- March 14, 2017 - Norton Rose Fulbright acts as a legal adviser to Northern Trust on launch of innovative blockchain technology for private equity sector
- March 2017 - Electronic contracting: commodities market players driving changes in shipping as technology advances
- September 27, 2016 - A few things to consider before patenting blockchain tech
- May 10, 2016 - Hong Kong and Singapore rising as key FinTech hubs, but is China ahead of the curve?
- March 2016 - Financial institutions and blockchain technology
- September 25, 2015 - Insuring cryptocurrency risks
- August 12, 2015 - Cryptocurrency insurance: new currency, new risks
- June 25, 2015 - Cryptocurrencies and mobile payments: all change
- September 13-26, 2014 - Regulatory developments
- September 1, 2014 - Regulatory developments
- August 1, 2014 - Blockchain technology-based equities issuance proposed
- June 13, 2014 - The cryptocurrency juggernaut continues to gather pace
- June 6, 2014 - Dutch central bank cracks down on bitcoin
- May 9, 2014 - The situation in Canada: virtual currencies
- April 17, 2014 - Heartbleed
- April 4, 2014 - IRS’s Decision Aftermath
- March 28, 2014 - Week In Gox
- March 17, 2014 - New Bitcoin Funds
- March 14, 2014 - Chapter 15 Filing
- March 7, 2014 - Too big to fail?
- February 28, 2014 - The Mystery Man
- February 21, 2014 - Bye bye Mt. Gox?
- February 18, 2014 - Bitcoin developments in Canada
- Febuary 14, 2014 - New York, New York
March 14, 2017 - Norton Rose Fulbright acts as a legal adviser to Northern Trust on launch of innovative blockchain technology for private equity sector
Global law firm Norton Rose Fulbright has acted as a legal adviser Northern Trust on the first commercial deployment of blockchain technology for private equity fund administration.
March 2017 - Electronic contracting: commodities market players driving changes in shipping as technology advances
2016’s surprise uptick in commodity prices confounded the majority of market analysts and commentators. There have been unexpected gains in the key steel-making commodities, iron ore and metallurgical coal, which together account for a very significant proportion of the global dry bulk market. These gains are likely to have been driven by a multitude of factors: cuts in Chinese domestic iron ore production; the loss of 30-40m tonnes of seaborne iron ore following the Samarco Mineração disaster; efforts to stimulate the domestic Chinese property market, and a subsequent rally in steel prices; and a general rebound across the commodities sector, fuelled most recently by the election of Donald Trump as the next President of the USA. There remains a possibility that the price rebound will continue, as we venture into what analysts expect to be the worst cyclone season for many years in the Pilbara region of Western Australia, a key hub for iron ore.^Back to top
September 27, 2016 - A few things to consider before patenting blockchain tech
The distributed ledger technology known as blockchain currently is the subject of numerous research projects, especially in the financial services and technology industries. Perhaps not surprisingly, many companies involved in these projects are filing patent applications to protect their innovations, both in the U.S. and abroad. In an August 2016 report, the World Economic Forum reported that more than 2,500 such patents had been filed in the past three years. It also is widely reported that many companies working in this space are leveraging software code that is governed by various open-source licenses. The variety of these licenses and the particular uses by companies of the code that is licensed under them raise a host of issues that, to the uninitiated, could result in significant consequences, including potentially an adverse impact on the ability to enforce any patents that are based on the used (or modified) code.
This article provides an overview of these issues, including a basic description of blockchain technology, a review of the most popular open-source licenses being used in this space, and a summary of how those licenses might impact the enforceability of any patents based on the licensed code.^Back to top
May 10, 2016 - Hong Kong and Singapore rising as key FinTech hubs, but is China ahead of the curve?
Fintech is driving innovation in financial services globally and changing the nature of commerce and end-user expectations for payments and financial services. Regulators, financial institutions and investors are showing growing interest in FinTech development. It has been reported that global investment grew to US$19 billion in 2015, with US$13.8 billion invested into venture capital -backed FinTech companies, while in Asia Pacific, FinTech investment was US$3.5 billion in the first 9 months of 2015, near 4 times that of 2014.^Back to top
March 2016 - Financial institutions and blockchain technology
Over the last few years, the potential to use distributed ledgers and blockchain technology has seen increasing interest from banks and other financial institutions.
From investments in blockchain start-up companies and consortiums to the establishment of innovation labs and the trial use of blockchain technology, banks are alive to the technology’s potential to cut costs and streamline processes in a wide range of areas.
However, as companies move from research and development to initial deployment, one of the key questions is what are the legal and regulatory implications and what approach will regulators across the globe take to its use in the banking industry?^Back to top
September 25, 2015 - Insuring cryptocurrency risks
Insuring cryptocurrency risks
This article was first published in Insurance Day on September 25, 2015, and was written by Bob Haken and Charlie Weston-Simmons of Norton Rose Fulbright.
While the issues posed by Bitcoin risks are not straightforward, the insurance industry should be looking carefully at the risks it is prepared to cover and on what terms.
When the first and best known cryptocurrency, Bitcoin, was unveiled in 2009, few would have predicted that by 2015 its economic potential would have captured the attention of investors, the media and consumers.
For while Bitcoin does not yet enjoy the same status and confidence of established fiduciary currencies such as the US dollar or sterling, indications are this may not be far off. In recent days, for example, an Australian Senate committee has tabled proposals that would see Bitcoin and other digital currencies treated in the same way as fiduciary currencies for tax purposes. Also, hardly a week seems to pass without a major online retailer declaring its support for Bitcoin as an instrument of payment.
If the acceptability of Bitcoin and other virtual currencies does continue on its present upwards curve, demand for insurance to protect against the particular risks associated with them will increase. This demand may not only come from Bitcoin owners, but also from financial institutions involved in the processing and trading of transactions and service providers. Indeed, it has been widely publicised that Bitcoin storage providers are already offering cover to consumers against storage vault failure.
With an embryonic market already developing and appetite set to increase, it is a good moment to consider the potential difficulties of insuring cryptocurrency risks and some possible features of policies governed by English law. This assumes Bitcoins are insurable and that, in each case where a policy is issued, the policyholder has the requisite insurable interest.
While this is not something that has been tested in the courts, the absence of any prohibitive legislation in this jurisdiction or obvious public policy difficulties, coupled with the inherent value of a Bitcoin to its owner, suggests this threshold requirement is unlikely to be an issue in practice.
Private and public keys
On that basis, a central question is likely to be the nature of the risks insurers are willing to underwrite, given the specific features of Bitcoin which are the source of its attraction to consumers.
First, the economic value of a Bitcoin may only be unlocked when a private key, known only to the Bitcoin's owner, is used in combination with the corresponding public key. As a result, it should only be possible for a Bitcoin to be lost or stolen if the private key is disclosed to a third party or is taken.
Second, Bitcoin transfers are irreversible and untraceable. This may suggest an increased exposure to fraudulent claims. However, it may also make it difficult for insurers to exercise subrogation rights effectively.
Third, although a cryptocurrency is intended to operate as a decentralised, peerto- peer ledger which should not be susceptible to systemic risk, the sophistication of the underlying technology may make it difficult for insurers to evaluate the possibility of system collapse.
In view of these issues, insurers may keep the scope of cover that they are willing to provide within defined limits. At the same time, they may also wish to include additional protections in their policies to mitigate their exposure to the most likely sources of loss, such as breaches of electronic security and loss of confidentiality in relation to the private key.
On the security side, an important concern for insurers of Bitcoin balances will be to satisfy themselves that the policyholder's systems and "wallet" (where the policyholder's private and public key information is stored) are sufficiently robust to withstand hacker-related theft.
While suitably worded warranties and exclusions are a possibility, the answer to this problem may be found in the limited number of first-party Bitcoin policies seen to date. These policies are offered by third-party service providers as part of a secure storage service package, giving the insurer the comfort the insured property is held securely without the need to interrogate the integrity of the policyholder's own systems.
As for confidentiality, because Bitcoin balances can only be accessed using the private key, insurers may look to protect themselves by including a warranty that the private key is kept confidential or, particularly for corporate entities with substantial holdings, that balances are spread across a number of wallets to avoid a concentration of risk, with a limited number of specified individuals having access to the necessary keypair information.
For additional protection, insurers might also exclude cover for losses occasioned by the policyholder's own actions, deliberate or otherwise.
Finally, two further possible features of Bitcoin policies are also worth considering. First, insurers will need to think carefully about covering the risk the Bitcoin system or the technology behind it fails. Arguably, these are commercial risks which the policyholder assumes when making the original investment.
Second, although it has been more stable recently, for most of its existence the Bitcoin exchange rate has been highly volatile, peaking at approximately $1,200 in November 2013. To overcome this instability and fix the insurer's exposure, limits of indemnity should be expressed in a fiduciary currency accompanied by a carefully constructed basis of valuation clause.
As the market gets to grips with this new sector, Bitcoin risks will continue to be analysed and policy wordings refined. The innovative technology and unusual characteristics of the underlying subject matter make this exercise challenging but while the issues posed by Bitcoin are therefore not straightforward, the insurance industry will be looking carefully at the risks it is prepared to cover and on what terms.^Back to top
August 12, 2015 - Cryptocurrency insurance: new currency, new risks
Cryptocurrency insurance: new currency, new risks
This article was first published in Insurance Day on September 25, 2015, and was written by Bob Haken and Charlie Weston-Simmons of Norton Rose Fulbright.
Identifying the risks associated with virtual currencies and providing appropriate cover against them remains the challenge for insurers
In the turbulent events of recent weeks, a less heralded development was the news speculators and depositors had been transferring their assets into bitcoins as a “safe haven” – confirmation, perhaps, that the web-based cryptocurrency could now be regarded as a viable alternative to established “real” currencies.
As bitcoin and other virtual currencies become more prominent, demand for cryptocurrency insurance will increase. A market for such products is already emerging, but identifying the particular risks associated with virtual currencies and providing appropriate cover against them remains the challenge.
For the uninitiated, a brief introduction to the technology behind cryptocurrencies may be helpful, taking bitcoin as an example. When a bitcoin is acquired, the owner’s interest is recorded in a two-part cryptographic key, known as a “key pair”. One part of the key pair, the “private key”, is known only to its owner. The other part of the key pair, the “public key”, is publicly available.
When the owner wishes to transfer or spend a bitcoin, the unique combination of the owner’s private and public keys is the only way of getting the currency from A to B, where the recipient may only unlock the bitcoin’s value using their own private key. Transactions are pseudonymously recorded in a decentralised ledger, known as a “block chain”.
For insurers considering insuring cryptocurrency risks, a number of issues arise (assuming such risks are insurable in any particular jurisdiction). First, the difficulty of proving a bitcoin has been stolen would suggest a significant potential for fraudulent theft claims. Second, accidental disclosure of the private key could give rise to many insured losses, unless warranties as to effective security measures are given.
Third, while the underlying technology may seem robust, its sophistication may make systemic risk (for example, total collapse of the bitcoin system) difficult to model. Fourth, the irreversible and anonymous character of cryptocurrency transactions may pose an insurmountable obstacle to the effective exercise of subrogation rights, with implications for pricing.
If virtual currencies really are the future, the insurance industry will need to look carefully at the risks it is willing to cover and on what terms. However, with its track record for innovation, there is every reason to expect it will rise to the challenge.^Back to top
June 25, 2015 - Cryptocurrencies and mobile payments: all change
Article featured in Practical law, June 25, 2015
Cryptocurrencies and mobile payments: all change and was written by Mike Rebeiro, Peter Snowden, Victoria Birch and Jamie Gray, Norton Rose Fulbright
September 13-26, 2014 - Regulatory developments
Isle of Man-based cryptocurrency exchange finds British banking partner
The Isle of Man’s efforts to establish itself as a cryptocurrency centre suffered last month when Capital Treasury Services Limited, the Isle of Man subsidiary of the Capital International Group, withdrew support for the digital currency sector on the Isle of Man, at the instance of its British banking partners. Now Netagio, a high profile bitcoin exchange, has announced a partnership with WalPay, an Isle of Man-based payment services provider, that will allow customers to deposit funds denominated in GBP, EUR or USD and trade them for bitcoin. These facilities will be provided in accordance with the requirements of the European Payment Services Directive. Read the articles at Inside Bitcoins, British Banks Refuse to Service Bitcoin Businesses on the Isle of Man and British Bitcoin Exchange Clears Banking Hurdle with New Partnership.
Swiss Federal Intelligence Service considered using bitcoin for paying informants
Documents unearthed in the course of a corruption investigation have revealed that the Swiss Federal Intelligence Service considered the possibility of using bitcoins to pay informants, emphasizing, among others, the anonymity of cryptocurrency as a major benefit to its use for these purposes. Other advantages to this shift include: “No couriers, no international bank transactions, solid contract and payment environment, disguise and ‘plausible deniability’, reduced costs.” Read more at CoinDesk.
Isle of Man hosts cryptocurrency summit
The Isle of Man recently hosted the Crypto Valley Summit, which sought to provide a forum for experts to engage in discussions, and to highlight the island’s attempts to pitch itself as a global jurisdiction for cryptocurrency businesses. Read more at IOMToday.
Paypal launches partnership with Bitcoin processors
Paypal recently announced a partnership with cryptocurrency processors BitPay, Coinbase and GoCoin, under which PayPal merchants would be able to accept cryptocurrency as consideration for digital good such as online games and downloadable songs. Read more at Forbes.
Plummeting bitcoin prices linked to Alibaba IPO
Recent, drastic falls in the value of bitcoin have been linked to Alibaba’s wildly successful IPO, as analysts believe that many European and Chinese bitcoin investors liquidated their positions to invest in Alibaba. Read more at IBTimes.
Interesting cryptocurrency analyses this fortnight
WSJ on whether it’s time to invest in cryptocurrency; can the Federal Reserve ever be as transparent as bitcoin exchanges?; the potential of cryptocurrency and dark wallets to conceal terrorist financing.
Regulatory developments this fortnight
Russia may pass legislation preventing the use of cryptocurrency as tender, and restricting its convertibility for currency, by 2015.^Back to top
September 1, 2014 - Regulatory developments
Regulatory developments this fortnight
- Australia determines tax treatment: the Australian Taxation Office issued guidance clarifying that bitcoin would be treated as property for tax purposes, including for the purposes of income tax, goods and services tax and fringe benefits tax.
- North Carolina decides bitcoin already covered under existing legislation: the North Carolina Commission of Banks (responsible for financial regulation in North Carolina) has announced that the North Carolina Money Transmitters Act (which imposes licensing requirements on companies with net worths of US$100,000 or more) applies to virtual currencies including bitcoin.
Interesting cryptocurrency analyses this fortnight: Delegated Proof of Stake (DPOS) as a easier, more efficient substitute for Bitcoin’s proof of work consensus algorithm; Citi predicts continuing downward movement in bitcoin prices.
Efforts underway to turn Bali into a bitcoin haven: Two bitcoin entrepreneurs from Indonesia—Oscar Darmawan and William Sutanto have announced plans to convert the entire island of Bali into a bitcoin haven. Their plan involves approaching businesses on the island and convincing them to start accepting bitcoin as payment, providing technological assistance where required, and installing bitcoin ATMs and information centers on the island, until the entire island accepts bitcoin and travelers have the freedom to travel without physical money. Analysts note that a number of factors contribute to making the plan feasible, including: (i) a pre-existing and developed bitcoin culture; (ii) well-developed cellular and telecommunications capabilities facilitating the use of Bitcoin technology; and (iii) a national regulatory framework that allows the transactions involved. Read more at Good.
Report indicates sharp upswing in phishing attacks: A recently released report from the Anti-Phishing Working Group (APWG) notes that the first quarter of 2014 saw the second-largest number of phishing attacks ever recorded in a single quarterly period (the largest being in 2012), and a sharp increase in attacks against online payment and cryptocurrency services. Read more at BusinessWire and the APWG website.^Back to top
August 1, 2014 - Blockchain technology-based equities issuance proposed
- Blockchain technology-based equities issuance proposed… – Overstock.com CEO Patrick Byrne moots proposal for blockchain technology to be used to develop cryptosecurities. “In an echo of the bitcoin digital currency, this would be a stock that’s controlled by cryptographic algorithms running across a network of computers owned by people and companies spread across the globe. In other words, all stock trades would be governed by tools in the hands of the general public rather than by a traditional stock exchange, such as the NASDAQ or the New York Stock Exchange, and these trades would be mathematically verified and recorded in an online ledger that anyone can view at anytime.” This proposal forms the latest in Byrne’s efforts to eliminate loopholes that are exploited by investors at the expense of corporations including naked shorting and purposeless high-speed trading.
- …but maybe it’s not such a great idea after all – London associate Preston Byrne (no relation) had an opportunity to comment on Patrick Byrne’s proposal in the book Bitcoin: the Anatomy of a Money-Based Informational Commodity, published on the 4th of August, giving it a less than stellar review. Preston said: “In the short-term, it seems likely that the platform will be used by fringe crypto-equity issuers who are willing to sell what they purport to be financial instruments over the blockchain without complying with the necessary formalities. Although this may seem an acceptable solution for cryptocurrency enthusiasts, anyone issuing or investing in such products does so at their peril - it is all but certain that these issuances contravene the accredited investor statutes and public offering rules, and the likelihood of obtaining adequate remedies against a purely blockchain-based enterprise in the case of fraud or default is low if not non-existent.” Preston concludes: “there are numerous ways to use blockchains to democratise access to finance. Crypto-equity is not one of them.”
- World’s first successful commodity order using a commodity-backed cryptocurrency – “Green Earth Systems Limited, Hong Kong (GES HK), a global broker of urea fertilizer, has completed the first ever trade of urea fertilizer in exchange for Urocoin (URO). The Urocoin, created and maintained by the URO Foundation, is a commodity-backed encrypted digital currency based on Bitcoin technology, also referred to as a “cryptocommodity.” To date, four major commodity suppliers have pledged to accept Urocoin as payment for urea: Green Earth Systems Limited (GES, HK), Urea Trading India, Crown Team Corporation, HK and CCL Pillay Group, SA.”
- Possible involvement on “mining contract” structured finance matter – contact Gary Thomas (Australia) or Peter Young (London) for details.
- New digital currency trading platform – “Brisbane bitcoin startup Diamond Circle is teaming up with Sydney-based Fix8 Market Technologies to develop a new digital currency trading platform based around Fix8, which it says is the fastest open source C++ Financial Information Exchange Protocol Framework. The Fix protocol is an open messaging standard that is used by banks and other proprietary trading operations to communicate with each other for the purpose of trading.” More information.
- Bitcoin Demo Day on Capitol Hill – Three U.S. Congressmen host “Bitcoin Demo Day” on Capitol Hill, including educational events hosted by bitcoin industry representatives.
- Interesting cryptocurrency analyses this fortnight – Distributed Autonomous Corporations: the future for decentralized corporations; history of cryptocurrency self-regulation; role of cryptocurrency in the supply chain.
- Regulatory developments this fortnight – Ecuador bans bitcoin and other cryptocurrencies in favor of national Ecuadorian cryptocurrency; Bitcoin Foundation releases analysis arguing that bitcoin is well-covered by existing Canadian legislation and may even be subject to double taxation. 119378/9
June 13, 2014 - The cryptocurrency juggernaut continues to gather pace
The cryptocurrency juggernaut continues to gather pace, with new cryptocurrencies, more cryptocurrency ATMs, and a large number of apps and services accepting cryptocurrency payments.
Group of miners briefly controls Bitcoin—The big story this fortnight was the temporary acquisition of control over Bitcoin by a bitcoin mining pool called GHash.io.
The integrity of the Bitcoin network is dependent on miners—who donate computational power in order to verify the validity of transactions on the network—competing with each other to verify them. The problem with one single miner controlling the majority of the network’s computational power is that miner could, in theory, confirm transactions which are not valid more quickly than other miners could falsify them—thus granting the miner with 51% or greater of the network’s hashing power to effectively create bitcoin out of thin air, in what is known as a “51%” or “double-spending” attack. The ability of an individual or organisation being able to create bitcoin outside of the usual algorithmically-controlled way has obvious repercussions for the integrity of Bitcoin, compromising the predictability of the money supply and therefore its value.
It would also compromise the anonymity of Bitcoin—as it allows governments to focus on a single majority miner to compel production of evidence. This week’s crisis was resolved when one of the members of the network immediately agreed to remove some of the consortium’s resources from the pool, and GHash.io has since issued statements emphasizing its commitment to the integrity of Bitcoin. The incident has prompted concerns and fears as to the integrity of Bitcoin, and proposals of reform include, interestingly, application of antitrust laws to bitcoin mining.
- We Can No Longer Ignore Bitcoin's Fatal Flaw, Motherboard – June 16, 2014
- One Bitcoin group now controls 51% of total mining power, threatening entire currency’s safety, Extreme Tech– June 16, 2014
- GHash.IO is Much Ado About Nothing, But Highlights Bitcoin's Seedy Side, Daily Tech– June 19, 2014
- Prices Fall As Bitcoin Confronts Doomsday Scenario, Business Insider– June 14, 2014
Largest successful cryptocurrency mining-motivated hack features Dogecoin - Hackers successfully hijacked network-attached storage (NAS) drives manufactured by Synology to mine Dogecoin worth over US$600,000. NAS drives are popularly used to share files amongst network computers and thus provide an electronic route into electronic devices. The perpetrator exploited flaws exposed in September 2013, and which were thought to have been patched, to infect NAS Drives with malware. The attacker was then able to hijack the computational power of these devices to mine Dogecoin – thus, technically stealing computational power rather than cryptocurrency itself.
- Hacked Synology NAS systems used in high-profit cryptocurrency mining operation, PCWorld - June 16, 2014
- Hacker amasses $620,000 in cryptocurrency using infected computers, We live security - June 18, 2014
- NAS device botnet mined $600,000 in Dogecoin over two months, ZD Net, June 18, 2014
Silk Road bitcoin auction – The US government is auctioning off bitcoins seized from Silk Road. Interestingly, notwithstanding its ambivalence to cryptocurrency, the American government seems to have been monitoring the bitcoin market, and has timed the auction to coincide with a surge in the value of bitcoins.
Interesting cryptocurrency analyses this fortnight – Dogecoin price should rebound soon; Understanding bitcoin’s true potential; Can cryptocurrency disrupt money; Institute of Economic Affairs on why the UK should embrace cryptocurrency; Entrepreneur Shakil Khan on cryptocurrency.^Back to top
June 6, 2014 - Dutch central bank cracks down on bitcoin
Dutch central bank cracks down on bitcoin
On 3 June 2014, the Dutch central bank cracked down on virtual currencies, classifying them as “high-risk products”
In a warning issued to banks and payment institutions, the Dutch central bank cited the anonymity offered by virtual currencies including bitcoin and altcoins as raising integrity risks. The anonymity provided by Bitcoin prevents financial institutions from ascertaining the identity of clients, increasing the risks of financial institutions supporting money laundering and other illegal activities. The Dutch central bank explicitly stated that it was apprehensive about the ability of financial institutions to maintain integrity and adherence to legal procedures in the face of anonymity.
Based on this assessment of the risks associated with dealing in anonymous virtual currencies, the Dutch central bank ominously promised enhanced supervision and regulation of financial institutions dealing in virtual currencies during 2014. It indicated that the focus of such enquiries would be on determining whether such financial institutions had adequately conformed to relevant procedures regarding client assessment and monitoring, and integrity risks.
See the official statement (in Dutch).
Apple to allow apps using virtual currencies
Apple has released revised App Store Guidelines which permit the sale of apps that use “approved virtual currencies”, provided that they do so in compliance with any laws that might apply in the territories in which the apps are operational. The revision does not explicitly refer to bitcoins, nor does it explain what an “approved virtual currency” is, but the revision is commonly being seen as an implicit nod to apps using virtual currencies.
This revision comes on the heels of a decision earlier this year to remove all apps using the bitcoin wallet from the App Store. At the time Apple representatives had indicated that the removal directive was occasioned by concerns as to the legality of the virtual currencies in all the jurisdictions in which the apps might be used. However, the terms of the revision in the guidelines seem to indicate that the reversal has merely shifted the onus of the legal burden to the developers and sellers of the apps.
Bitcoin is back: digital currency skyrockets as Apple changes its app store policy, The Independent – July 3, 2014
SEC fines floater of Bitcoin IPOs
Eric Voorhees has been fined by the US SEC for failing to meet registration and disclosure requirements for two online ‘IPOs’ denominated in bitcoins. The ‘IPOs’ involved the sale of shares in two ventures – SatoshiDICE (a gambling website operating in bitcoins) in August 2012, and FeedZeBirds (a Bitcoin twitter advertising platform) in May 2012 – over the internet for amounts denominated in bitcoins. The SatoshiDICE bitcoin raised 50,600 bitcoins (US$700,000), and the FeedZeBirds IPO raised 2,600 bitcoins (US$15,000). The shares were traded on unregistered exchanges operating outside the US.
In July 2013 Mr. Voorhees sold SatoshiDICE and in the process bought back all the issued shares for 45,500 bictoins (~US$3.8 million). Interestingly, the purchasers of the SatoshiDICE shares lost about 10,000 bitcoins but gained about US$3 million.
Mr. Voorhees was living in the US when he launched these IPOs, thus triggering the jurisdiction of the SEC. Under the terms of his agreement with the SEC he has agreed to return the outstanding US$15,000 in FeedZeBirds share capital, pay a fine of US$35,000, and has also agreed to not sell any more securities. This is possibly the first instance of the SEC explicitly forbidding the sale of securities in exchange for bitcoins. Unfortunately, the terms of the agreement require Mr. Voorhees to return to his investors the USD-denominated amount that he received from them—US$15,000, equivalent to 2,600 bitcoins; however, the present-day USD value of 2,600 bitcoins is approximately US$1.75 million.
Illegal Bitcoin IPO Actually Worked Out Pretty Well for Investors, Bloomberg View, June 3, 2014^Back to top
May 9, 2014 - The situation in Canada: virtual currencies
The situation in Canada: virtual currencies – John Jason, Partner, Toronto
February 2014, the federal government announced in a budget speech in Parliament that it intended to introduce legislation to amend Canada’s anti-money laundering regime to address emerging risks, including virtual currencies, such as Bitcoin, that, the Government said, threaten Canada’s international leadership in the fight against money laundering and terrorist financing.
The Government then tabled an omnibus Bill in Parliament that would amend a number of statutes, including the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. The amendment to the Act will make persons that engage in the business of dealing in virtual currencies subject to the Act. Further, the amendment will attempt to include in that category persons that do not have a place of business in Canada but that have Canadian customers.
Under Canada’s current legislative structure, the definition of a virtual currency and the exact requirements for dealers in virtual currencies with be set out in Regulations to be made under the Act. The Regulations cannot come into force until the Act is formally amended and the Government has yet to publish a draft or given any indication of these details.^Back to top
April 17, 2014 - Heartbleed
It was revealed last week that over half the internet could have been compromised by a two-year-old security flaw that also could affect a number of online Bitcoin services. The Heartbleed bug was made public by Google and Codenomicon, a small Finnish security firm, which independently identified the problem. This bug is one of the biggest vulnerabilities ever found, because it is in a very commonly used security software (OpenSSL) and had been open for two years. The threat posed by the vulnerability is very serious, exploitation of this bug leaves no trace of anything abnormal happening and hackers can exploit it to steal information. The flaw has been fixed in the latest version of OpenSSL but users are still encouraged to change usernames and passwords on affected sites. Find a chart of the major sites affected by the bug here.
The first evidence of cyber thefts as a result of the Heartbleed bug has emerged with social insurance numbers stolen from the Canadian tax authority and passwords and private messages accessed from the UK site Mumsnet. However, the news quickly translated into industry-wide action and the servers of the major Internet companies across the world were updated to eliminate the risk. New Bitcoin software fixing the bug was also out and the vulnerability has been patched by major Bitcoin exchanges in a matter of hours.
Mt.Gox enters liquidation
Defunct Bitcoin exchange Mt. Gox is giving up its plan to rebuild under bankruptcy protection and has agreed with a Tokyo court on the first step toward liquidation, as a court-appointed administrator took over management of the exchange. Mt Gox announced yesterday that the court had dismissed its application for rehabilitation; that the investigation into the "disappearance" of the coins would require a lot of time; and that, in spite of interest from "sponsor candidates" there were no immediate prospects for the restart of the business. Instead, it would enter a court-administered liquidation. People close to the exchange said it gave up reorganization efforts partly because of the difficulty of consulting with the company's 127,000 creditors.
For creditors in bankruptcy cases, a switch to liquidation usually means they will recoup less of their investment. A company under bankruptcy protection continues to operate and can use revenue for repayment if rehabilitated, while in a liquidation, creditors receive only a share of the proceeds from the company's assets.
Mt. Gox also has a Chapter 15 bankruptcy filing pending in the US, aimed at safeguarding its US assets, and Mr. Karpeles, the exchange’s CEO, was ordered to appear for a deposition in Dallas by US Bankruptcy Judge Stacey Jernigan. Mr. Karpeles's lawyers said on Monday that he wouldn't attend the deposition. On Wednesday, Judge Jernigan said she wouldn't hold Mr. Karpeles in contempt for refusing to attend the deposition, citing the company's sweeping management changes.
National Australia Bank dissociates itself from Bitcoin
The National Australia Bank (NAB) has decided to turn its back on Bitcoin, informing bitcoin-related customers it will be closing their accounts next month. The news is significant as NAB was previously Australia’s most bitcoin-friendly bank, with their representatives actively seeking to build relationships with Bitcoin businesses and working with them to understand digital currency issues like fraud prevention.
NAB produced a report on Bitcoin for its currency traders last December, where it compared Bitcoin and digital currencies with existing national currencies. The report was generally neutral in tone, but said Bitcoin would take a few more years to achieve mainstream acceptance.
The bank did not give a reason for its policy change, however Mizuho, one of Japan’s largest banks, may have spooked other large banks around the world when it was named as a defendant in the US class action lawsuit against departed exchange Mt. Gox. The complaint stated that by continuing to provide banking services to Mt. Gox, Mizuho “profited from the fraud”
Facebook’s mobile money
It was reported this week that Facebook is exploring an electronic mobile money service that would allow users throughout Europe to exchange units of monetary value through a process called “passporting”. Passporting allows businesses to conduct operations in the European Economic Area (EEA) under a single market directive, which would enable Facebook’s credit institution to reach multiple markets.
The European Banking Authority suggests that armed with this classification, Facebook would be able to receive deposits from the public and grant credits for its accounts anywhere in the EEA. These units of value would represent claims against the company, which would then be exchanged. According to reports unconfirmed by the company Facebook has so far spoken with three companies – Azimo, Moni Technologies and TransferWire – about the service.
However, major Bitcoin investors don’t see the social networking service as a significant threat to Bitcoin. One of the foremost reasons, according to Wedbush Securities managing director Gil Luria, is that Facebook is still relying on the same antiquated infrastructure of companies like MasterCard and Visa for payments.
Reports, videos, etc.
If you are interested in bitcoin mining, CoinDesk prepared a useful overview.
Also you might be interested to watch these videos which give some insight into how the cryptocurrency world operates:
- A look inside a 'Cybersquat': BBC Click's Jen Copestake spent a week in one of the most renowned squats in Barcelona, following the developers of Bitcoin tools and other open source software.
- BullionBitcoin: Inside the Offshore Vault Where Gold Trades for Bitcoin.
April 4, 2014 - IRS’s Decision Aftermath
IRS’s decision aftermath
The Internal Revenue Service (IRS) guidance on digital currencies was released only on 25 March but a petition to amend the IRS’s notice has been filed this week on the official website of the White House. The petition argues that the IRS’s recent ruling on digital currencies is “overly burdensome”, and that by imposing capital gains on all transactions, the policy will hurt innovation in the sector.
Bitcoin operates as a currency but the IRS does not recognise it as such. Foreign currency gains and losses generally taxed as ordinary income. Gains or losses from the transactions with property (such is bitcoin according to the IRS) are taxed as capital. The IRS’s guidance seems to discourage the use of Bitcoin as a payment system as it imposes the burdensome requirement of capital gains reporting.
However, it was also noted that there is at least one upshot of last week’s decision from the IRS: for investors that have suffered from a fall in the cryptocurrency’s value (about 40 per cent since January) these losses will be tax deductible.
Clampdown in China
In late March, reports broke that the Chinese government will begin penalising any bank transacting with bitcoin exchanges after 15 April 2014. Bitcoin is very popular in China - according to the website which tracks the bitcoin sales the country buys almost 10,000 bitcoin an hour.
In December 2013, the People's Bank of China issued a notice which restricted financial institutions and payment providers from conducting transactions in bitcoin. The bank also instructed third-party payment processors to stop doing business with Chinese bitcoin exchanges. This decision has already taken down one major exchange, BTC China, which closed two weeks after the announcement of the new policy.
This week BTC38, one of the biggest Chinese bitcoin exchanges, has closed its doors to new deposits. BTC38 announced to its users on Wednesday that the company had to suspend the use of third party payment processors due to central bank policy. The exchange reassured users that it had assets greater than its customers' bitcoin reserve. The suspension, it says, won't risk the loss of users' funds.
M-Pesa in Europe
Bitcoin is not the only weapon of the e-finance revolution. In Africa and India a service called M-Pesa has replaced banking for millions of people without a bank account. The mobile payment system is to come to Europe soon, as its operator Vodafone has acquired an e-money licence to operate financial services in Europe.
Vodafone plans to launch M-Pesa (M for mobile and pesa is Swahili for money) in Romania first as it hopes to win over an estimated 7m Romanians who mainly use cash and a majority of them have at least one mobile device. M-Pesa first launched in Kenya in 2007, where it has proved wildly popular with unbanked subscribers. It has also won such markets as Tanzania, Fiji, South Africa, the Democratic Republic of Congo, India, Mozambique, Egypt and Lesotho. Its total user base stood at 16.8 million customers at the end of 2013.
It should be noted that M-Pesa is not a cryptocurrency but a mobile-phone based money transfer and microfinancing service. However, launch of M-Pesa in Romania is certainly an interesting experiment to watch.^Back to top
March 28, 2014 - Week In Gox
Week In Gox
Mt. Gox announced on Wednesday that it is now working with police to investigate what happened to bitcoins it lost. The Bitcoin community, in its turn, was busy this week discussing a tweet made by Eren Canarslan, an investment banker from Turkey. Eren claimed that Mt.Gox within a few days or even hours would announce that missing bitcoins were found. So far no announcements followed this revelation. The news comes one week after the exchange confirmed that it had discovered 200,000 bitcoins in an old-format wallet.
Also this week a new report by researchers at ETH Zurich University in Switzerland has concluded that after all Mt. Gox may have lost only 386 bitcoins due to issues related to transaction malleability. The authors found that only 302,000 bitcoins could have ever been involved in malleability-related attacks, and only 1,811 were likely to be part of attacks that could have prevented Mt. Gox users from making withdrawals. The Bitcoin community mostly greeted the research as a proof of previous suspicions of mismanagement or, even, fraud. Some critics pointed to the limited period of study, the limited reach of the information and the inability of researchers to observe how Mt. Gox may have modified transactions. Read the full report.
Lawyers advising claimants in the US class action against the insolvent exchange say they are currently working to investigate the movement of the funds at Mt.Gox. The next scheduled hearing is expected to take place on 1 April 2014.
IRS says Bitcoin is property
The US government will treat bitcoin as property for tax purposes, applying rules it uses to govern stocks and barter transactions, the Internal Revenue Service said in its first substantive ruling on the issue. Read the IRS Virtual Currency Guidance, including a set of 16 questions and answers.
The guidance was very much anticipated, since it is now only three weeks before the end of the US tax year. So It is official: the IRS has said that bitcoin should be treated as property, making it subject to capital gains tax. For those buying and selling bitcoin as an investment, the principle of calculation of gains and losses is the same as for buying and selling stock. For those treating bitcoin like cash, for example for buying the cupcakes or the expedition to Everest, transactions may result in a gain or a loss. In this case, it might prove to be difficult to figure out the cost basis or the holding period. Theoretically, the new rules will encourage a long-term investment in bitcoin rather than using it as a payment method.
There are almost 200 virtual currencies which are currently traded on the Internet. None of them are approved by the government or the regulating authority. On midnight Monday this week, Auroracoin, the “cryptocurrency for Iceland”, began distributing the coins to residents of the country. This distribution, which is called Airdrop, will grant 31.8 auroracoins, or roughly $380 per person, to everyone listed in an Icelandic national ID databse. It was reported that after the commencement of Airdrop 2,600 people have claimed their currency allowance in less than 12 hours.
Back in 2008 Iceland remarkably did not bail out the country’s banks following the financial collapse but imposed strict capital controls. The Icelandic krona lost more than 50% of its value during the crash. The new digital currency may provide a partial solution to local businesses which struggle to attract the foreign investors.
Iceland's Central Bank has warned that while it's up to Icelanders whether they choose to use auroracoin for domestic transactions, use it for cross-border transfers of foreign currency would be illegal under the country’s Foreign Exchange Act.
The idea of Auroracoin and Airdrop belongs to the entrepreneur Baldur Friggjar Odinsson. It appears that it is not a real name, it is a pseudonym chosen from the Norse mythology. Baldur, the son of Frigga and Odin, was the most handsome and noble of all the gods. He is described as “one of the most beloved of all the gods… a generous, joyful and courageous character” who was killed by the “wily and disloyal” god of Loki. The name Aurora originates from the Roman goddess of dawn.
Some time ago during the financial crisis, there was talk of distributing new printed money (quantitative easing) as ‘helicopter money’. A drop of cash would result in people catching coins falling from the sky. The economy would recover as consumers run to spend their newfound money. It is now probably time to see this theory in action.^Back to top
March 17, 2014 - New Bitcoin Funds
New Bitcoin funds
The Bitcoin world is mainly dominated by startups and individuals but there are more initiatives on the horizon intended to bring the professional players on the stage.
Pantera Bitcoin Partners Fund
Fortress Investment Group, a global investment firm with approximately $61.8 billion in assets under management, manifested this week its intention to create a fund for investments focused on virtual currencies. In this effort, it plans to team up with another hedge fund Pantera Capital and two venture capital firms. It is reported, that Fortress is swapping its $13m holding of bitcoins as part of a deal that will hand it an equity stake in Pantera Capital Management, the manager of the three-month old Pantera Bitcoin Partners fund.
Pantera, which managed investments in this field for Fortress before this agreement, has a stake in payments platform Ripple Labs and a $10 million investment in Slovenia-based bitcoin exchange Bitstamp Ltd. Fortress was the first mainstream investment company last year to list bitcoin among its assets on the balance sheet.
Bitcoin Investment Trust
SecondMarket Inc. revealed this week that its Bitcoin Investment Trust, a private investment vehicle for high net-worth investors, would open its doors to the general public as soon as Q4 2014. The Bitcoin Investment Trust buys and sells bitcoins, allowing investors to place bets on the digital currency without owning it directly. It held $54 million in assets under management as of Tuesday, according to its website. It is planned to list the fund on OTC Markets, an electronic exchange.
SecondMarket is now seeking approval from OTC Markets and the Financial Industry Regulatory Authority, a self-regulatory body, to market the trust to investors. The New York firm is lining up investment banks that would act as market-makers, or make commitments to buy or sell shares in the fund, and is screening law firms to act as a securities expert.
A history of Bitcoin hacks
Sometimes it seems like not a week goes by without news of some Bitcoin service getting attacked and losing everything. The history of the currency to date can be told in its hacks. The Guardian presented this week its timeline of the bitcoin break-ins, ponzi schemes and professional thefts.
Update on Mt.Gox
Uncovered pot of crypto-gold
The chief executive of Mt.Gox posted a statement this week that 200,000 bitcoins were uncovered in one of the old wallets. This amount would equate to just over 23% of the entirety of the funds presumed lost by the company due to the theft that is said to have occurred on the exchange for a period of several years. However, it is reported that this old wallet was in use prior to June 2011 and these bitcoins may be separate from the funds claimed to be stolen.
This revelation coincided with a report that a US judge yesterday lifted the restraining order imposed last week on some trades that include fractions of bitcoin. The lawyers representing the Bitcoin customers in lawsuits filed against Mt.Gox believe that this measure will allow to trace the tiny trades which are believed were put in place to illegally move the coins outside the control of Mt.Gox.
Mizuho Bank, one of Japan's largest lenders and the banking partner of bitcoin exchange Mt. Gox, has been named as a defendant in two class action lawsuits filed against the exchange.
It is reported that the bank was added as a defendant in the existing US lawsuit filed in Illinios in which Mt. Gox is accused of defrauding customers, and a Canadian proposed class action lawsuit blaming Mt. Gox for a security breach that allowed hackers to steal bitcoins.
In both cases it is alleged that Mizuho, which held an account on behalf of Mt.Gox and processed cash transfers, failed to act on its knowledge that the exchange was mingling customers’ funds and its own funds. The suit says Mizuho should have segregated Mt. Gox’s funds from those of the exchange’s customers, and that by continuing to provide banking services it actually inflated consumer losses.
It is clear now that Mt. Gox’s customers involved in lawsuits are considering new avenues for reimbursement and we should expect more litigation news in the weeks ahead.
Did you know?
There are already terms for smaller denominations of bitcoin, including dBTC (for a decibitcoin or 0.1 bitcoin), cBTC (centibitcoin or 0.01 BTC), mBTC (millibitcoin or 0.001 bitcoin) and the smallest denomination, a satoshi, or 0.00000001 bitcoin.^Back to top
March 14, 2014 - Chapter 15 Filing
Mt.Gox, the Bitcoin exchange that once dominated the cryptocurrency trade, recently shut down claiming the loss of Bitcoins worth around half a billion dollars. This week’s newsletter follows the unfolding legal battles for the assets of the troubled exchange, plus some other news. Big thanks must go to Mark A. Platt, a Partner in our office in Dallas, for sharing insights into the US court hearings.
Chapter 15 filing
Mt.Gox Co., the Tokyo-based entity, filed for Chapter 15 protection in the US on Sunday last week. The Chapter 15 filing allows the company to ask the court to recognise its foreign bankruptcy and to assist in the Japanese proceedings by protecting its US assets. At a hearing held on Monday in Dallas, Texas, a judge of the US Bankruptcy Court agreed to protect the exchange’s assets and temporarily halt the lawsuits in the US.
Mt.Gox is currently defending itself against at least two lawsuits. In the potential class-action lawsuit in Chicago, Illinois, lawyers are trying to bring together all people in the US who paid Mt. Gox to buy, sell or trade in Bitcoins. Mt. Gox has also been fighting a lawsuit in federal court in Washington state filed by CoinLab Inc. for breach of contract. CoinLab is seeking damages of 75 million dollars.
At the hearing, the plaintiffs in lawsuits filed in Washington and Illinois objected most strenuously to the request to stay those proceedings as to companies affiliated with the exchange and its CEO, Mark Karpeles. They have got their wish: the bankruptcy judge was careful to clarify that his order only stays the lawsuits insofar as they are directed at Tokyo-based Mt. Gox Co.
A hearing to determine whether the Japanese proceeding will be “recognized” was scheduled for April 1 and 2. If the court grants recognition, Mt. Gox will receive certain protections of the US bankruptcy system, including the imposition of the automatic stay with respect to any efforts by creditors to recover the debts. The creditors will then have to seek their relief from the bankruptcy court.
The case reference: In re MtGox Co., 14-bk-31229, U.S. Bankruptcy Court, Northern District of Texas (Dallas)
US restraining order
The next day after the Chapter 15 hearing, a federal judge in Chicago made a decision to place a temporary restraining order on the assets of Mt. Gox’s chief executive, a related US subsidiary and the Japanese parent company, Tibanne KK. Mt.Gox Co. was protected from the order because of the ongoing bankruptcy proceedings.
The ruling came as part of a lawsuit filed on behalf of Bitcoin customers who were unable to withdraw their Bitcoins and cash from Mt. Gox. The asset freeze was put in place for two weeks.
The case reference: Greene v. Mt. Gox Inc., 14-cv-01437, U.S. District Court, Northern District of Illinois (Chicago)
“We’ve been goxed!”
It is still not clear how Bitcoins disappeared from Mt.Gox accounts. Were they stolen or, maybe, voided by technological flaws? Was it a fraud? On Sunday last week, the anonymous hackers posted a zip file which they claimed to contain data taken directly from Mt.Gox’s servers. It is reported, that the file included an Excel spreadsheet that detailed over a million trades at the exchange. The hackers point out that one particular line in the data shows that Mt.Gox was holding allegedly stolen Bitcoins at the time of collapse.
The post was deleted a few hours after it first appeared but the Bitcoin community took it as evidence that Mt.Gox’s claim to have lost its users’ digital coins to hackers was fraudulent. It is not confirmed whether the hacked data base is genuine and the users were warned not to open the file as it may contain malware designed to steal Bitcoins.
Throughout its three year history Mt.Gox has never enjoyed intense trust with its users. Events like delayed trades or suspended withdrawals were so common that a new phrase “to be goxed” was born. It means being effectively fooled repeatedly.
Bitcoin in the Royal City
This year the astronomical spring will start on Thursday, March 20, 17:57 Dutch time, when night and day are approximately the same in length worldwide because the sun will be positioned straight above the equator. At this particular moment the Hague in the Netherlands, the home of the Dutch royals, will become a Bitcoin hotspot: all of the businesses along two canal-side streets in the city centre will start accepting Bitcoins. Unofficially the two streets running along the canal – Bierkade and Groenewegje – will also change their name to ‘Bitcoin Boulevard’.^Back to top
March 7, 2014 - Too big to fail?
Times have been tough for Bitcoin this week, the collapse of Mt. Gox will be hard for cryptocurrency to recover from. Once the world’s largest Bitcoin exchange has gone offline after losing hundreds of millions of dollars due to a years-long hacking effort that went unnoticed by the company.
Too big to fail?
The collapse of Mt. Gox has already been described by media as Bitcoin’s “Lehman Brothers moment”. This week Bitcoin communities were discussing the best ways to get out of the crisis. Some users suggested that all Bitcoin owners should donate a small amount of their virtual stash to help recapitalize Mt. Gox. However, a Bitcoin bailout looks like an unlikely scenario due to the amount of loss: Mt. Gox has allegedly lost something like 750,000 Bitcoin, amounting to 6 percent of the world’s supply of cryptocoins. The only person with anywhere near enough Bitcoins to bail out the troubled exchange is likely to be Satoshi, the mysterious creator of the currency.
Some observers concluded, however, that there’s a chance consumer trust in Bitcoin may survive. What happened to Mt Gox in its essence is a bank robbery although the biggest one in the recorded history. And in a way it is much easier to understand than something like the collapse of Northern Rock or Lehman Brothers; and if those failures didn’t bring down fractional reserve banking or highly leveraged derivative trading, then there’s hope for Bitcoin.
Demise of one and birth of another
For some, the troubles of Mt. Gox meant an opportunity to start a new business. Jeff Jones, a Californian who found his own Bitcoin trapped inside his Mt. Gox account, spent 12 hours over the weekend to put together Bitcoin Builder, a platform that allows the trade between Bitcoin at Mt. Gox and cryptocurrency elsewhere.
Bitcoin Builder became increasingly popular among worried Gox users. In just two weeks, the platform attracted more than 6,000 registered users, and earned more than 1,000 Bitcoin in trading fees. Based on the CoinDesk Index on Wednesday at $550.34 per Bitcoin, that would mean a gain of $550,340. However, the fees had been paid in Mt. Gox Bitcoin, the status of which is now anyone’s guess.
Ukraine protestors turn to Bitcoin
Ukrainian activists are turning to Bitcoins to fund a protest in Kiev’s Independence Square. Photos are beginning to appear online with protestors holding up QR code signs, as part of a co-ordinated effort to collect donations from anywhere in the world. However, since there is no widespread local Bitcoin community yet, once Bitcoins are in Ukrainian hands they need to be converted back into the local currency, hryvnia, but currently there is no infrastructure available to make the exchange. Also there may be issues with government regulation. Just a couple of weeks ago, the National Bank of Ukraine issued one of those ‘central bank warnings’ about Bitcoin risks and indicated that local Bitcoin businesses must register with local financial regulatory agencies. That said, financial regulations are unlikely to be a priority in the chaos of Ukraine’s current political environment.
For many Ukrainians the political revolution will mean that people are looking for new ideas. That, and a 20% plunge in the hryvnia’s value over the past couple of days could raise interest in alternatives.
News from Cyprus
The world’s first brick-and-mortar Bitcoin deposit and financial services portal, Neo, opened the doors to its flagship branch in Cyprus this week. Neo is the ‘bank-like’ arm of Bitcoin business twins Neo & Bee, with Bee serving as the payment processing network. Cypriot residents will have access to services “allowing them to interact with their money like they would with Euro deposits in any traditional bank”, including deposit, savings, business and merchant accounts.
Bitcoin remains in a grey area for banks, it is neither a currency nor a financial instrument. “Bitcoin is not illegal” is the latest statement which came this week from anonymous sources in the Central Bank of Cyprus. It is perceived as good news to Bitcoin holders fearing a government crackdown on cryptocurrency as people desert a banking system they see working against their interests.^Back to top
February 28, 2014 - The mystery man
The mystery man
Newsweek magazine yesterday claimed to have unmasked the man who invented the decentralised digital currency. However, Dorian Nakamoto, the person outed in the Newsweek article, tells he is not a Bitcoin’s creator.
Satoshi Nakamoto, a name attributed to the currency’s founder, was widely deemed a pseudonym for an elusive, genius hacker. Numerous media organisations tried and failed to find him. He first appeared in 2008 when he published a plan for a digital currency, then spent years interacting online with volunteers who helped implement it. He faded away permanently in 2011.
Today a long-dormant social account for Satoshi Nakamoto came alive for the first time in 4 years to say, “I am not Dorian Nakamoto.” The mystery continues.
End of magic?
Mt. Gox, short for “Magic: The Gathering Online Exchange”, filed for bankruptcy protection in Japan on Friday last week, saying it may have lost some 850,000 Bitcoins due to hacking into its faulty computer system. Then on Tuesday this week Bitcoin bank Flexcoin said it was closing down after it lost Bitcoins worth about $600,000 to a hacker attack. Millions of dollars have gone missing, and nobody knows how. Some say there was outright theft. Others suspect fraud. Many blame poor oversight and reckless culture. Learn more about the Bitcoin story of the moment try “The Non-Expert’s Guide to the Mt. Gox Fiasco” published by CoinDesk this week.
UK official tax guidance on Bitcoin
HM Revenue and Customs (HMRC), the UK’s customs and tax department, has published an official brief, outlining its position on the tax treatment of income derived from Bitcoin-related activities.
HMRC has reversed its earlier ruling that classified virtual currencies as gift vouchers, exempting digital currency trading from a 20% value added tax (VAT). Bitcoin businesses will not be charged a tax on margins either. Other taxes would still apply to businesses that buy, sell or exchange Bitcoin. The paper sidesteps the question of whether to class Bitcoin as a currency, but effectively treats it as such, and bases its policy on the EU law that exempts payments and transfers of “negotiable instruments” from tax.
Putting London on the Bitcoin map
The decision to scrap VAT comes this week together with a confirmation from the Bitcoin Foundation, the non-profit advocacy group, about its intention to redomicile from the US to the UK this spring. In fact, the news was first reported in December 2013 but was not widely communicated. Statements from the Bitcoin Foundation indicate that the new office is meant to be a sign of the organisation’s status as a global entity.
The Bitcoin Foundation was formed in September 2012 and has over a thousand members, it has become one of the most powerful organizations in the Bitcoin community. Its executives testified at a recent US Senate hearing into the virtual currency. It is planned to keep the US office in Washington, DC to “focus on US individual and corporate membership, public policy and public relations”. The international office in London will supervise and support new members.
Not just money
Most people, if they think of Bitcoin, think of it as a form of money. However, Bitcoin is essentially a decentralized ledger system and its technology has applications in other areas which until recently were experimental, but now are approaching realisation. At its core Bitcoin represents a digital container of data and it can be used for transferring, for example, stocks and sensitive information. It is also possible to develop alternative protocols on top of the Bitcoin’s one. The new layers would allow dispute mediations, exchange of ownership using cryptography, escrow accounts, digital notary service and many other uses.
Preston Byrne, an Associate in London, contributed to the book “Great Chain of Numbers,” published on Monday, which explores emerging developments that are going beyond cryptocurrencies into the world of “smart contracts” and “smart property”. These new protocols advance the distributed Bitcoin technology to a wider range of commercial applications.
Preston also wrote an article which explains why, despite the libertarian political leanings of the majority of cryptocurrency’s current users, government regulation of cryptocurrency (including Bitcoin) would be a step forward for the cryptocurrency, rather than its end. His article, “Bitcoin and the English legal system – part one,” is the first in a series he is writing for the Adam Smith Institute.^Back to top
February 21, 2014 - Bye bye Mt. Gox?
Bye bye Mt. Gox?
Last week saw a great deal of upset in the Bitcoin industry as a “transaction malleability attack” struck a multitude of major exchanges. While some wallets and exchanges were unaffected, others felt that they should look into their own codebase and make certain they and their customers would remain untouched.
Mt.Gox, an exchange based in Tokyo, did not react well to the attacks. A poll of 3000 Mt. Gox customers published by CoinDesk at the end of last week indicated that 68% of customers were still awaiting funds from Mt. Gox. The median waiting time was between one to three months. 21% of poll respondents had been waiting for three months or more. The slow repairs, the bad publicity, and the continuing withdrawal freeze has led many to speculate that this is essentially the death of the first and biggest Bitcoin exchange.
A new exchange for trading gold bullion and Bitcoin is set to open today in London. Access to the exchange will be restricted to sophisticated investors, high net-worth individuals and professional clients, as defined by the Financial Conduct Authority, the financial services regulator in the United Kingdom. Traders on the exchange will also have to put up a minimum subscription of 1kg of gold.
The relationship between Bitcoin and gold was highlighted in 2013 by venture capitalist Chamath Palihapitiya, who called Bitcoin “a better version of gold”, or “Gold 2.0”.
Stock traders have the Standard & Poor’s 500. Bitcoin bettors will have the Winkdex.
The new financial index takes its name from the Winklevoss brothers, famous for their legal battle with the Facebook founder, Mark Zuckerberg. The Winkdex was released publicly on Wednesday this week and provides a regularly updated figure for the price of Bitcoin. The Winkdex will compete with a growing number of companies providing data on the virtual currency industry. The most popular index for the price of a Bitcoin is operated by CoinDesk, a news and information website.
The CoinDesk’s Bitcoin Price Index is compiled using prices from two virtual currency exchanges. Until last week it also used the price from a third, Mt. Gox, but that was removed from the index after the exchange suspended customer withdrawals. The Winkdex will use data from seven exchanges and weight the prices based on the volume of trading on each exchange.
First US Bitcoin ATM
The US start-up Robocoin, after unveiling its first ATM in Vancouver last year, announced plans to begin operating a machine in Austin, Texas, on Thursday this week. It also plans to open one in Seattle, in Washington state, ahead of a wider global launch. Robocoin provides the hardware, made in the United States, to local operators, who must get certification from state and federal authorities and comply with anti-money laundering rules. The Robocoin ATMs perform a biometric scan of each user's palm, as well as take a facial photo, which is matched to the user's government-issued identity card. The system also runs a check to determine if the user is a wanted criminal or terror suspect.
The world’s first ATM allowing to buy Dogecoins, a currency described by many as “Bitcoin’s cooler younger brother”, has also been launched this week. However, Dogecoin ATM looks about as serious as the Dogecoin logo itself: the machine consists of a Nexus 7 tablet attached to a briefcase, along with a money validator. The DIY ATM was created to spice up the two-day CoinFest digital currency festival in Vancouver. Using the ATM is relatively simple. Users need to press “Doge” on the tablet, scan a QR code containing the address, insert cash and hit “To the Moon”. A few moments later Dogecoins will be transferred to the users’ digital wallet.
A beginner's guide to Bitcoin
Try the Coindesk straightforward guides if you want to find out more about Bitcoin and how it works.^Back to top
February 18, 2014 - Bitcoin developments in Canada
Bitcoin developments in Canada John Jason, of Counsel, Toronto
A few small developments from Canada to report. On February 11, the Federal Government announced an intention to introduce anti-money laundering and terrorist financing regulations for virtual currencies “such as Bitcoin”.
In addition, in a move that may or may not be related to virtual currencies, the Government announced that it was going to expand and enhance the powers of the Bank of Canada so that the Bank can better identify and respond to risks to the financial market infrastructure in a proactive and timely way. Currently, the Bank has the power to designate a payment system for regulation if it believes that he system if systemically important.^Back to top
February 14, 2014 - New York, New York
It was just another exciting week in the world of Bitcoin. The weekly press search for articles mentioning the cryptocurrency returned more than 1500 results before using the filters. Julie Frizzarin and I decided to have an experiment for one month only when we will be sending an email with a brief outline of the most interesting stories. If you like this initiative please do let us know and we might make this Friday newsletter permanent.
New York, New York
New York's financial regulator on Tuesday this week revealed new details on how the state plans to govern virtual currencies such as Bitcoin. Benjamin Lawsky, superintendent of New York's Department of Financial Services, expects to adopt consumer disclosure rules, capital requirements and a framework for permissible investments with consumer money.
The announcement follows two days of hearings in New York on the potential regulation of virtual currencies. View other materials and videos.
This week Bitcoin exchanges were battling the hacking attacks, resulting in a drop of Bitcoin value and a conflict among its adopters.
The design flaw, known for some time in the Bitcoin community, makes it possible for a user to change details used to identify a transaction. This can lead to bookkeeping accidents, but could also allow people to defraud an exchange by claiming a transaction had not gone through.
Supporters of Bitcoin say this is simply an issue that exchanges will have to manage by adapting how they confirm transactions. Gavin Andresen, chief scientist for the Bitcoin Foundation, said core developers were working with the exchanges.
According to CoinDesk Bitcoin Price Index, on Wednesday Bitcoin was valued at $663, down from a high of $1,203 in December 2013.
Africa’s largest bank, the Johannesburg-headquartered Standard Bank, is reportedly trial running an integrated Bitcoin system. According to Coindesk, Singapore-based developers Switchless have created a “fully operational and integrated Bitcoin portal system for a large multinational bank”.
The struggling U.S. Postal Service may add a Bitcoin exchange to its current non-bank financial services. Possibilities include putting Bitcoin ATMs in some of the 35,000 post offices around the US or offering electronic wallets – either virtual or physical – where people could store their Bitcoins.
A London church has become the first in the UK to accept internet currency in its collection plate. Parishioners can scan a QR barcode in the church with a mobile device to make anonymous donations from their Bitcoin account. Andrew Harrison, 45, who came up with the idea for the church, said: “No one knows who is making the donation, which is the way it should be. Only God knows.”
Can a woman survive on Bitcoin alone?
To find out read “Secret Money: Living on Bitcoin in the Real World”, an e-book written by Forbes senior online editor Kashmir Hill, where she explores the cryptocurrency’s rise through the lens of her trying week surviving on the digital coin.^Back to top