Fed’s attempt to control BTC

According to Forbes, people have been making a comparison between bitcoin and gold. They are saying that based on the grounds of these assets being the “safe-haven” or “disaster hedges” when the economy is in recession. However, bitcoin is neither safe nor will its value maintain as the economy goes awry. Cryptocurrency could lose its value within a matter of seconds with no warning signs. It is unpredictable, and there are very few legal rules and regulations in the market. When was the last time someone rejected gold as a worthwhile asset?

Of course, with more people attempting to make a quick fortune, cryptocurrency has begun to turn more heads. With the global attention on these coins, it is no surprise that the Federal Reserve (Fed) is doing something about them. They have recently announced the increase of the interest rate – as many have long anticipated.

However, some professionals have agreed that this, too will not affect bitcoin significantly.

(Forbes, then, pointed out that increasing the rate would have impacted gold.)

In fact, David Johnson, CEO of Latium, have asserted that, “Bitcoin should move up due to increased clarity from regulators as it moves into a more defined asset class.”

With the predictions from these experts, it seems that Bitcoin continues to be a worthwhile asset. Many are discussing the entities that are bounding and affecting such commodities. The rules that are governing the movement of bitcoin are rather unique as the notion of cryptocurrency is still the first of its kind.

“Bitcoin will move on its idiosyncratic factors,” Arthur Hayes, the CEO and one of the founder of BitMEX, a Seychelles-based cryptocurrency exchange points out – at least for now. Along with Hayes, Mati Greenspan, senior market analyst of eToro has also expressed similar views. “Bitcoin is largely disconnected with any traditional markets and bears absolutely no connection to interest rate outlook at this time.”

Besides, bitcoin was never intended for layman to earn a couple of quick bucks. The cryptocurrency, bitcoin, was initially set to be another currency. In fact, it was intended as the future of currency, a digital version that goes hand in hand with our advancement in science and technology. As we move forward with the process of perfecting Artificial Intelligence (AI) and other capitals that are against the law of nature, cryptocurrency has become the potential substitute of our current medium of exchange. However, many are purchasing bitcoins for a different intention.

“People are buying BTC for all kinds of reasons,” Jeff Bishop, the CEO of Raging Bull stresses. “When you have an asset moving 10%+ in a week on a regular basis, you don’t really consider if the Fed causing 10-year interest rates to over 3% as a major concern,” he explains.

While it may be an easily accessible and flexible option for first-time investors, it is also a risky and ruthless investment. The rules that govern it is not clear or strict, the value could go down without any notice or indication. You could lose your entire investment in a matter of seconds.

In addition, bitcoin wallet has a very strong security. This is because of the existence of many low-profile internet hackers. If you have no knowledge of computer science, how do you defend yourself, or even comprehend the situation? Who would you be going to for assistance?

Conversely, investing in bitcoins could also bring you a lot of benefits. Like the anticipation of the fall, it could also rocket up within seconds. Anyone who invests, regardless of the chosen commodity, should already have the anticipated the possibility of losing their token.

Either way, investing is merely another form of gambling. There is no guarantee.

Featured image via flickr/ fdecomite

Why are the cryptocurrencies crashing?

Within the past weekend, Bitcoin has fallen drastically to $7,335.57, at its lowest on Sunday. Fortunately, as CoinDesk conveys, the value of the cryptocurrency gradually recuperated. By Monday afternoon, the value of Bitcoin picked up again returned to an average of $8,585.

Although we can never know for certain the reason underlying such change, many have pointed to the advertising ban of bitcoin throughout the weekend. Sky News has reported the advertising ban for initial coin offerings, token sales and cryptocurrency wallets all across the world that Twitter has supposedly imposed and will be implemented within a fortnight.

Another one of those attempts to reprimand cryptocurrency scams, this move is not unheard of. Several tech giants have already imposed strict rules and regulations on these advertisements early on. In the start of the year, Facebook, runner-up to the world’s biggest online advertisement platform, has announced its plan to impose bans on all cryptocurrencies-related advertisements. Its reason for taking such drastic measures is to avoid circulation of “financial products and services frequently associated with misleading or deceptive promotional practices”. Moreover, just last week, Google has announced its plans to reinforce the financial services policy. Hence, advertisements circling cryptocurrencies, and such will be curbed within three months.

“Facebook was previous, but now Twitter is also rumored. Much of crypto(currency) demand is retail, so this may negatively impact demand,” suggests Joe DiPasquale, the Chief Executive Officer of BitBull Capital.

The former statement remains to be unsubstantiated as Twitter has not disclosed anything.

There was considerable news pointing to the high price of mining as the underlying cause of the fall in bitcoin’s value since last week. That was reiterated by DiPasquale, “Now that it’s dropped below that, there’s less incentive for miners to continue to keep machines on unless they are in a lower-cost energy area or have a way of producing at less than cost”.

The mining of bitcoin includes the utilization of certain software and expensive hardware to solve mathematics equations in order to earn bitcoins. With the current rate, they are now looking at a mere $8,000 for one bitcoin. This, in addition to regulatory issues, have largely impacted the value of bitcoin within the past few weeks.

Initially valued at a fine five figures of $11,000 just a couple of weeks ago, a statement issued by the Securities and Exchange Commission (SEC) expressing its concerns over cryptocurrency exchanges as well as the lack of security and privacy on Binance, a Hong Kong-based cryptocurrency exchange momentarily brought down the value of bitcoin.

According to the grapevine, finance ministers of G-20, as well as governors of central banks, have agreed to consolidate in Buenos Aires, Argentina. A G-20 representative has informed CNBC that these discussions will take place in a private and confidential setting before making its way to the press conference.

The Financial Stability Board (FSB) serves as a regulator for G-20 economies all across the world. They have begun to take actions after receiving a number of calls from various countries regarding the security of cryptocurrencies.

“The FSB’s initial assessment is that crypto-assets do not pose risks to global financial stability at this time,” proclaims Mark Carney, Chair of the Financial Stability Board as well as Governor of the Bank of England.

“Even at their recent peak, their combined global market value was less than 1 percent of global GDP,” Carney continues in an effort to juxtapose the size of cryptocurrency investments with the rest of the global financial system.

“The more speculative coins are being hit particularly hard. Liquidity is among their primary features and many of the holders lack long-term conviction, therefore they’re rotating into larger coins with stronger long-term prospects,” asserted by Spencer Bogart, one of the partners of Blockchain Capital.

He underlines the “potential for a liquidity crunch” as phrased by CNBC. He believes that to be the decisive factor for investors to let go of alternative coins and focus on more prominent cryptocurrencies like bitcoin.

Bitcoin was not the only cryptocurrency that had experienced a fall over the weekend. Ethereum went down by an alarming seventeen percent, reaching a nadir of $460.09, as reported by CoinDesk. That, however, is nothing in comparison to Ripple, which has suffered a decreased of fourteen percent to a meek $0.55. Similarly, the value of bitcoin cash and Litecoin have both deteriorated significantly at about ten percent.

While it may seem like bitcoin may be making a comeback, as people lose confidence in these currencies, the value subsequently decreases, too. Should investors pull out now or continue to await more positive results?

Featured image via flickr/ Zach Copley

Mining Cryptocurrency: The Beginner Course

Hello there! We would like to welcome again to our feature on bitcoin and cryptocurrency in general! In our previous installment, we went over the humble beginnings of Bitcoin and cryptocurrency as it ballooned into the pop culture curiosity it has become. In today’s feature, we will be going over the basics of mining cryptocurrency, one of our most requested topics! And what better time than now, cryptocurrency is all the rage, once again!

Screenshot of the Bitcoin client, using crypto...
Screenshot of the Bitcoin client, using cryptocurrency. (Photo credit: Wikipedia)

Much like any other form of currency, you can acquire cryptocurrency via accepting them for a transaction, but there are two much more popular ways to acquire them: purchasing the cryptocurrency through an exchange (paying a different form of currency for the cryptocurrency, usually in the hopes that the prices will rise after the transaction, similar to buying stock), and mining them, which began in 2009.

When you hear “mining” the first thing that often pops into the forefront of your mind is an image of a prospector during the gold rush, journeying west in hopes of discovering gold in the untapped ground. That often leads to organizations buying swaths of land where only they are allowed to mine there, no outside forces can mine there. That actually has quite a few parallels to cryptocurrency, instead of companies buying land to make money off their mining, companies are introducing their own forms of cryptocurrency. And much like gold, cryptocurrency is in a finite quantity, but that is by design of the company, for instance, bitcoin is limited to 21 million total, and we are over half way through that amount.

Also similar to gold miners using tools to mine, cryptocurrency miners use their computers raw power to have the chance to “discover” their loot. In order to acquire the cryptocurrency, miners (or malware software mining on computers without the user’s knowledge) perform algorithms in the hopes of finding an available cryptocurrency. The more power, the better, the more computers, the better.

The software for mining is actually very easy to use, while also being open source, meaning quite literally anyone can download and run it. But what most people do not realize is that miners also require security from outside attacks. Like an outside force sneaking into a gold mining camp under the cover of night, stealing the hard-earned earned gold mined out of the ground, there are those out there who specialize in breaking into the “wallets” of cryptocurrency miners, stealing their prized cryptocurrency. A suitably secure online bank account to house your cryptocurrency is a necessity.

Now, you may be asking, “how can I hope to make any money by myself with so many people out there mining for cryptocurrency such as bitcoin?” and that is a very good question, as acting as a single entity can make it extremely difficult to find cryptocurrency on your own. The way some people get around this is by joining a mining pool, where a group of users pool their computer resources together and share a percentage of the cryptocurrency mined. You may receive less money in the long run, but your chances of success are much higher.

Another popular way to “outsource” the mining of cryptocurrency is to use a Cloud mining service, where you basically rent mining hardware from another location that does the mining for you. There is no guarantee that you will see a return on your investment, but there is no wear and tear on your own hardware through this process.

There are several things to keep in mind if you do decide to mine on your own, such as electricity. While the software and algorithms don’t cause much in the way of damage to your computer, it will, however, take constant electricity to keep your system running, thereby increasing your electricity costs.

Mining cryptocurrency certainly isn’t for everyone, and most people don’t make the kind of crazy money the media likes to attribute to cryptocurrency. Much like other businesses, there are those who are making money hand over fist, and those who make it possible for those big businesses to make money. If you do decide to go at it on your own, there are many different specialized pieces of hardware you can buy to make the process easier, and that will be the focus of our next cryptocurrency feature! Check back in next time where we will go over computer parts, their purposes, their price, and the difference they make!

Be Careful with the Cryptocurrency You Invest in

Cryptocurrency has turned a lot of heads in recent years. Despite its original intent to be the future of currency, it has become a promising source of investment for many out there. Cryptocurrency investors are ranging from business professionals to amateurs – thanks to its accessibility. It has become a prospective alternative to other commodities such as stocks, bonds and so forth. What’s more, is that these cryptocurrencies have successfully attained over billions of dollars from investors in these few years. As a result, it has captured worldwide attention from major organizations and media.

Updates about cryptocurrency have surfaced as a consequence of the steep decline and frequent fluctuations in its value. Several media organizations including CNBC have informed the public about the action taken by the SEC towards some of the major firms in the cryptocurrency industry. Since then, SEC have reached out to educate investors about these firms.

SEC have come up with several guidelines for investors to take into consideration. They are urging investors to do some research prior to the transaction. Investors should ask for clarification regarding their criterions in the process of choosing the quality assets. In addition, they should find out the status of the market under the National Securities Exchange. More facts and figures should be acquired from the Financial Industry Regulatory Authority concerning the people behind the market if possible.

“Amid signals that the SEC would check online platforms for violations of registration or exchange rules… some of the markets have requested or received approvals as alternative trading systems,” proclaimed Nick Morgan, one of the partners at Paul Hastings LLP. Morgan was previously part of the SEC senior trial counsel.

“Likewise, the SEC does not review the trading protocols used by these platforms, which determine how orders interact and execute, and access to a platform’s trading services may not be the same for all user,” as disclosed in a statement by the SEC Enforcement and Trading and Markets divisions.

SEC have stepped out to remind investors about the truth behind these platforms. The digital commodities offered by these servers are not endorsed by the SEC, and the list of criterions they follow are not associated to SEC.

“The so-called standards shouldn’t be equated to the listing standards of national securities exchanges,” the regulator reminds investors.

SEC continues to clarify and distance themselves from these servers.

The values of cryptocurrencies have suffered a decline in value, once again, on Wednesday.  Bitcoin value decreased to 7.1%, an improvement from the initial 9%, to $10,030 with Ethereum and Litecoin following behind, as announced by CoinMarketCap. This happened following a warning by the Securities and Exchange Commission concerning potentially unlawful trading websites that does not have regulatory oversight. The chief federal regulator of the United States financial markets has informed the public of the fact that these trading websites are not SEC-registered and regulated.

Bitcoin remains to be the most noteworthy cryptocurrency at this moment.

Cryptocurrency is a highly demanded choice of investment because of its convenience and availability. It allows beginners and youths to invest without feeling restricted by the amount. However, it also belongs to the “high risk high reward” classification. With this new piece of information from SEC, nonetheless, the risk that it entails have become more apparent and severe. Public confidence in cryptocurrency is already quickly slipping away with its severe decline. Will this statement from SEC further affect the demand for cryptocurrency?

There is no such thing as a meaningful Bitcoin price prediction. It just isn’t possible with the current structure. Bitcoin was never really intended to be a store of value. You have separate classes of investors, each with different goals for what Bitcoin should be. Miners and holders want it high, and the currency crowd wants it low. Those forces will pull at each other in unpredictable ways. Besides, the major exchanges and trading platform are all amateur hour, and most have perverse incentives to front run, which can tilt prices even more dramatically. Market manipulation is rampant and structurally impossible to solve short of mass action or outside regulation.

Featured Image via Flickr/Steve Garfield

Bitcoin plummets as economists, regulators express skepticism of cryptocurrency boom

Bitcoin’s value, which nearly quintupled from the first of the year through the first of September, peaking at $4,950.72 per coin on the latter date, has fallen more than 20 percent this month and over 15 percent in the past seven days, as of 4:15 p.m. EST Wednesday.

The decline comes as a number of regulatory agencies and economic experts around the globe express skepticism regarding Bitcoin and other cryptocurrencies.

China banned Initial Coin Offerings (ICOs)—the means by which creators introduce and raise capital for new cryptocurrency projects—earlier this month, and Chinese news outlet Caixin reported Friday that the country might prohibit cryptocurrency exchanges entirely in the near future, Business Insider notes. 

But, Bloomberg’s Lulu Yilun Chen tweeted Friday that the Chinese government had yet to mandate the shutdown of Okcoin and Huobi PRs, two of the country’s most prominent cryptocurrency exchange platforms.

Some say China will relax the pressure it has placed on the cryptocurrency market once the government has found a viable means of regulating that market.

“China [is] saying, ok, we need to push back on these for now until we figure out how to deal with them,” said Zennon Kapron, director of the Shanghai-based financial technology consultancy Kapronasia, per Reuters, in reference to the country’s ICO ban. Kapron added that he expects the country’s government to eventually ease the ban.

Previous Chinese regulations against cryptocurrencies have proved temporary. The country prohibited the withdrawal of Bitcoin investments in February, but allowed withdrawals to resume in June, Business Insider points out.

Chinese regulators are not the only ones wary of the cryptocurrency boom.

Tuesday, the U.K.’s Financial Conduct Authority released a statement cautioning investors about the risks of ICO investors, Business Insider reports. These risks, according to the FCA, include the lack of regulation governing the cryptocurrency market, the volatility of cryptocurrencies, the potential for fraudulent ICOs, and the experimental nature of cryptocurrency projects.

“ICOs are very high-risk, speculative investments,” the FCA’s warning reads. “You should be conscious of the risks involved … and fully research the specific project if you are thinking about buying digital tokens. You should only invest in an ICO project if you are an experienced investor, confident in the quality of the ICO project itself (e.g., business plan, technology, people involved) and prepared to lose your entire stake.”

Also on Tuesday, Business Insider says, JP Morgan CEO Jamie Dimon predicted an imminent crash of what he sees as the Bitcoin bubble. His prediction, so far, has been self-fulfilling. Dimon said he “would fire any trader that transacted Bitcoin for being stupid” (Business Insider’s paraphrasing).

As of 5:15 p.m. EST, Bitcoin’s value has fallen six percent on Tuesday’s news.

Business Insider notes that early this month, in an interview with Quartz, Yale economics professor and Nobel Prize winning author Robert Shiller, who predicted the crash of the housing and technology markets in his 2000 book “Irrational Exuberance,” called Bitcoin the best example in today’s market of a speculative bubble.

A “speculative bubble” occurs when unrealistic expectations amongst investors of an asset’s future performance drive the market value of that asset beyond any real gains it is capable of accruing.

In the aforementioned book, Shiller argues that the tech bubble formed because “a fundamental deep angst of our digitization and computers” compelled investors to seek a false sense of understanding and comfort by gobbling up tech stocks.

“Somehow Bitcoin…gives a [similar] sense of empowerment: I understand what’s happening! I can speculate and I can be rich from understanding this! That kind of is a solution to the fundamental angst,” Shiller told Quartz.

There is no question that investors have been exuberant about cryptocurrencies this year. ICOs have raised over $2 billion in 2017. The question is whether the exuberance is irrational. As a number of financial experts answer that question in the affirmative, once-exuberant cryptocurrency backers are growing skittish.

Featured image via Wikimedia Commons

Chinese authorities crackdown on cryptocurrency ICOs

Monday, the Chinese government banned the practice of creating and selling new cryptocurrencies, Reuters reports

With the rise of Blockchain technology, initial coin offerings (ICOs)—which give investors the opportunity to buy newly-created cryptocurrencies—have gained popularity. In total, Reuters says, ICOs have raised $2.32 billion since the inception of the cryptocurrency market; $2.16 billion of that amount has come in 2017.

In China this year, 65 ICOs have raised a combined 2.62 billion yuan ($394.6-million) and attracted 105,000 investors, according to Reuters.

The value of Ethereum, the cryptocurrency in which most ICOs are transacted, has plummeted on the news. On Sunday, one Ethereum token was worth $349.93. Late Monday, that figure had fallen 14.3 percent to $299.72. As of 1:33 p.m. Eastern Tuesday, Ethereum has recovered slightly; the USD-Ethereum exchange rate sits at 307.56 to one.

The Bitcoin-USD exchange rate has dropped 5.9 percent since midnight Monday morning on China’s news. Late Sunday night, one bitcoin was worth $4,632.46. As of 1:39 Eastern Tuesday, the value of a single bitcoin token is $4,359.07.

The market capitalization of the cryptocurrency industry as a whole dropped 11.66 percent Monday, from $165.095 billion to $145.833 billion. Since midnight Tuesday morning, though, the industry’s market cap has gained 1.7 percent. As of 1:55 p.m. Eastern, the industry is worth $148.358 billion.

“The large price falls can be attributed to panic amongst traders and profit-taking,” said Cryptocompare founder Charles Hayter, per Reuters.

Indeed, China’s announcement had many investors across the internet predicting doom and gloom. A participant in one chatroom set up for an upcoming ICO said “the music has stopped” for the cryptocurrency boom, Reuters reports.

“Sell all your bitcoins now,” another advised, again per Reuters.

The organizer of the ICO to which the chatroom was dedicated, which was meant to launch a new cryptocurrency called SelfSell, has suspended the project.

Regulators around the world are struggling to understand cryptocurrency investment and the risks associated with it, said Zennon Kapron, director of the Shanghai-based financial technology consultancy Kapronasia, per Reuters.

Prior to China’s announcement, the U.S. Securities and Exchange Commission, as well as similar agencies in Singapore and Canada, warned that regulations would likely be needed to control the cryptocurrency market.

The lack of regulation governing cryptocurrency and investment in it is unprecedented. Blockchain, the backbone of cryptocurrency transactions, functions without a centralized overseer.

The nature of investment in cryptocurrency is also unconventional. When one contributes to a fundraiser for a traditional company, one generally receives a share in the company and/or a security. ICO investors, Reuters notes, receive neither.

Therefore, Reuters points out, an investment in a cryptocurrency is little more than a bet that demand for that currency will exceed supply, driving up value. It is a risky bet, considering the volatility of cryptocurrencies.

With risks to investors so high, government regulators are purportedly taking strides to protect their citizens. Cryptocurrency expert and Blockchain proponent Oliver Bussman said, per Reuters, that the lack of private financial advice firms in China obligates the government to be especially vigilant in protecting the finances of its constituents.

Of course, many would argue that it is an investor’s own responsibility to protect him/herself.

Despite some predictions that China’s move spells the beginning of the end of the cryptocurrency boom, many experts believe the regulatory shutdown is but a temporary measure designed to give the country’s government time to develop a strategy by which to handle cryptocurrencies.

“China, in many ways, is no different than the U.S. or Singapore in saying, ok, we need to push back on these for now until we figure out how to deal with them,” Kapron said, per Reuters, adding that he expected regulators in China to eventually ease the ICO ban.

Bussman says, per Reuters, that cryptocurrency technology is too revolutionary, too integral to the future of global economics, to be shutdown. Cryptocurrency, he says, has already worked itself into the fabric of modern investment.

“The initial coin offering is a new business model leveraging blockchain technology and it will remain. This is not the end of the ICO – absolutely not,” he said.

Featured Image via Flickr/BTC Keychain

What is Bitcoin?

Bitcoin is a peer-to-peer digital currency system that uses mathematical formulas (“cryptography”) in lieu of traditional, centralized financial institutions to protect users’ currency and verify and process transactions.

The currency was created in 2009 by an unidentified developer or group of developers operating under the alias Satoshi Naskomoto, who wrote this white paper describing the technology behind the system and the advantages Bitcoin offers in the marketplace.

The writer of the paper argues that a monetary system that depends upon a third party to verify transactions cannot make transactions irreversible, as said third-party must always mediate disputes. Moreover, the mediator charges for its services, and the cost of commerce rises.

Bitcoin employs two layers of verification: a user’s “wallet” and the Blockchain, a collective, public ledger that records every bitcoin transaction.

A wallet ties a specific amount of bitcoins to a specific user via two unique, encrypted “keys,” one public and one private. The private key contains a confidential “signature” which proves a user’s right to spend certain bitcoins. The public key derives from the private key by way of a mathematical process so complex it is impossible to reverse engineer. In other words, although a wallet’s public and private keys are linked, no user can deduce another user’s private from his/her public key.

The public key is hashed (read: condensed) to form an address. Like a physical address or an e-mail address, a bitcoin address is how users find and send things to one another. In order to maintain anonymity, it is recommended that users only use a given address once. In other words, users should generate a new address for each transaction. One wallet can contain multiple addresses, but the Bitcoin website advises that users spread their bitcoin stakes across multiple wallets so as to preserve anonymity.

A host of bitcoin wallet services, such as Electrum and Armory, offer an array of different types of wallets. Wallets can be stored on a desktop, a mobile device, a piece of hardware, or the internet. Some wallets store the entire blockchain, which currently consists of more than 100 GB of data, and is growing all the time, locally. Others store only the most recent blocks in the chain.

As mentioned, the blockchain a public ledger. Every ten minutes, a new “block” containing multiple transactions is published on the blockchain. Each block is marked with a timestamp, verifying that a user gave a certain amount of bitcoins to another user at a certain time.

The timestamp acts to prevent double spending, to which other decentralized exchange systems are inherently vulnerable. “Double spending” is the practice of spending the same currency in multiple transactions. If transaction records are private, and no authority has access to them, those dealing in an abstract form of currency like electronic payment cannot verify that a buyer has not already spent the funds he is appropriating for a given purchase. The blockchain, on the other hand, checks time stamps and rejects any transaction User A makes with User C using bitcoins he/she has already transferred to user B.

When a transaction is submitted to the blockchain, bitcoin “miners” use computing power to work to solve a “proof-of-work” problem that allows for the block to be added to the chain. The miner whose computers first solve the “proof-of-work” problem is rewarded in bitcoins. Thus, new bitcoins enter circulation.

By ensuring that a certain amount of work must be done to create a new block and new bitcoins, the system guards against an overload of requests and prevents inflation. As bitcoin’s popularity increases, more and more people will become miners. As more and more people become miners, it will be harder and harder to solve the “proof-of-work” problem. This method ensures that bitcoins are created at a decelerating pace.

Bitcoin’s founders only allowed for 21 million bitcoins to be mined. So, like any commodity, bitcoins are finite, cannot be obtained without work.

In an effort to preserve decentralization, bitcoin mining is open to anyone with an internet connection and the appropriate hardware.

Rather than mining, one can buy bitcoins using traditional currencies via an exchange service such as Coinbase.

BitCoin’s value surges despite looming scalability challenges

As of 2:18 Eastern Monday, a single bitcoin is worth $4,282—an all time high for the cryptocurrency, invented in 2008. The bitcoin-USD exchange has soared more than 200% this year, as investors in Korea and Japan increasingly seek to buy the cryptocurrency—some such investors are willing to pay premiums of up to 30%—and May’s New York Agreement helps it to accommodate expansion.

A wide array of investors have jumped on the bandwagon, some more enthusiastically than others. “Whether or not you believe in the merit of investing in cryptocurrencies…real dollars are at work here and warrant watching,” Goldman Sachs analysts wrote in a note to clients, per Bloomberg.

Joshua M. Brown, a financial advisor at Ritholtz Wealth Management, is among those who, despite their skepticism, cannot resist BitCoin’s upside. When the cryptocurrency first became part of investors’ vernacular seven years ago, Brown observed in a blog post in mid-July describing his first-ever BitCoin purchase, it was subject to all the volatility that accompanies a “new and unproven” investment opportunity.

Now, though, the cryptocurrency has been hanging around in the public eye for quite a while, and recent developments such as the New York Agreement may lead to stabilization.

As a limited resource as well as a medium of exchange, Bitcoin has properties of a commodity as well as a currency, Goldman Sachs’ note to clients points out. The United States IRS does not recognize Bitcoin as legal tender but, rather, treats it as property for tax purposes.

BitCoin’s value is not supported by some inherently valuable asset like gold or silver, but the lack of such a standard is par for today’s currencies, according to Tim Courtney, CIO at Exencial Wealth Advisors.

“The first thing to understand is that, just like every other currency, there is no asset backing digital and cryptocurrencies,” Courtney told TheStreet. “In the past, some currencies were backed by gold or silver, but that’s no longer the case.”

Without any sort of backing, Bitcoin derives all of its value from supply and demand. BitCoins, in other words, are only worth what someone is willing to pay for them.

“When you see returns on digital currencies moving up, that means demand for them has outnumbered the sellers out there,” Courtney explained to TheStreet.

BitCoin will face a minefield of obstacles as it scales up to satisfy increasing demand. One such challenge could be unprecedented volatility. In late June, Ethereum, a cryptocurrency similar to Bitcoin, dropped from $300 dollars to $0.10 on a single, multi-million-dollar exchange, CNBC reports.

Courtney observes, per TheStreet, that there was no way to reverse the trades, as there would have been had the crash involved “established assets.”

“…there is no security to your [cryptocurrency] trades if something unexpected happens,” Courtney told TheStreet.

‘”What we’ve been doing in the stock market to prevent flash crashes, they’re nowhere near that in the cryptocurrency market,” adds Joe Saluzzi, co-founder of Themis Trading, per CNBC.

Bitcoin also runs the risk of devaluing itself as it expands, Courtney says. He cites the “constrained supply” of Bitcoin as an integral part of its value—basic microeconomics principles hold that if a commodity is in high demand but short supply, its price will rise.

Yet, as Bitcoin expands to serve increasing demand, it will become less and less scarce, and may, therefore, lose much of its value. In other words, like any other currency that loses its scarcity, Bitcoin will be subject to inflation.

BitCoin has long been vulnerable to cyberattacks. As its popularity grows, it will increasingly become a target for hackers. Exchange services BTC-e and Bitfinex both reported being hacked last week, according to CNBC.

The security and anonymity of BitCoin make it a suitable platform through which to launder money, demand ransoms, and carry out other nefarious transactions. All transactions carried out on contraband distribution websites like the AlphaBay and Hamsa, both of which authorities shut down in July, are conducted via BitCoin. Late last month, alleged BTC-e operator Alex Vinnik was arrested on suspicion of having laundered more than $4 billion his clients generated through a variety of criminal enterprises.

“It’s hard to imagine the IRS, Treasury etc allowing anonymous transactions without any reporting becoming a global standard for US persons,” Brown wrote in his blog post.

Still, Brown says, he is not willing to miss out on the potential upside of an investment in BitCoin. “I’m old enough to realize that just because I don’t see a use for something, that doesn’t mean I won’t be proven wrong by others who do,” he writes.

Judging by the spikes in the cryptocurrency’s value—it seems to hit a new high every day, of late—plenty of other investors are indeed anxious to prove Brown wrong.

Featured Image via Flickr/Zach Copley

Alexander Vinnik of BTC-e Indicted on Charges of Laundering Digital Currency

Alexander Vinnik, who police allege ran BTC-e and Tradehill, a pair of popular digital currency exchange services, was arrested in Greece Wednesday on charges of laundering over $4 billion for clients involved in a wide range of crimes, Reuters reports. The arrest marked the culmination of a joint investigation spearheaded by the US Department of Justice.

Prior to Vinnik’s arrest, the identities of those behind BTC-e were unknown.

Vinnik “was charged with 17 counts of money laundering and two counts of engaging unlawful monetary transactions,” according to Stan Higgins of CoinDesk.com. He faces a maximum of 55-years in prison.

Prosecutors further accuse Vinnik of a hacking attack that caused the collapse of Mt. Gox, a service similar to Vinnik’s two aforementioned operations. Following the collapse, $450 million worth of bitcoins and $27 million in cash disappeared, Reuters says. Police say Vinnick laundered the money he obtained via the attack using BTC-e and Tradehill.

Both Vinnik and BTC-e were charged with one count of with one count of operating an unlawful money services business and one count of conspiracy to commit money laundering, Higgins reports. BTC-e was fined $110 million, Vinnik $12 million. As of 1:19 Eastern, the BTC-e website is down due to “unscheduled and ongoing maintenance,” according to a tweet released by the company. The site has been non-operational since July 25, but the company said in a tweet on Wednesday that it will return to service.

Bitcoin, started in 2011, uses “military grade cryptography” similar to that used by banks and online retailers such as Amazon to maintain users’ confidentiality and financial security. Bitcoin transactions are pseudonymous, meaning they are conducted under false names, but are recorded in a “shared public ledger” called the block chain, which acts as a virtual balance sheet, keeping track of the spendable balance on bitcoin accounts known as “wallets.” Services like BTC-e are peer-to-peer platforms that facilitate the transfer of the currency.

The pseudonymity and cryptography of Bitcoin impede traditional methods of financial regulation. Regulations are in place upon the system, though, and enforcers say Vinnick neglected to follow protocols meant to prevent money laundering. Moreover, they warn that others who violate said protocols will be subject to prosecution.

“We will hold accountable foreign-located money transmitters, including virtual currency exchangers, that do business in the United States when they willfully violate U.S. AML [anti- money laundering] laws,” said Jamal El-Hindi, acting director of the Financial Crimes Enforcement Network (FinCEN), in a statement.

The indictment of Vinnik and BTC-e is the latest result of intensified cyber law enforcement efforts around the globe. Earlier this week, US and European authorities worked jointly to arrest the operator of Alphabay, a “dark web” marketplace that facilitated the transaction of illegal goods. Alphabay was the dark-web’s biggest drug exchange platform: 40,000 vendors sold narcotics like heroin and fentanyl to over 200,000 customers on the site. Alphabay users also dealt in weapons, malware software, and other contraband.

Following the shutdown, former Alphabay users began using Hansa, a similar dark web marketplace. Last Thursday, though, Dutch authorities announced that they had infiltrated the latter site in June, and had been monitoring transactions and collecting information they could use to identify and prosecute the site’s users.

In the US, authorities, on suspicion of Russia’s cyber-interference in the 2016 presidential election, are redoubling efforts to combat Russian hacking operations.

As technology evolves, crime and law enforcement will evolve with it. The eternal battle between cops and robbers is now being played out in cyberspace.

“Just as new computer technologies continue to change the way we engage each other and experience the world, so too will criminals subvert these new technologies to serve their own nefarious purposes,” says Brian Stretch, U.S. Attorney for the Northern District of California, per Reuters.

ASUS Developing Cryptocurrency Mining Graphics Card

With most graphics cards designed to cater to PC gamers and artificial intelligence programmers, graphics card designer ASUS is innovating a new use for graphics cards: mining cryptocurrency. Mining digital currencies including Bitcoin requires a lot of computing power, meaning that powerful graphics cards are beneficial for miners. Seeing an opportunity in a niche market, ASUS hopes to capitalize on providing currency miners with the highest powered and affordable costing graphics card.

ASUS is planning to sell a version of its AMD- and Nvidia- based cards designed to cater specifically to the needs of cryptocurrency miners. While no pricing or availability information has been provided yet, the Asus Mining P106 and the Asus Mining RX 470 have shown up on the company’s website this week. While no cost has been given, ASUS strives to provide a low-cost but relatively powerful graphics card to be used in computers serving as clearinghouses for transactions.

ASUS has designed their cards to be durable, allowing for 24/7 uninterrupted coin production operations. The RX 470 has an AMD Radeon RX470 and 4GB of dedicated RAM, meaning that it will not be powerful enough to maximize graphics settings when playing a game at 4K resolution. Instead, the card is better designed to suit currency miners, with a combination of price and power that should remain appealing. The Nvidia-powered P106 increases dedicated RAM to 6GB, though most other specs match the RX 470.

NVIDIA and AMD are the major players in the GPU market, making dedicated chips capable of the graphics and parallel processing power needed for high-end gaming and mining amongst other capabilities. The main reason for why other graphics cards designers have not yet developed a similar graphics cards is due to how multiple GPUs can be connected to a single motherboard, which is the ideal situation for a currency miner. ASUS is a third party vendor that uses chips from Nvidia and AMD and mounts them on custom PCBs to be marketed as high-end graphics cards.

This new direction allows graphics card designers to explore a new market, creating cards that remain low-costing and incrementally increasing the power capabilities, instead of the usual goal of providing the most powerful graphics card for a competitive price.

Currency miners typically make a small amount of money by serving as a verification service for transactions using digital currency. Each day, miners record transactions to a ledger and receive the equivalent bitcoins for each block they record. While it was once possible for individual miners to make large sums of money, with the discovery of new currencies becoming more and more difficult, the sums of money miners make has also reduced. Hence why price is an important consideration, and a moderately priced but powerful GPU could attract miners who realize the long projected time frame required for them to break even on their hardware investments.

With the resurgence of cryptocurrency mining markets comes a demand for graphics cards designed to meet the demands of currency mining, Asus, AMD, and Nvidia’s development of qualifying graphics cards capitalize on a rising market that can be expected to bring them great returns on their investment.

It will be interesting to see how the market for graphics cards designed for currency markets develop, considering the potentially limited scope once the required processing power combined with the cheapest cost has been achieved. Furthermore, it will it be interesting to see how a supply cater to currency miners may affect the currency mining market, and whether there will be an increase in individual miners.

Featured Image via Flickr/Sean MacEntee

Bitcoin Receives New License

Coinbase, the world’s largest bitcoin company, received permission from the New York Department of Financial Services (DFS) for virtual currency and money transmitter license.
The superintendent of DFS Maria Vullo made the announcement Monday. In her statement, she commented on her hope that DFS would continue “New York’s long record of being responsive to technological innovation.”
Coinbase offers its users a selection of services that range from selling and sending to receiving and storing bitcoin. However, the company remains under the strict watch of the DFS. The DFS led a review of every aspect of Coinbase. DFS went over applications, cyber security policies, anti-money laundering, and even consumer protection.
On the other hand, Coinbase isn’t the only company to receive a transmitter license from the Department of Financial services. The DFS gave license to Ripple and Circle Internet Financial. Gemini Trust Company obtained a trust charter from the DFS as well.
When Coinbase CEO and co-founder, Brian Armstrong, commented on the situation, he said, “At Coinbase, our first priority is to ensure that we operate the most secure and compliant digital currency exchange in the world.”

IRS Investigates Tax Evasion by Coinbase Users

Coinbase must release the identity of select customers who transferred currency during the years of 2013-2015. Judge Jacqueline Corley granted the IRS a John Doe summons to collect the information from Coinbase.

Coinbase is a company that handles transactions of Bitcoin, Ethereum, and other digital currency. The IRS made a request for the John Doe summons once it suspected Coinbase customers were committing tax evasion. In her ruling, Judge Corley stated that “There is a reasonable basis for believing that such groups or class of persons has failed or may have failed to comply with any provision of any internal revenue laws.”

A John Doe summons is only obtainable for the IRS per federal court rule. The summons doesn’t name a specific person for liability but an unnamed person, persons, or group. The IRS doesn’t hesitate to use this method when it comes to tax shelters or investors.

This ruling in favor of the IRS was a reminder to U.S. taxpayers. Head of the Justice Department’s Tax Division made a comment on the ruling saying:

“Tools like the John Doe summons authorized today send the clear message to U.S. taxpayers that whatever form of currency they use – bitcoin or traditional dollars and cents – we will work to ensure that they are fully reporting their income and paying their fair share of taxes.”

Anyone who made use of Coinbase services between December 31, 2014 and 2015 are the focus of the summons. The IRS is looking for users with a U.S. address, phone number, and even email address. The type of information that will be subject to investigation are, but not necessarily limited to, user profile, security history, and transaction dates and amounts.

Coinbase addressed the ruling by saying:

“We are aware of, and expected, the Court’s ex parte order today. We look forward to opposing the DOJ’s request in court after Coinbase is served with a subpoena. As we previously stated, we remain concerned with our U.S. customers’ legitimate privacy rights in the face of the government’s sweeping request.”

Verizon Acquires AOL, but will it be Enough to Stand Competition?

The deal has been finalized. Verizon will acquire AOL for a reported $4.4 billion. While minuscule considering the mobile phone provider’s net worth of $200 billion, this marks a clear move towards expansion across platforms.

AOL has long been considered past its prime. Its competition has not only increased in volume, but also in capacity as the company has become largely culturally irrelevant.

Once the Goliath and now David, AOL has been forced to change with the times. Google, Facebook and other contemporary media moguls have led the charge in the burgeoning market of Internet advertisement sales.

In this department, AOL has outperformed expectations, yet still has a long way to go and will receive a significant boost from this acquisition. At the end of the most recent quarter, the company outperformed revenue projections by $30.5 million. This included a 12 percent bump in ad sales over the past year to $483.5 million.

$483.5 million dollars may sound like a lot, but when compared to the $59.06 billion Google made from advertising in 2014, it is clear that AOL has a long way to go. That said, these gains are significant because they not only show that there is room for growth, they also point to the fact that there is more of the market to be captured.

When analyzing AOL, its business plan, assets and room for growth prior to said earnings report, Goldman Sachs downgraded the company citing (surprise, surprise) competitive concerns.

Interestingly enough, the acquisition of AOL by Verizon directly addresses the main concern from the report, which was articulated by analyst Debra Schwartz as, “We…are increasingly concerned about relative ad underperformance longer term as companies like Facebook expand off-platform capabilities.”

Currently, AOL almost exclusively exists on traditional computer platforms. With mobile devices widely accepted as the newest, fastest and most promising new industry, Verizon will make the perfect partner to transition the AOL advertising success into new platforms.

Many liken the deal to a very similar deal involving AOL and Time Warner, which signaled the peak of the dot-com bubble. The intention is the same according to Jonathan Miller, chief executive of AOL from 2002 to 2006, “Put together content, distribution and access.”

Verizon has certainly weighed that into their acquisition, but has a different model to achieve more positive end gains. This is an effort to branch out, and shake the perception (and reality) that the mobile provider is just that, solely a mobile provider. Other attempts to utilize Verizon’s hefty investment in its LTE network have largely failed.

AOL provides Verizon with benefits too. Verizon has lacked content and faltered with its automated auction-based advertising programs on mobile platforms, an area that AOL has been relatively successful in as of late.

While these two services will be welcomed into the Verizon family, there are other benefits that AOL provides. While this service is certainly antiquated, AOL is still a core provider of dial-up Internet, raking in $182.6 million from that sphere alone. Dial-up, while certainly not an emerging market, is a consistent revenue stream devoid of annual reinvestment and upkeep costs.

Verizon, anxious for expansion, spent a hefty amount in the transaction. After the its Monday closing, AOL stocks were valued at $42.59 per share. The deal saw Verizon spend a flat $50 per share, leading to a tremendous uptick in the AOL stock not only because of the high per share prices paid by Verizon, but also the potential for expansion provided by Verizon’s wide reach over the mobile phone platform.

AOL is not a solution, but a means to improvement for Verizon in the field of content. This is a small fraction of Verizon’s net worth, and clearly not the final step to leveling the playing field with Google. The benefit for both companies is clear, but the question remains: will it be enough to stay relevant?

Coinbase Opens in Europe

Coinbase, a San Francisco-based Bitcoin wallet and merchant processing platform, is expanding their reach to serve European consumers across 13 countries.

This marks the first time Coinbase has taken a legitimate crack at business beyond U.S. borders. Coinbase is one of the largest Bitcoin wallets in the world. They serve nearly two million customers and 36,000 merchants like Wikipedia and Overstock, and they have 6,000 developers at their disposal. Coinbase is expanding to serve Italy, Spain, France, Belgium, the Netherlands, Austria, Cyprus, Finland, Greece, Latvia, Malta, Portugal and Slovakia.

Coinbase has taken their time to expand to other countries because the legal process in doing so is complex. Many European countries have ever-evolving guidelines and regulations on how to handle crypto-currencies. Multiple bank partners are a requirement, and thankfully for their clients, Coinbase has filled that need.

Brian Armstrong, Coinbase CEO, said,

“A lot of the regulatory environment is still unclear. Some countries have posted guidance on it, while others have been totally silent about it. We went through a process with each of these countries. We interpreted their guidance, told regulators about our plans and our goals of what we wanted to do. We had a bit of a dialogue, and some countries got comfortable. I will say we certainly have taken a more proactive reaching out to regulators.”

Although consumers in these countries can buy and sell Bitcoin through Coinbase, during the beta, clients will be limited to 500 euro per day. That amount is meant to cover transactions between Coinbase and the euro, in addition to European bank accounts.

A series of Bitcoin thefts took place in late 2013 and early 2014, but Armstrong attributed them to phishing, and pointed out that there are risks associated with using the web at any moment. In a verge interview, he said, “It happens on every major site on the Internet.” In many cases, Coinbase issued refunds for those that lost significant amounts of money and Bitcoins due to theft.