Most Cryptocurrencies Will Collapse According to Goldman Research Head

The tumble in cryptocurrencies that erased nearly $500 billion of market value over the past month could get a lot worse, according to Goldman Sachs Group Inc.’s global head of investment research.

ost digital currencies are unlikely to survive in their current form, and investors should prepare for coins to lose all their value as they’re replaced by a small set of future competitors, Goldman’s Steve Strongin said in a report dated Feb. 5. While he didn’t posit a timeframe for losses in existing coins, he said recent price swings indicated a bubble and that the tendency for different tokens to move in lockstep wasn’t rational for a “few-winners-take-most” market.

“The high correlation between the different cryptocurrencies worries me,” Strongin said. “Because of the lack of intrinsic value, the currencies that don’t survive will most likely trade to zero.”

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Should Central Banks Embrace, Issue Cryptocurrencies?

Central banks (CBs) have long issued paper currency. The development of Bitcoin and other private digital currencies has provided them with the technological means to issue their own digital currency. But should they?

Addressing this question is part of the Bank’s Research Agenda. In this post I sketch out how a CB digital currency – call it CBcoin – might affect the monetary and banking systems – setting aside other important and complex systemic implications that range from prudential regulation and financial stability to technology, operational and financial conduct.

I argue that taken to its most extreme conclusion, CBcoin issuance could have far-reaching consequences for commercial and central banking – divorcing payments from private bank deposits and even putting an end to banks’ ability to create money. By redefining the architecture of payment systems, CBcoin could thus challenge fractional reserve banking and reshape the conduct of monetary policy.

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Converging on Cryptocurrencies #5

AltCoins:

GridCoin is an attempt to incentivize doing BOINC related science computing. This is something I discussed with friends at LBNL a couple years ago. The timing is...amusing.

The Bank of England has paid for the development of RSCoin, a centrally controlled cryptocurrency.  It matches, really well actually, what I predicted for a 'cryptodollar' would be from the US.

Bitcoin:

There was a big mix up about whether or not Microsoft would be accepting bitcoin.

Quickbit, a bitcoin trading platform, had a cyberattack and will be down for an extended period. No funds were supposedly lost though.

Crime:

BitcoinWisdom Ads Remover is a Chrome extension implicated in stealing bitcoins from transactions.

Law enforcement actually really likes bitcoin because it allows for tracking the transactions very clearly due to its public ledger (blockchain).

Regulation:

Bitcoin issuers in Russia face seven years in prison.

Misc:

Should we fear a cashless world?

Converging on Cryptocurrencies #4

Altcoins:

Ethereun gets profiled.

Bitcoin:

There appears to be a bug in the bitcoin software uncovered by miners.  This is calling for a more formal spec on the software to prevent this sort of thing.

Bitcoin's max transaction limit has been reached. 

A new fund is aiming at bringing bitcoin mining profits to highly qualified investors.

One company is taking out an insurance policy for its clients bitcoin exchanges and deposits.

The biggest threat to bitcoin might be its own core developers.

Blockchain:

40 odd banks worked with R3 to test and set standards for blockchain technologies for financial transactions.

The blockchain is being touted as bringing about a new standard in the financial markets.

However, there are challenges in working with the blockchain.

Visa is working on a blockchain project that is 'secure and scalable.'

The real future, some believe, for the blockchain is in accounting.

One company is securing Estonian medical records with the blockchain.

Israel is turning out to be a hotspot for blockchain development.

Some think bitcoin itself bitcoin itself is doomed, but the blockchain will spread everywhere.

Crime:

A credit union official took bribes from an unlicensed bitcoin exchange.

Cryptocurrencies:

The Bank of England's Deputy Director considers digital currencies a threat to banks, but bitcoin itself is not a threat to the dollar or pound.

Potential Scandal:

Yobit, another cryptocurrency exchange, is being reported as having problems withdrawing money and coins.  This has been the harbinger of a collapse in the past for a coin exchange.

In the Aftermath of the Paris Attacks, European Union to Crack Down on Bitcoin

A week after the attacks in Paris, home affairs ministers from European Union countries are due to gather in Brussels on Friday 20th November for a crisis meeting to discuss methods of strengthening the region’s response to terrorism.

One crucial item on the agenda is a planned crackdown on virtual currencies and anonymous payments made online and through pre-paid cards.

According to draft conclusions of the meeting, European interior and justice ministers will urge the European Commission (the EU executive arm) to propose measures to strengthen the controls of non-banking payment methods. These include electronic/anonymous payments, virtual currencies and the transfers of gold and precious metals by pre-paid cards.

The most common virtual currency, Bitcoin, is used as an online method of making money anonymously and quickly around the world without the need for third-party verification. In addition, anonymous electronic payments can be made via pre-paid debit cards bought as gift cards in stores.

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Coinbase Issues First Bitcoin Visa Debit Card

Today, we’re excited to introduce the first US-issued bitcoin debit card, the Shift Card. The Shift Card is a VISA debit card that currently allows Coinbase users in twenty-four states in the U.S. to spend bitcoin online and offline at over 38 million merchants worldwide.

Merchant adoption has come a long way over the past few years, but it’s still difficult for people to make regular purchases with bitcoin. Buying gas at a local gas station or groceries at a neighborhood grocery store with bitcoin has not been possible in most cities in the U.S. Thanks to Shift Payments, it’s now possible to use bitcoin to buy gas, groceries, and much more. With the Shift Card, you can now spend bitcoin anywhere in the world that VISA is accepted.

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Death Knell of Bitcoin: California Bills Proposes VERY Strict Rules for Bitcoin Transactions

California, the state that prides itself as the birthplace of modern technology and whose policies such as the unenforceability of non-competes contributed substantially to the innovation ecosystem, recently proposed a law that requires innovators to get permission from the state, or be banned.

Last week CA's State Assembly announced AB 1326, a bill that would ban any unlicensed bitcoin or cryptocurrency business activity. It would "prohibit a person from engaging in this state in the business of virtual currency, as defined, in this state unless the person is licensed by the Commissioner of Business Oversight or is exempt from the licensure requirement." Banks, financial institutions, and governments would be exempted under the law, making it even harder for a startup to compete. Worse yet, the bill doesn't even define what "the business of virtual currency'" means, making it both overly vague and counter to the very nature of the trustless, permissionless innovation that bitcoin and blockchain technology enable. So right now, if you're building multisignature technology to better enable people to secure their bitcoin, or developing an open source peer-to-peer remittance app that connects users to send each other bitcoin, the state of CA could very well ban you from operating unless you've received a license.

So for the next wave of entrepreneurs building technology in the bitcoin or blockchain space, the state is poised to say that in order to start your company or release your technology, you must pay $5000 for a license and tens or hundreds of thousands in legal and compliance fees, not to mention requirements such as informing them of your educational background and 10 years of past addresses. That might be awkward for the 21 year old college dropouts working on a cryptocurrency startup. And of course there's no guarantee the state will actually grant the license, or shall we say, permission.

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US Military Looking into Cryptocurrency Links to Terrorism

The United States military is studying digital currencies like bitcoin to learn if they can be traced and to figure out how they are used by America's adversaries around the world.

CNBC has learned that the global policy counsel of the Bitcoin Foundation flew to Florida to meet with officials from U.S. Special Operations Command for a daylong discussion Monday on the role of so-called cryptocurrencies—of which bitcoin is the best known—in illicit finance.

The first-of-its-kind discussion came just as U.S. warplanes began flying missions over Syria in President Barack Obama's effort to check the advance of the Islamic terror network ISIS. A key priority for the U.S. military is stopping the flow of money to ISIS fighters and blocking the network's ability to process profits from kidnapping, extortion and illicit oil sales.

The military's interest in virtual currency is part of an overall effort by special operations forces to understand how their enemies finance themselves, and what intelligence special operators can glean by following the illicit money.

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Court Order Shuts Down Buttefly Labs Bitcoin Miner Company

A Kansas company that offered bitcoin-generating computers is being sued by the Federal Trade Commission, which said it bilked more than 20,000 consumers out of as much as $50 million.

The Leawood-based company, Butterfly Labs, failed to deliver the machines or sent worthless equipment, according to the FTC's complaint filed in U.S. District Court in Kansas City.

The court had issued a temporary restraining order that shut down the business, according to an FTC statement Tuesday, The Kansas City Star reported.

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The music seems appropriate...

New Jersey Subpoenas Source Code, Documentation, Evidence of Criminal Activity for Nonfunctional Tidbit Bitcoin Mining Software

Four MIT students behind an award-winning Bitcoin mining tool will face off against New Jersey state authorities in court today when they attempt to fight back against a subpoena demanding their source code.

The Electronic Frontier Foundation is representing 19-year-old MIT student Jeremy Rubin and three classmates in a remarkable case that stands out for the measure of aggression the state is using to obtain the code and identify anyone who might have tested the mining tool.

The case is reminiscent of a federal one that targeted Aaron Swartz after he was arrested by MIT police in 2011 for downloading more than 4 million scholarly journal articles from the JSTOR digital library, offered to MIT students, to make them more widely available. Swartz faced multiple charges for his activity and killed himself as he was preparing for trial. Although there is currently no indictment or pending criminal charges against Rubin and his friends, state authorities have indicated that they believe the researchers may have violated state laws. The case marks a disturbing trend among authorities to go after researchers, innovators, tinkerers and others who try to do cutting-edge projects to help the tech community, says EFF staff attorney Hanni Fakhoury.

“It’s a very broad subpoena that hints at criminal liability and civil liability,” he says. “For a bunch of college kids who put something together for a hackathon—they didn’t make any money, the project never got off the ground and now is completely disbanded—there are some very serious implications.”

The mining tool, known as Tidbit, was developed in late 2013 by Rubin and his classmates for the Node Knockout hackathon—only Rubin is identified on the subpoena but his three classmates are identified on the hackathon web site as Oliver Song, Kevin King and Carolyn Zhang. The now defunct tool was designed to offer web site visitors an alternative way to support the sites they visited by using their computers to mine Bitcoins for them in exchange for having online ads removed.

“We believe our utility for the end user comes in freeing up real estate on web pages,” King wrote about their program on the Node Knockout site. “Imagine a web where your amazon shopping cart doesn’t follow you around to every website you visit. We believe there should be more options than advertising for monetizing a website, and we believe we have a novel and non-intrusive solution. In this way, we provide utility to developers who can now include higher quality content on their websites, and utility to end users who are spared the wasted time in looking at ads.”

The clever design won the award for innovation in the programming competition.

“This is a very intriguing idea that could really transform online economics if it works,” one supporter wrote on the hackathon site. “There is a much broader discussion to have about mining bitcoins vs doing other useful tasks (e.g. a friendly form of mechanical turk).”

But the program never got beyond the proof-of-concept stage before Rubin and Tidbit, as an entity, were hit with subpoenas from the New Jersey

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Bitcoin Stable, DogeCoin Surges

Bitcoin has continued its uncharacteristic streak of stability over the weekend, with its price never straying far from $478 (£294, €370).

Most other major cryptocurrencies have followed in the example set by bitcoin, as litecoin, peercoin, darkcoin and namecoin all shifted by less than 2% in value since Friday.

The only big player to see any significant movement was dogecoin, which saw its market capitalisation surge to £40m.

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First Cryptocurrency (bitcoin) Derivative Launches

Good news for Bitcoin enthusiasts: TeraExchange today launched a swap based on the cryptocurrency.

It is the first financial product based on Bitcoin to receive approval from the Commodity Futures Trading Commision, as Reuters’ Douwe Miedema reports:

The derivative allows clients to protect the value of their bitcoin holdings by locking in a dollar value, offering an insurance against the astronomical price swings that have plagued the computer-generated currency.

“For a merchant to take bitcoin, there wasn’t until this product a regulated way for them to put on a hedge to manage the risk … and now with this product they can,” Christian Martin, who heads TeraExchange, told Reuters.

The launch comes nearly six months after TeraExchange announced plans for the swap this spring. As Miedema writes, “The Tera Bitcoin Price Index was based on information from six different exchanges, the company said, a number it expected to grow. It had agreed with the exchanges to share information if there were suspicious price moves.”

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Bitcoin Creater Satoshi Nakamoto's Email may be Hacked

Someone has taken over the email account belonging to bitcoin’s secretive creator, Satoshi Nakamoto, saying he will sell Nakamoto’s secrets for money.

The hacker, who told WIRED his name is “Jeffrey,” claims to have also obtained information on Nakamoto that could be used to unmask his identity. Jeffrey didn’t tell us much, but when we asked him how he managed to take control over the satoshin@gmx.com email address that Nakamoto had used for some of his correspondence, he wrote: “The fool used a primary gmx under his full name and had aliases set up underneath it. He’s also alive.”

In a Pastebin post, Jeffrey said he will release Satoshi’s secrets if someone pays 25 bitcoins—about $12,000 to his bitcoin address. He says he has email messages dating back to 2011. A programmer (or group of programmers) going by the name Satoshi Nakamoto released the open source software that drives the bitcoin digital currency in 2009. Ever since, as bitcoin has expanded into a worldwide phenomenon, people have tried to unmask its creator, but his true identity has never been sufficiently proven.

Jeffrey wouldn’t say how he took over Nakamoto’s account, and he didn’t respond to many of our questions. But it looks like he leveraged the gmx.com address to take over other Nakamoto accounts. One was used Monday to post a message to the P2P Foundation website. Another to deface an old bitcoin developer page on the Sourceforge open-source coding site.

In his P2P Foundation message, Jeffrey claimed that information about Nakamoto was already being sold online. “Apparently, you didn’t configure Tor properly and your IP leaked when you used your email account sometime in 2010. You are not safe. You need to get out of where you are as soon as possible before these people harm you.”

But Jeffrey didn’t provide any evidence to substantiate this claims. And it’s not clear what information he really has on bitcoin’s creator.

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Swiss University Testing Student Designed, Touchless Bitcoin Payment System in Cafeteria

Switzerland’s University of Zurich is integrating a student-made bitcoin payments solution into one of its cafeterias as part of a two-week trial.

Called CoinBlesk, the mobile payments platform uses two-way near-field communication (NFC) technology and was developed as part of a student project to create an open-source bitcoin spending tool.

Students will be able to load their CoinBlesk wallets online or at a new bitcoin ATM that will be installed at the university.

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Australian Tax Comissioner: Legal Money Requires National Backing, can Change for Bitcoin

The Australian tax commissioner has left open the possibility that the digital payment system bitcoin could be considered legal tender in Australia.

Bitcoin has been described as a type of “virtual currency” where users can pay for goods and services, and can even create their own bitcoins to generate more currency.

But countries around the world have continued to grapple with whether bitcoin could be considered currency or some other form of personal property.

How bitcoin – and other cryptocurrencies – are defined will have broad ramifications for how they are handled by consumers and governments, including how they are dealt with under national taxation systems.

At an inquiry on Wednesday the Australian tax commissioner, Chris Jordan, conceded there was a push by some proponents to have bitcoin treated like money, but added it did not meet the current definition of legal tender. However he left open the possibility that this could be changed in the future.

“There’s a definition in the Tax Act of money. It’s got to be the legal tender of a country. We can’t say it’s money. If this grows more and more maybe the definition needs to change,” he said.

A change to the definition of legal tender would require amendments to the Tax Act by the federal parliament.

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Awareness of Bitcoin, Other Cryptocurrencies Rising, but Little Acceptance

While awareness of cryptocurrencies is rising, very few people have actually used them. A new survey, from the Conference of State Bank Supervisors and the Massachusetts Division of Banks, found that 51% of people in the U.S. were aware of bitcoin and other currencies, albeit only about 3% had said they used it.

Still, that’s a big change from earlier this year. Back in February, another survey found that about three-quarters of the population hadn’t heard of bitcoin, and 80% said they’d never even consider using it.

The CSBS survey was taken in May, and canvassed 1,000 online consumers.

Some of the findings aren’t surprising; men, for instance, were more likely (64%) than women (38%) to be aware of virtual currencies. Only a limited number said they’d buy or use them – 65% of the overall respondents said they were “unlikely” to ever use them. Younger respondents were more likely to have purchased bitcoins or other currencies, and Hispanics (30%) and African Americans (24%) were also more likely than whites (14%) to be willing to purchase virtual currencies.

While people in households where the income is over $100,000 were more likely to have heard of bitcoin (70%) than those in lower-income households (43%), they were less likely to say they’d purchase bitcoins (11%) than those in households with incomes of less than $100,000 (19%).

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Bitcoin Supply too Large for Demand

Bitcoin’s price is poised for “acute instability” due to an oversupply of coins from miners and large merchants, along with a weak growth in demand, according to a new research note from financial giant Citi.

The Citi analysis points to the increased sophistication and cost of mining as a major driver for growth in bitcoin supply.

As mining costs rise, miners come under pressure to sell their freshly unearthed bitcoin to recoup the costs of their investment in equipment. Citi notes that about 3,500 BTC are mined daily, against a backdrop of 60,000–10,000 BTC in daily trading volume in recent months.

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Why There Ought to be a Bitcoin Central Bank

It is no secret that today, almost all modern banks operate on the basis of fractional reserves. To put in simpler terms: banks only has in their vaults a small percentage of the money that their customers gave them; if a large enough number of customers of a specific bank want to get their money back, the bank wouldn’t be able to meet the demand. Before there was modern central bank system, the bank could either have to borrow or file for bankruptcy. The central banks by design had infinite ability to lend, for they can legally conjure up money from thin air – there is a reason that modern currencies are called fiat money.

The Bitcoin world doesn’t have central banks, and this fact even appeal to some of its supporters with libertarian inclinations. Among these people, a widely-held belief is that bailing out insolvent banks is no different from highway robbing; if a bank screws up, the argument maintains, it should face the consequences alone, rather than letting all economy participants across the system to share the pain in the form of debased per unit currency value.

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What Caused the Recent Bitcoin Price Crash?

The price of bitcoin on the CoinDesk Bitcoin Price Index (BPI) has declined more than $60 today (by the time of publication), falling to a low of $435.60. However, a more serious decline was observed at one major bitcoin exchange.

The development is the latest blow to the price of bitcoin, which had slumped to its lowest level since May late last week. The decline has since been largely attributed to a worsening short-term news outlook, as well as the industry’s margin traders, though alternative theories have been proposed.

At press time, at least one notable industry analyst, along with a host of exchange users are suggesting that margin trading may have once again played a factor in today’s decline, as a flash crash observed on popular bitcoin trading platform BTC-e caused the price of bitcoin on its exchange to decline sharply to a low of $309.

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Cryptocurrencies From a Historical Perspective

The Consumer Financial Protection Bureau (CFPB) has unparalleled powers over nearly every consumer financial product and service. Given that virtual currencies can serve as a form of electronic money, the CFPB has, predictably, decided to weigh in on this topic.

A CFPB statement this week warned people about the dangers of private digital currencies such as Bitcoin, XRP, and Dogecoin. It started perfectly reasonably, noting that:

In a nutshell, while virtual currencies offer the potential for innovation, a lot of big issues have yet to be resolved – some of which are critical. If you are interested in using or buying virtual currencies, you should be aware of the associated risks.

It went on to list several risks associated with digital currencies, such as hackers, limited investor protection, cost, and outright fraud.

Fair enough. There are certainly legitimate risks associated with using digital currencies, and potential users of these services should understand those risks.

But then the CFPB statement goes on to perpetuate one of the great myths of history:

But virtual currencies aren’t regular money. To begin with, virtual currencies are not issued or backed by the United States or any other government or central bank.

Makes you wonder how the US survived until 1913 without just one government-backed currency.

Richard Cordray, the CFPB’s Director, then piled on by adding: “Virtual currencies are not backed by any government or central bank, and at this point consumers are stepping into the Wild West when they engage in the market.”

Sadly, this resembles what people are taught in school: the US economy was a mess until the federal government finally delivered a single (official) US currency, thus ending the “Wild West” days when US citizens used multiple currencies.

But there’s a hitch. These taught “facts” are dead wrong.

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