Saturday, December 14, 2013

How Coinbase Became the Top-Funded Bitcoin Startup / By Seth Fiegerman / December 12, 2013

Less than two years ago, Brian Armstrong had to struggle just to explain the idea of Bitcoin to investors. On Thursday, his startup announced that it had raised what may be the largest funding round to date in the Bitcoin space.

Coinbase, a startup that provides a digital wallet for Bitcoin transactions, revealed that it has raised $25 million in a Series B funding round led by Andreessen Horowitz, the VC firm founded by Netscape founder Marc Andreessen. The funding is seen as another vote of confidence for the Bitcoin startup space from one of the most influential venture capital firms in Silicon Valley. But it’s also a testament to the vision that Armstrong and his team had early on.

SEE ALSO: These Startups Are Betting Everything on Bitcoin

“The press tends to portray Bitcoin as either a speculative bubble or a scheme for supporting criminal activity,” Chris Dixon, an investor at Andreessen Horowitz, wrote in a blog postexplaining the firm’s decision. “In Silicon Valley, by contrast, Bitcoin is generally viewed as a profound technological breakthrough.” Dixon, who will take a seat on Coinbase’s board, went on to argue that the startup’s technology has the potential to “significantly accelerate” Bitcoin adoption.

In an interview with Mashable earlier this year, Armstrong said that he first read about Bitcoin in late 2011 while working at Airbnb and saw an opportunity to create tools to make the digital currency more mainstream. ->

Great Graphic: Bitcoin Concentration / By Marc Chandler / December 12th, 2013

The emergence of the bitcoin is a big story of 2013. One currency strategist from a large bank says fair value is $1300. Another currency strategist has suggested that central banks don’t want to be the last to use it and may put it into reserves, which would challenge the US dollar.

I remain skeptical of both of those claims. That a fair value can be assessed is incredulous. It has no intrinsic value. It generates no income/earnings stream. It has limited utility, that just got even smaller when China’s largest internet platform indicated it would no longer facilitate the use of bitcoins. That the bitcoin (or any so-called digital currency) will be a reserve asset is incredible in the sense that it lacks credibility. The market is too small (overall size and trading volume), too shallow (no bonds, let alone seasonedbond market, or interest bearing securitie), too volatile and does not improve, existing currencies (as it too is not backed by gold or silver). The bitcoin should not even be spoken of in the same breath as central bank reserves. - READ MORE

Bitcoin’s rehab will ultimately determine its true value / By David Glance / 13 December 2013, 12.45pm AEST

As Bitcoin’s backers push for it to become acceptable mainstream currency, its value has become increasingly tied to attempts to break the public image that it’s just a currency for cyber criminals.

It’s for this reason that every suggestion the currency is gaining acceptance by governments sends its price soaring. In November, US Federal Reserve Chairman Ben Bernanke released a letter stating there was no need to regulate Bitcoin and that virtual currencies like Bitcoin held promise as a more efficient and more secure payment system.

This morning Glenn Stevens, Reserve Bank of Australia governor,told the Australian Financial Review virtual currencies like Bitcoin have long-term promise, “particularly if the technology leads to a faster, more secure and more efficient payments system”.

Bernanke’s oblique endorsement of Bitcoin helped lift its price to about US$1200 per Bitcoin. Conversely, negative statements like that made by China’s Central Bank that Chinese financial institutions should not accept Bitcoin sent its value plummeting by over 30% to a low of $814. - READ MORE

Bitcoin: Price v hype / By Vanessa Barford / 13 December 2013

Virtual currency Bitcoin has attracted increasing media attention over the past year. It’s also soaring in value, with a single bitcoin surpassing $1,000 (£613) for the first time in November. So has the media hype driven the price hike?

To the average man in the street, Bitcoin is a complicated concept.

You might grasp what a typical currency is. The pound is influenced by a central bank – the Bank of England. When it puts up interests rates, or it’s expected to, the value of the pound might subsequently go up.

If the Bank of England prints more money, or there is speculation that it will, the value’s probably going to go down. Ultimately, the value’s determined between buyers and sellers on the international markets.

Bitcoin’s a bit different. There’s no central bank. It’s stateless. And the supply of Bitcoin is determined by an algorithm that allows computers around the world to “mine” the currency at a set rate per day. There’s a limit – about 21m – to how many can ever be mined and no way to issue a flood of new Bitcoins and devalue those already in circulation.

The currency’s value – according to about 60 exchanges around the world where Bitcoins are bought and sold – is volatile. Unlike with the dollar or the pound, prices can vary considerably from exchange to exchange, sometimes by as much as $200. -

Friday, December 13, 2013

Bitcoin Law: Compliance and Avoidance Strategies / By Marco Santori / December 12, 2013 at 12:00 GMT

My name is Marco Santori. I’m abusiness attorney for technology companies. In particular, I represent digital currency businesses. I am also the Chairman of the Bitcoin Foundation’s Regulatory Affairs Committee. In this multi-part series, I will give a basic primer on the state of US law as it applies to digital currency entrepreneurs. I aim to help bitcoin businesses assess their risks and develop an informed business model.

In the first two parts of the series, we covered the law of money transmission on the federal and state-level in the United States. We learned that not all digital currency businesses need to register or obtain a license, but for those that do, the process can prove expensive and time-consuming.

So, how can a business effectively comply with the registration and licensing requirements? What alternatives exist? How can a business avoid them altogether?

You can seek licenses, but it’s expensive
The first and most obvious option for complying with state and federal requirements is to register with FinCEN and seek licenses from each of the states in which your customers reside.

Registration with FinCEN is a fairly simple exercise: 15 minutes and a few mouse clicks on FinCEN’s website will satisfy that obligation. The real burden here comes from the ongoing costs of compliance, like verifying customer information and filing Suspicious Activity Reports. - READ MORE

SecondMarket CEO: Wall Street Will Put ‘Hundreds of Millions’ Into Bitcoin / BY BRIAN PATRICK EHA | December 12, 2013

Wall Street is getting ready to dive into Bitcoin, pouring vast amounts of institutional and investor money into the digital currency that has been labeled a “bubble” by former Federal Reserve chairman Alan Greenspan and which not long ago was seen as the sole preserve of crypto-geeks, monetary-theory wonks and anti-government types.

So says Barry Silbert, founder and chief executive of SecondMarket, the online platform that allows its users to trade private company stocks. “We’re three to six months away from Wall Street dollars moving into Bitcoin in a big way,” he says.

Silbert should know: Earlier this fall, he launched the Bitcoin Investment Trust, the first investment vehicle allowing institutional investors to put money into the Bitcoin market while avoiding the hassle of personally holding the currency. The trust is open only to accredited investors, and the minimum investment is $25,000.

Speaking on Tuesday night at a private dinner for Bitcoin cognoscenti in New York, Silbert said he was astonished by the BIT’s performance. “We launched six weeks ago and we’re up to $70 million. That blows my mind. We were hoping to get to $10 million by the end of the year.” - READ MORE

Thursday, December 12, 2013

Bitcoin Fever Catches on in India / By Sudeep Jain / December 12, 2013, 9:00 AM

Bitcoin, a virtual currency which has been gaining popularity globally this year, is catching the attention of India’s youth.

Many college students and young professionals here are seeking to buy bitcoins because they see the currency as the future, and they hope to make big money off of it.

“It’s a good investment option compared to a [traditional] currency because it has a limited supply,” says Jinson Samuel, a 30-year-old website developer in Chennai, who recently started buying bitcoins.

Unlike a traditional currency such as the rupee, which has a physical presence in the form of a note or coin, Bitcoin is a virtual currency which exists only online. The currency is “created” when computers solve complex mathematical problems.

Or, people can buy bitcoins from others who already own them.

More and more Indians have been downloading the software needed to “mine” this currency, according to some data available through the end of September. But creating a bitcoin with an ordinary home computer can take weeks or months. - READ MORE

Coinbase Raises $25 Million from Andreessen Horowitz in Largest Bitcoin Investment To-Date / Michael Krieger / December 12, 2013

As I tweeted at the time, I think Bitcoin began phase two of its growth and adoption cycle upon the conclusion of the Senate hearings last month (I suggest reading: My Thoughts on the Bitcoin Hearing).

I think phase two will be primarily characterized by two things. More mainstream adoption and ease of use, as well as increasingly large investments by venture capitalists. In the past 24 hours, we have seen evidence of both.

First, yesterday we heard that Fidelity will allow its clients to invest in Bitcoin through SecondMarket’s fund in their IRAs. Today, we learn of the biggest investment in Bitcoin to-date. A $25 million infusion into San Francisco based Coinbase by several VC firms, led by Andreessen Horowitz. Coinbase also announced that it has added core Bitcoin developer Gavin Andresen as an advisor. Coinbase now has 600,000 user wallets and is adding an incredible 10,000 new customers per day. - READ MORE

What Bitcoin Arbitrage Can Teach Us About the Crypto-Currency / By Alex Brokaw / Dec 11, 2013 1:16 pm

Parabolic appreciation has thrown Bitcoin back into the spotlight, as Chinese demand for the crypto-currency sent it to an all-time high of $1,260 last Wednesday, up from $200 six weeks ago. A quick rise gave way to a steep dive after China announced a ban on financial institutions conducting Bitcoin transactions and Baidu (NASDAQ:BIDU) stopped accepting Bitcoin payments at the end of last week. The digital currency crashed, dipping below $600 on some exchanges. Positive guidance from Bank of America (NYSE:BAC), which said the currency could become a major form of transaction and gave it a $1,300 price target, and from Citigroup (NYSE:C) which suggested the currency could attract reserve managers as a complement to gold, didn’t buffer the free fall at the time. Although over the weekend and into this week, Bitcoin prices have recovered and are now trading in the high $900s.

Volatility like that in markets that are regulated and not plagued by questions of legitimacy, sustainability, and safety, can be troubling. In barely-regulated, decentralized Bitcoin markets, the risk is incalculable. So how are Bitcoin traders — yes, they do exist — supposed to manage? The same way investors manage turbulent established markets: arbitrage.

It’s a practice as old as markets themselves — an academic paper published in the Oregon Law Review traces put-call parity back to ancient Israel; others have found evidence of arbitrage in Mesopotamia. Bitcoin has provided no exception. - READ MORE

Can Bitcoin replace PayPal? / By Lauren Said-Moorhouse / December 10, 2013

(CNN) – When Bitcoin’s architect first unleashed the idea of creating a decentralized virtual currency on the internet, the tech-savvy elite sat up and listened.

That was in 2008. Just a year later, operating under the pseudonym Satoshi Nakamoto, the unknown developer took the concept live. By year-end, over 1.6 million bitcoins had been mined.

Since then, the meteoric rise of the digital currency has continued to capture the world’s attention as financial institutions now examine its viability.

At a time when many have lost faith in the global financial system, Bitcoin is being hailed as the future of e-commerce.

“It’s lower cost, lower risk and a more accessible form of payment from anything else we have today, especially for shopping online,” says Tony Gallippi, founder of BitPay, a Bitcoin payment processing service.

“Credit cards were designed in the 1950s and were never designed for the Internet. It leads to issues like identity theft and payment fraud.”

Gallippi — who recently testified before a U.S. Senate committee on the growth of Bitcoin — explains that the virtual peer-to-peer currency was created to be “borderless by design,” thus opening the door to the international marketplace for smaller merchants. - READ MORE

BitPay Exceeds $100,000,000 in Bitcoin Transactions Processed / Dec 11, 2013, 9:57am

BitPay Inc, the world leader in business solutions for virtual currencies, announces it has processed over $100 million in transactions this year, and has increased its merchant base to over 15,500 approved merchants in 200 countries. Since the announcement of the new All Inclusive Pricing Plan in October, along with the integration with Shopify in November, the number of new merchants has increased over 50% and the transaction volume has tripled.

“This year, the 2013 holiday season was Adafruit’s biggest ever. We are delighted to offer bitcoin payments via BitPay to our community and customers. It was fast and easy, hundreds of orders and happy customers getting educational electronics, using bitcoin!” shared Limor Fried, Founder and Engineer with Adafruit.

Bitcoin has “clear potential for growth and could become a major means of payment for online transactions” a Bank of America analyst told CNBC. As the number of Bitcoin users continues to increase, merchants such as Adafruit, BTCTrip, Alliance Virtual Offices, and Clearly Canadian, see the value of working with BitPay to help expand their business. -

Are Gold, Art And Bitcoin Worth Your Money In 2014? / By Maggie McGrath / December 11, 2013 11:05AM

It has been a great year for stocks, but T. Rowe Price’s U.S. equity chief warns that investors shouldn’t expect a repeat in 2014.

“Moving forward, U.S. stocks are unlikely to match their recent strength,” he said at a recent even in New York, noting that 2013 marks one of the few years since World War II without at least one more-than 5% correction. Add the fact that at 57 months the bull market is getting long in the tooth and many investors are rightly reconsidering their asset allocation and ways to shift some stock gains into other asset classes.

Not all investment vehicles are created equal, though. Some, like thoroughbreds, are perennially bad ideas if you’re hoping for anything more than a box seat at the track. Others, like Fantex’s proposal for investments in football players, are downright ill-conceived and ought to be avoided unless you don’t mind hanging your hopes (and funds) on an athlete’s health.

Other strategies still can sound good in theory but in practice come with a side of high volatility, high costs or even illiquidity that can prove difficult to shed. The following methods of diversification may sound like sexy alternatives to stocks but bring their own set of complications and are poised for a disappointing 2014:

Real Estate. Real estate — both in terms of illiquid properties and real estate investment trusts — is a strategy to be wary of next year, several experts toldForbes. Why? The very likely possibility of rising interest rates in the new year. - READ MORE

Is Bloomberg Single-Handedly Saving Bitcoin as a Virtual Currency? / By Jon C. Ogg / December 11, 2013 1:11 pm EST

The craze around Bitcoin has been monumental. This will either become a great alternative currency, or it will become one of the most obvious bubbles (after the fact, of course) in modern times. After Bitcoin’s most recent fall from grace, Bloomberg has been running the “12 Days of Bitcoin” as an equivalent of a “Life Around Bitcoin” feature. This may seem like a totally silly notion, but it is possible that this feature may be adding much more interest to what could have been a serious blow, or even the beginning of death, of what many people in the world would like to see become the next real world virtual currency.

Bitcoin was around $910 on last look, but the virtual currency was briefly back over $1,000 on Wednesday. Keep in mind that in recent days this virtual currency fell from over $1,200 down to under $800 before the recent recovery. This same recovery coincides with Bloomberg’s “12 Days” feature airing and the effort is taking up much of the financial news network’s airing time. - READ MORE

Monday, December 9, 2013

How the Bitcoin protocol actually works / by Michael Nielsen / December 6, 2013

Many thousands of articles have been written purporting to explain Bitcoin, the online, peer-to-peer currency. Most of those articles give a hand-wavy account of the underlying cryptographic protocol, omitting many details. Even those articles which delve deeper often gloss over crucial points. My aim in this post is to explain the major ideas behind the Bitcoin protocol in a clear, easily comprehensible way. We’ll start from first principles, build up to a broad theoretical understanding of how the protocol works, and then dig down into the nitty-gritty, examining the raw data in a Bitcoin transaction.

Understanding the protocol in this detailed way is hard work. It is tempting instead to take Bitcoin as given, and to engage in speculation about how to get rich with Bitcoin, whether Bitcoin is a bubble, whether Bitcoin might one day mean the end of taxation, and so on. That’s fun, but severely limits your understanding. Understanding the details of the Bitcoin protocol opens up otherwise inaccessible vistas. In particular, it’s the basis for understanding Bitcoin’s built-in scripting language, which makes it possible to use Bitcoin to create new types of financial instruments, such as smart contracts. New financial instruments can, in turn, be used to create new markets and to enable new forms of collective human behaviour. Talk about fun!

I’ll describe Bitcoin scripting and concepts such as smart contracts in future posts. This post concentrates on explaining the nuts-and-bolts of the Bitcoin protocol. To understand the post, you need to be comfortable with public key cryptography, and with the closely related idea of digital signatures. I’ll also assume you’re familiar with cryptographic hashing. None of this is especially difficult. The basic ideas can be taught in freshman university mathematics or computer science classes. The ideas are beautiful, so if you’re not familiar with them, I recommend taking a few hours to get familiar. -

The Economic Case for Bitcoin / By Laurence J. Kotlikoff, co-authored with Rob Shavell / Dec 6, 2013 2:53 PM EST

Bitcoins have received a bad rap by many economists and journalists. Andrew Ross Sorkin of The New York Times says that bitcoin is, at best, a second-rate version of gold that only people from Mars and presumably other extraterrestrial abodes would take seriously. He also points to the proliferation of bitcoin alternatives, asking if we can “imagine a world in which we all transact with dozens of different currencies every day with different rules?”

Students of monetary history can certainly imagine such a world. The U.S. “greenback” didn’t make its appearance until the Civil War. Before that all manor of currencies circulated on a routine basis in our young country.

Prominent personages, for example, printed up their own currencies, called Bills of Exchange. These were IOUs that promised to exchange a certain amount of gold when the bill was redeemed. Bills of Exchange could be endorsed over to others and used in commerce. As long as they weren’t redeemed, the original issuer was home free – having printed pieces of paper, which he was able to use to acquire real goods and service. Bills of Exchange were common in the early years of the Republic. So were bank notes issued by banks and states, silver and gold coins, minted in Spain and other foreign countries, as well as U.S. government-minted Golden Eagles and other coins. - READ MORE

Is ‘virtual’ the new reality? / December 8, 2013

Tumkur (Karnataka)-based Sathvik V runs his own software company. About six months ago, one of his foreign business partners introduced him to bitcoin, a virtual currency that has been around since 2008. After investing in a couple of bitcoins, Sathvik is now part of a group trying to popularise the currency in India.

Bitcoins were launched by a group called Satoshi Nakamoto. Payments through bitcoins are irreversible, unlike debit or credit cardpayments. A credit card payment, for instance, can be denied to a seller in case of a fraud.

Vikram Nikam is another bitcoin enthusiast. Having worked in the hospitality industry, Nikam has travelled around the world. In 2011, he bought some bitcoins from abroad. Six months ago, Bangalore-based Nikam set up a website that offered products and services catering primarily to non-resident Indians (NRIs). The website offers a lot of food items and services such as donations to charities that are attractive to Indians based abroad. The website accepts payments only in bitcoins. Nikam converts these into rupees or sells to those seeking bitcoins.

Bitcoin is a virtual currency, or crypto-currency, used only for online transactions. Though not backed by any central bank, it is traded on a number of exchanges or swapped privately. It is generated by a process called ‘mining’, for which one requires particular software. Theoretically, it is possible for all computers across the world to run the software and locate bitcoins by solving an algorithm. But it is akin to winning a lottery by solving a puzzle; only some computers can do this because one needs high-end ones with fast processors and uninterrupted power supply, difficult in India. This is what makes bitcoins so valuable, not just in India but worldwide. - READ MORE

eBay Loophole Allows Sale of Bitcoin / Pete Rizzo / Published on December 9, 2013 at 17:30 GMT

Customer service employees from California-based online marketplace eBay have confirmed that virtual currencies like bitcoin and litecoin can be sold on the platform, provided they are housed in physical items (like USB sticks or hard drives).

eBay, the owner of online payment firm PayPal, now boasts over 124 million active members, a figure that has increased 14% from 2012, according to the company’s latest earnings report. In context, Shullman Research Center has suggested 32% of US adults shop on eBay each year.

The company’s UK Media Centre declined a request for comment, so it’s not known at this time if this stance represents official company policy, or if its customer service agents have created their own interpretation of past rules due to demand.

eBay president John Donahoe has suggested in previous interviews that the company may one day accept bitcoin. - READ MORE

Swiss Lawmakers Propose Treating Bitcoin as Foreign Currency / Nermin Hajdarbegovic / Published on December 9, 2013 at 18:50 GMT

The Swiss Parliament is considering a postulate that asks for bitcoin to be treated as any other foreign currency. The goal of the postulate, introduced by representative Thomas Weibel, is to eliminate ambiguities and increase legal certainty related to bitcoin.

If it is approved by parliament, it will be submitted before the Federal Council, Switzerland’s principal executive institution. If the Federal Council agrees that bitcoin should be treated like other foreign currencies, it will also evaluate how to implement the postulate. In addition, the executive was asked to examine the potential bitcoin-related opportunities for the Swiss financial sector.

The postulate petitions the executive branch to reply to four basic questions: whether or not bitcoin represents an opportunity for the financial sector, should bitcoin be treated as a foreign currency, what regulatory instruments should be used to establish legal certainty for bitcoin and similar currencies, and what sort of regulatory changes are needed and when can they be implemented. - READ MORE

Bitcoins in Space! / By Morgen E. Peck / Posted 9 Dec 2013 | 20:57 GMT

Jeff Garzik wants to make satellites part of the Bitcoin network to help secure the currency against attack. Richard Branson, the brazen Brit behind Virgin Galactic, made news last week when he announced that he has begun processing Bitcoin payments from would-be space tourists. (A woman in Hawaii has already booked her ticket, the company says.) But it turns out Branson’s not the only Bitcoin enthusiast looking toward the heavens. Jeff Garzik, one of the core developers of the Bitcoin software and a new addition to the team of developers at BitPay, a Bitcoin payment processor, has been quietly working on a side project aimed at making Bitcoin work by satellite.

Garzik first hinted at his intentions during his “State of the Coin” address at a Bitcoin conference last year in London, where he briefly mentioned that he was working to launch a satellite that would be paid for in bitcoins. Last month, he announced the full purpose of the satellite. According to Garzik, it will repeatedly transmit the most recent block in the Bitcoin block chain—the latest transaction data processed by the Bitcoin network.

In succession, the block chain represents the entire ledger of Bitcoin transactions. And it’s the task of users—anyone running a Bitcoin client—to both validate the calculations contained in the blocks and to send requests for new transactions to the peer-to-peer network of some 2000 to 5000 machines running the Bitcoin reference software. -