that the UCC should treat bitcoins like money. Regardless of the merits of such a principle in the abstract, the UCC has a definition of money, and it does not appear to include bitcoins. Specifically, “money” is a “medium of exchange currently authorized or adopted by a domestic or foreign government” (UCC § 1-201(b)(24)). To the best of our knowledge bitcoins are not currently authorized or adopted by a domestic or foreign government. One solution to the UCC problem might be to get a domestic or foreign government to authorize bitcoins as a medium of exchange such that they then may receive the UCC treatment for “money.” But that solution will come too late for the thousands of wallets probably already infected with bank liens.  Those liens will remain with the coins to which they attached.
Another out for Bitcoin defenders might be the rules for commingled collateral. For example, if the bakery deposits your payment for donuts in its bank account, the bank account may contain some of the bank’s collateral and some of the bank account may be non-collateral. In these situations, the UCC simply directs that the court is to use “equitable principles” to resolve any disputes that arise. In the context of traditional bank accounts these “equitable principles” are a series of well-established practices. Once in a bitcoin wallet, a free-wheeling interpretation of “equitable principles” might wash the security interest away, but that would be a very untethered free-wheeling.
Even if there some arguments that the security interest does not stay with the bitcoins, the problem is the uncertainty, and the uncertainty would seem to be enough to undo the attractiveness of bitcoins. Either Lynn and I have missed something about how bitcoins work and their interaction with Article 9, or the Bitcoin proponents have failed to notice how Article 9 could unravel the whole enterprise. Up until now, bitcoins have not become a substantial part of mainstream commerce such that the Article 9 problem may have been of little consequence, but if bitcoins are to become part of mainstream commerce, the Article 9 problem must be solved.

Bitcoin is Not a Currency

Posted on   by  

Japan has just decided that Bitcoin is not a currency, which subjects it to sales and income taxes. This is consistent with the view of the Canadian Revenue Service, which has found Bitcoin to be property and not a legal currency, and the United Kingdom, which leaning towards treating Bitcoin as a voucher and subject to VAT.
Bitcoin is not a currency any more than gold bars or collectable baseball cards are. Or as tax maven Lee Sheppard puts it in a recent article in TaxNotes, Busting the Bitcoin Myths: “If Bitcoin is a currency, any tradable store of value would be a currency.”
That means the branding of Bitcoin as a “cyrpto currency” or “digital currency” is promoter hype which credulous journalist have repeated verbatim. As we’ll see, the fact that Bitcoin is not a currency in the eyes of many tax authorities, and the US will probably follow suit, has serious implications for this “innovation”.
The US Treasury will be determining what Bitcoin is for tax purposes. Sheppard is pretty confident that, like the Japanese, the US will deem Bitcoin not to be a currency. And Sheppard is not shooting from the hip. She’s a world-recognized tax authority and her article (sadly paywalled) is chock-full of references to the tax code, court cases, and regulatory practice.


Coin desk......

Singapore to Regulate Bitcoin Exchanges and ATMs

 (@emilyspaven) | Published on March 13, 2014 at 11:08 GMT | AsiaNewsRegulation

The Monetary Authority of Singapore (MAS) is to regulate virtual currency intermediaries in order to address potential money laundering and terrorist financing risks.        
statement from MAS said the anonymous nature of virtual currency transactions leave them particularly vulnerable to these risks.
In response, MAS is introducing regulations requiring intermediaries that operate virtual currency exchanges and vending machines to verify the identities of their customers. They will also be required to report any suspicious transactions to the Suspicious Transaction Reporting Office.
Ong Chong Tee, deputy managing director of MAS, said:
“MAS is taking a targeted regulatory approach to virtual currencies to specifically address money laundering and terrorist financing risks. Consumers and businesses should take note of the broader risks that dealing in virtual currencies entails and should exercise the necessary caution.”
These new requirements are similar to those that already exist for money changers and remittance companies that facilitate cash transactions in the country.

Greater clarity

Antony Lewis, business development at Singapore-based bitcoin exchange itBit, said: “We welcome regulatory clarity for bitcoin, and we applaud these steps by the Monetary Authority of Singapore.”
He went on to say itBit focuses on offering bank-level security to those trading bitcoin, comcluding:
“As outfits which knowingly engage in questionable transactions are regulated out of the market, consumers win.”
The MAS statement highlights it does not view virtual currencies such as bitcoin as securities or legal tender and , as such, the intermediaries involved are not covered by the Securities and Futures Act and the Financial Advisers Act.
Last year, MAS warned consumers of the potential dangers of digital currencies, but followed this in December with a statement revealing it would not interfere with bitcoin adoption.
The authority said: “Whether or not businesses accept bitcoins in exchange for their goods and services is a commercial decision in which MAS does not intervene.”

Bank of England: Digital Currencies are Similar to Commodities

 | Published on March 13, 2014 at 13:02 GMT | EuropeNewsRegulation

The Bank of England (BoE) haspublished an article on the role of money in the modern economy and one topic was the future of digital currencies and payment technologies. The currency v commodity debate has been going on for a while and the Bank of England is clearly on the commodity side of the argument.
“Digital currencies are not at present widely used as a medium of exchange. Instead, their popularity largely derives from their ability to serve as an asset class. As such they may have more conceptual similarities to commodities, such as gold, than money,” the bank concluded.

Not a generally accepted medium of exchange

Digital currencies were brought up in the context of alternative currencies and recent developments in payment technologies. The advent of e-money and services like PayPal and Google Wallet was discussed and the bank concluded that these forms of money have similar features to bank deposits.
“For example, money in an e-money account represents a store of value so long as the companies providing it are seen as trustworthy. E-money can also be used as a medium of exchange with businesses (such as online sellers) or individuals that accept it,” the report points out, adding:
“However, it is still not as widely accepted as other media of exchange, for instance, it is not generally accepted by high street shops. Transactions using these technologies are also typically denominated in the existing unit of account (pounds sterling in the United Kingdom).”
Digital currencies are quite a bit different, since they can be created out of nothing and their exchange rate is not fixed. The supply of digital currencies is typically limited, which is not the case with e-money accounts.
The bank also outlines some basic differences between local currencies and digital currencies. The former are issued in a defined environment, they are not decentralised and they are usually bought in exchange for currency at fixed rates. This of course is not the case with digital currencies, as they do not have a fixed rate and they are practically their own unit of account.

Bank of England not to keen to weigh in

The Bank of England has not said much about bitcoin in the past. It seems it simply does not think bitcoin is big enough to worry about, or as the bank puts it:
“The current levels of economic activity and payments involving bitcoin are too light to have a material impact on [the bank's] monetary or financial stability objectives in the short term.”
This is not the case with most European central banks and the ECB for that matter. Many of them have already issued similarly worded bitcoin warnings, cautioning the public about potential losses stemming from volatility, fraud, theft and a range of other issues.
Speaking at a bitcoin panel discussion last year, BoE chief cashier Chris Salmon described bitcoin as “genuinely innovative,” but he warned that it would not be the “final word” in digital currencies. In other words, something better could eventually replace bitcoin.
Salmon also said that it is highly unlikely that central banks will issue digital money in the next decade, but he admitted it is a possibility sometime in the future. Salmon believes digital currencies in their current form cannot replace traditional money, but they can complement it.

Something to ponder....... does bitcoin - once subject to regulation and under thumb of Wall Street banksters , fit into their  plans ?

Complete Breakdown Of Financial Controls In US Government, Says Austin Fitts

Tyler Durden's picture

Complete Breakdown of Financial Controls in US Government, Says Austin Fitts

Former HUD Assistant Housing Secretary and investment advisor Catherine Austin Fitts reveals her thoughts on the ever-rising debt ceiling… what Obamacare is really about (and that’s not socialized healthcare)… why over $4 trillion missing from federal programs may not be incompetence, but a covert strategy… how to protect yourself from the constant devaluation of the US dollar… and what exactly the Popsicle Index measures and why it matters.
Here are a few excerpts:
“I don’t see Obamacare as something designed to offer healthcare. … I think the question comes down to a bigger one, which is, are we going to create a society where one hundred percent of everything is digitized and under central control?”

“Who is the governance system, and why are they behaving the way they are behaving? What we see is literally a psychopathic effort and intensity—whether it is in the energy area, whether it is in the currency area, whether it is in the food area, whether it is in the healthcare area—to get 100% central control and to use digital means to do it, and the question is why?”

“Well, you have a complete breakdown of internal financial controls in the US government. … You had over $4 trillion of what is called undocumentable adjustments and to this day, [these agencies] have never, as required by law, produced audited financial statements.”

“In my experience, government is not incompetent at all. … Gridlock is a cover story, incompetence is a cover story. There is a plan, you just can’t see what it is.”
Full podcast audio below:

1 comment:

  1. Bitcoin is digital gold. Due to the lack of universal use of the currency (not until you have a Bitcoin ATM Card that most businesses use will that happen) it is being used as a commodity. You can't alter it's value with a fiat currency, but with drug money and ease of transaction it would appear bitcoin is going to last a long time.