Most of you know I don't buy in to conspiracy theories, most of which end up being dead wrong, though that never seems to dissuade the people fronting what turn out to be outlandish claims. Given that conspiracy theories abound, it does happen now and again that the facts to come together to suggest something so outlandish - it sounds like the plot for a Tom Clancy technothriller.

One of those facts that carries disturbing potential is that China is almost certainly stockpiling large quantities of gold. That claim is difficult to confirm because China isn't saying how much gold they have and you can't trust public announcements from them anyway. The lack of trust that's inherent in any story dealing with the Chinese necessarily adds an asterisk to the end of any definitive conclusions. That said, if the Chinese really are stockpiling gold the next question would be why? I can think of a lot of reasons a country would increase their supply of gold, none of them particularly good and definitely not any that align with our interests.

ZeroHedge.com does a pretty good job of outlining China's accumulation of gold and you'll find similar analysis at FastMarkets.com, SeekingAlpha (registration required) and Bloomberg.

Part of the influx of gold is doubtlessly to provide liquidity for the new gold exchange in the Shanghai Free Trade Zone but the amount of gold China has been stockpiling far exceeds the needs of the exchange. The exchange does provide China a convenient mechanism to monetize their gold holdings, should they decide to do so.

What makes the Chinese affection for gold so suspicious and potentially ominous is the amount of U.S. debt they carry, estimated to be in the range of $3 trillion dollars. One of the reasons the Chinese might hoard gold is if they worried that the value of those dollars was going to decline. Or, if you're conspiracy minded, you might be tempted to think they know the dollar was going to decline because they have some limited power to make that happen.

Another possibility is China making a play to become the world's reserve currency. I tend to discount that possibility because the Chinese are the biggest currency cheaters on the planet, a practice that's incompatible with being the world's reserve currency. Would any sane country really want to accept an exchange rate set by the Chinese government? I find that highly unlikely.

All the same China could opt for a compromise position, something like Chinese Bitcoin; a digital exchange currency backed by gold. I'm actually surprised someone hasn't done this already and China would definitely have the resources to make that happen.

For now the vision may be greater than the reality. If China planned on pursuing this goal with Russia and Venezuela as partners, they didn't exactly pick the most reliable posse. The Russians blundered on the world stage with the situation in Ukraine, which just blossomed into a public relations nightmare when their lackey separatist rebels shot down a Malaysian airliner. Venezuela has flirted off and on with bankruptcy since 2001; so much for their team-building skills.

Even China isn't big enough to take on the U.S. economically by themselves, but I'm sure they'll stay busy inking oil deals denominated in currencies other than the dollar. One thing is for certain; the Chinese are not our friends and hindsight would suggest that allowing our manufacturing capacity to leave America for Asia is looking like a really bad move right now. All that has accomplished is enriching a country that may be planning to launch a preemptive strike on our currency.






-RedTea
Independent News for the Right-Minded American





redteanews

It's been a good week for Bitcoin, with prices moving higher in midweek trading. One Bitcoin is currently trading for $641, up nearly $100 from this time last week. What that means in a low-liquidity market is a matter of debate -- but the news has been overall positive for Bitcoin, and those who bought in last week, while prices were on a downward slope, are ahead by roughly 16% this week.

The biggest news of the week was the announcement by the US Marshals Service of a single winner of the 30,000 Bitcoins auctioned off on June 27th. All 30,000 coins went to a single winning bidder, who was not identified and has not come forward; neither was the winning bid disclosed. All we know so far is that the winner was not one of the syndicates run by SecondMarket, Coinbase, Pantera Bitcoin, or the Bitcoin Shop. The winner beat out 45 qualified bidders, and the agency received 63 bids during the auction. The coins were delivered to the winner on July 1st.

Bitcoin got a boost when tech retailer Newegg, partnering with Bitcoin transaction processor Bitpay, announced it had started accepting payments in the virtual currency. Perhaps it's somewhat ironic that Newegg is one of the companies that sells hardware to Bitcoin miners, the individuals and groups running collections of computers that solve the equations that create new blocks of Bitcoins. As one of the biggest online tech hardware dealers, it was surprising Newegg waited as long as it did.

In California, Governor Jerry Brown signed legislation on Saturday lifting California's ban on accepting payments in anything other than US dollars. The law is likely to promote more mainstream acceptance of Bitcoin, and other cryptocurrencies like Dogecoin. The new legislation also addresses other payment options, like Amazon Coins and Starbuck's Stars, according to a press release from Assembly member Roger Dickinson (D-Sacremento), who introduced the legislation.

In another bit of good news, US residents around the globe, scrambling to fill out their Form 114 Report of Foreign Bank and Financial Accounts, commonly called FBAR, by the June 30th deadline apparently did not have to include their Bitcoin holdings, although the agency reserved the possibility that additional guidance may be coming in the future. The scope of the law is quite broad, and requires Americans to report almost any type of foreign bank, brokerage, or credit card account worth more than $10,000 in any calendar year. Penalties for non-compliance are steep, up to 50% of the account balance for deliberate non-reporting.

At least for the moment, the IRS is still trying to come to terms with Bitcoin and other cryptocurrencies, and still classifies them as property. The fact the agency reserved the ability to issue further guidance in the future could mean that even the IRS is starting to come around to the idea of digital currency.







-RedTea
Independent News for the Right-Minded American





redteanews

Bitcoin prices were down sharply on mid-week selling, with prices recovering slightly to $561 after dropping from near $600 on Tuesday. The selling started Tuesday night, and was finally met with a burst of buying early Wednesday EST.

It's been mostly a quiet week for Bitcoin and, even though it was a slow news week, most of the stories were generally positive. Despite calls from some parts of the Japanese government to regulate Bitcoin, the ruling party has decided to hold off on a final decision until more information can be gathered from both sides of the debate.

Japan was made famous in the Bitcoin world by being the home of Mt. Gox, that once held the title of the world's largest Bitcoin exchange. Mt. Gox filed for bankruptcy protection in February after claiming hackers stole more than $750,000 in Bitcoins, under mysterious circumstances that don't sit well with many in the Bitcoin trade to this day.

According to CoinDesk, Canada passed bill C-31, a financial reporting bill that also defines regulations and reporting requirements for "dealers of virtual currency" in the definition of a money service business. The new law isn't expected to be fully implemented for at least six months, so Bitcoin businesses will have a bit of time to digest the new regulations.

Here in the US, bidders are lining up for Friday's auction of Bitcoins by the US Marshals Service. If you thought you could just jump in and make a bid, guess again. Bidders have to put up $200,000 to get in on the auction, and you'd be up against buyers from Wall Street and Silicon Valley that include banks, hedge funds, and investment brokers.
 
One of the challenges for big players in the Bitcoin exchanges is liquidity. Trades of as few as 500 Bitcoins can induce price swings in the market, and the government sale of 29,656 Btc is a chance for big players to stake out a position in the market, without paying the premium of rising prices when buying through the Bitcoin markets. Even after this sale, the government will still have more than 114,000 Bitcoins in its stash, that were seized when Silk Road, the online drug buyer's market, was raided by the FBI.

Overall, the Bitcoin community should probably not consider the entrance of hedge funds and investment brokers to be a positive sign for the digital currency. These are largely the same people who brought the country to near financial collapse, and play the stock market like it's their own private money farm. Having them secure a large financial stake in a market that's still mostly unregulated is not something to welcome with open arms. These are not companies that make money by adding value to markets and processes. These people wouldn't be at the function without a plan to profit off Bitcoin - and that profit, like most of the money they make, will come out of the pockets of smaller players.

On June 30th, the government will announce the winners of the auction - and we may also be finding out who our new digital currency overlords will be.







-RedTea
Independent News for the Right Minded American




redteanews

Bitcoin prices dipped in the wake of an announcement last week that the US Marshal's Office was putting $17.5 million worth of Bitcoins seized from Silk Road up for auction. Bitcoin prices dropped from the $670 range down to $608, where prices stabilized mid-week.

Bidder registration for the sale closes on Monday, with the auction to be held June 27th. Initially there was concern that a large flood of new coins would impact prices, but those fears have largely diminished. The $17.5 million up for sale is only a fraction of government holdings, and in line with the mid-range of typical exchange volumes. Even after the auction, the government will still have a large stake in the price of Bitcoin.

Bitcoin got some good news as well, with companies like Expedia, Yahoo!, and Google among several big names implementing a Bitcoin strategy. Venture capital dollars continue to flow into Bitcoin exchanges and new products at an ever increasing pace, even while troubling signs persist in the Bitcoin infrastructure itself.

GHash.IO Attains 51%

GHash.IO attained the milestone 51% of mining processing power we discussed last week, and this time the mining pool didn't automatically correct itself. In a statement made through CEX.IO, the exchange portion of GHash.IO, the operators reaffirmed their commitment to Bitcoin and vowed never to launch a 51% attack on Bitcoin infrastructure. In essence, the operators said "trust us".

Then an amazing thing happened; the hashrate of GHash.IO diminished, and was replaced by an unidentified entity currently labeled "Unknown" and a second entity currently labeled "Other Unknown". It's not a stretch of the imagination to guess that Unknown and Other Unknown were simply GHash.IO splitting off parts of their own pool behind different names, which could be still be controlled by same central entity.

We'll find out in the coming days whether the change is largely semantic, or whether GHash.IO implemented a more robust division of its mining pools -- but whichever way it turns out, the only real difference may be the perception. The fact remains that a single entity could still disrupt the Bitcoin marketplace and turn it to their advantage; a fact which, all by itself, undermines the whole decentralized concept behind Bitcoin and cryptocurrencies. Whether the operators ever would do so is immaterial; the fact remains they could. The community has largely dismissed the fears of a 51% attack as overblown, and perhaps that's true. What that doesn't change is the reality that, as long as the actual operators themselves remain anonymous, it's impossible to accurately weigh their motivations.

These situations are where it's necessary to make a distinction between Bitcoin as virtual property that you hold, and Bitcoin as a medium of exchange. Even if Bitcoin prices suddenly dropped to single digits, an event that would cause great consternation among those holding large quantities of Bitcoin, that would not affect its utility as a medium of payment and exchange. With services like Ripple, users send payments in their own currency to other users who receive payments in their own currency. In that payment scenario, Bitcoin is only a brief intermediary -- and the associated price is really not significant because neither party in the exchange is holding Bitcoin, unless they choose it as their preferred means of payment. 

As a medium of exchange then, the 51% attack is not a relevant issue. GHash.IO could go off the rails one day, undermine the whole of the Bitcoin universe; and from the standpoint of those accepting Bitcoin as payment, nothing really changes. If your price for a product is $30 USD and you're receiving payments in USD, does it really matter how many Bitcoins were involved in the exchange? The bigger reality is that also makes Bitcoin irrelevant, as an exchange like Ripple could switch to Litecoin, Dogecoin, or any other coin -- and the process, and the way they make money, remains exactly the same.

Once again we see the brilliance and value of the underlying technology and, in an odd way, how the value of the technology protects Bitcoin itself.







-Redtea
Independent News for the Right-Minded American





redteanews

It's been a volatile five days for Bitcoin, with prices once again moving higher to settle down near $650. The combination of venture capital money, interest from Wall Street, and acceptance by companies like eBay and Apple has put Bitcoin back on the respectability map. All the same, there are significant risks in the Bitcoin market.

There's an inherent weakness in Bitcoin if any single minin pool accounts for more than 50% of the total mining processing power. Mining pools are collections of computers networked together to perform the basic calculations necessary to solve the equations for the new blocks of Bitcoins. Whenever the mining pool solves the equations for new Bitcoins they're fractionally distributed to miners in the collective. Ripple has an excellent description of what can go wrong when any one mining pool gets too large on their wiki.

The largest of these organized networks is called GHash.io and, according to BlockChain.info, that pool accounted for 47% of mining power early Wednesday morning East Coast time. When any one pool starts approaching the 50% mark, miners either have to voluntarily switch to other mining pools, or the organizers of the mining pool have to move them.

The ability to send payments in any currency, anywhere in the world, is going to land squarely on a very profitable market for big banks...
While the 51% problem is largely theoretical, it's still possible. Right now the only thing keeping someone from undermining Bitcoin entirely is collective self interest. That assumes that a large mining pool would never want to hurt Bitcoin deliberately; that's a very large assumption. Such an attack on Bitcoin would be well within the means of the NSA or the Chinese. Right now I can't think of a reason why they'd want to do that -- but the motivations that drive such institutions are rarely apparent from the outside, and the threat remains.

In the final analysis, a 51% attack may remain theoretical for entirely unrelated reasons. As we've discussed repeatedly, the real value of Bitcoin lies in the ability of the underlying technology to create a public, frictionless, and secure system of exchange. That allows institutions, such as Native American tribes or sovereign nations, to use Bitcoin's underlying technology to develop their own currency. The involvement of a sovereign nation provides institutional support, and there's no reason a digital currency should not be a viable alternative.

Indeed, it may be Bitcoin's value as an alternative currency that drives industry acceptance. CNBC has an excellent analysis of Bitcoin as a medium of currency exchange, functioning almost like a reserve currency in commodity deals, except infinitely faster and less complicated. With services like Ripple, businesses can accept Bitcoin as payment without actually holding Bitcoin itself. In that scenario,the underlying exchange value of Bitcoin is immaterial because the transactions are immediately converted to the user's currency of choice. Think of it like Forex on steroids.

That eliminates the fear that a business might accept a Bitcoin payment, only to see the price suddenly crater before they can convert it to local currency. The price of Bitcoins could drop to $5 or rise to $2,000 -- and it would be all the same to the company accepting a payment from an overseas buyer, because they're only holding the Bitcoin payment for a few seconds. Markets like Ripple could also provide an exchange market for private digital currencies, like the Lakota nation's MazaCoin.

We'll see how long that status quo lasts. The ability to send and accept payments in any currency, anywhere in the world, is going to land squarely on a very profitable market for big banks and currency exchanges. Don't expect them to stand idly by and watch an upstart like Ripple carve out a pound of their flesh. They'll either look for a way to co-opt and profit from such a system, or use regulatory capture to try and crush it.

At last we start to see a stable future for Bitcoin, not as an investment as much as a reserve medium of exchange. That development is really going to chap the vested interests of the status quo, so break out the popcorn because it's going to be an interesting show to watch.






-Redtea
Independent News for the Right-Minded American






redteanews

It's been another up week for Bitcoin, although prices dropped from near $670 to $638 abruptly in midweek trading. Whenever prices moved over $670, big selling volume kicked in to swat prices back down to the $640 range.

The surge is likely due to Apple executives dropping a hint that Bitcoin would soon be an option on their system. Developers will be on the hook to make sure their acceptance of virtual currencies complies with all state and local laws. Apple's announcement comes on the heels of Dish Network's announcement that customers would soon be able to pay their bill with Bitcoin.

Fenton conducted an interesting experiment, where he used Bitcoin to send 80 people money around the world. According to his account, it took him 15 minutes, cost less than a dollar, and the money was transferred with a 100% success rate. If there was any doubt about the value of Bitcoin's system of frictionless exchnage, then experiments like that should put them to rest. That doesn't solve the other issues Bitcoin faces, but it was an impressive display all the same.

Even Wall Street is starting to pay attention to Bitcoin and take it more seriously. Companies like Goldman Sachs, Citibank, and Discover are all analyzing the potential impact of virtual currencies on our system of exchange. Even companies like PayPal, which may have viewed Bitcoin as a potential competitor, is considering the possibility of accepting Bitcoin for eBay payments. While many are looking at Bitcoin as a medium of exchange, the possibility remains that many of the advantages of Bitcoin could disappear as oversight is put in place.

Bitcoin is also threatened by the very financial organizations now analyzing cryptocurrency's possibilities. By using their undue influence on the regulatory process, they could skew the Bitcoin regulatory landscape to their own advantage, co-opt the new technology, and erase its financial advantages. For proponents of Bitcoin, underestimating the combined legislative and regulatory impact of the combined financial services industry would not be wise.

While many view Bitcoin as a medium of exchange, many of the advantages of Bitcoin could disappear as overnight is put in place.
Regardless of how they may influence the Bitcoin regulatory framework, it would be good to tread carefully when it comes to dealing with individual Bitcoin traders, as illustrated by Roger Ver. An ex-pat living in Japan, Ver was contracted by a hacker, who managed to hack his way into his Hotmail account and obtain his passport number, social security number, and other personal information. The hacker then demanded payment of 37 Bitcoins, roughly $23,00 at today's prices, or he would exploit that information. The hacker, who went by various names, including Nitrous and Clerk1337, assured Ver the outcome would not be pleasant.

Instead of paying the ransom, Ver sent him a link to this Facebook post offering a bounty for information leading to the arrest of the hacker. Within minutes of posting this offer, the hacker handed over the new password to his hacked Hotmail account and hasn't bothered him since.

Between overzealous regulators, Wall Street banks, and other less-sophisticated criminals, Bitcoin still has a long way to go but, so far at least, it's met those challenges and still come out on top.





-Redtea
Independent News for the Right-Minded American




redteanews

It's been another good week for Bitcoin, with prices pushing toward $600 on strong volume. Prices managed to top over $590 twice earlier in the week, before settling down to $567 early Wednesday.

The price move puts Bitcoin solidly above its 50-day moving average, which would be a bullish indicator if Bitcoin obeyed the same traditional trading metrics as other commodities, which has not been clearly established. There's still the widespread perception that simply because a market exists then Bitcoin has value, which is quite a leap. The value in Bitcoin is in the underlying technology, not in Bitcoin itself, which makes the application of traditional metrics, derived from either commodities or currency, only slightly better than a Ouija board.

Currency only has value if it's redeemable for a physical commodity, like gold, or it's backed by a government or other entity willing to support the price. Any physical commodity has some intrinsic value; even rocks can be crushed and used in the construction of roads; tulip bulbs can be planted and yield flowers; and even nitrogen, the most common element in our atmosphere, can be liquefied. Bitcoin, on the other hand, has an intrinsic commodity value of zero.

Some of our readers interpret that reality as some kind of a slam on Bitcoin, which is ludicrous. Just because Bitcoin is something new that defies traditional metrics doesn't mean it's worthless. Just because the bulk of Bitcoin's value is in the frictionless trading technology doesn't mean Bitcoin itself is not useful. While a Bitcoin may lack value in the traditional economic sense, the reality is you can still take your Bitcoin, right now, and trade it for $567 real world dollars, backed by the full faith and credit of the United States of America. That's up from just a couple of weeks ago, when a Bitcoin would only net you around $450 USD.

There are also hopeful signs in the near-term for Bitcoin, with the entrance of commercial players working on the regulatory hurdles surrounding Bitocin. There is also news that BitPay is processing $1 million dollars a day in Bitcoin payments, along with news that eBay is considering integrating Bitcoin payments with PayPal. You can tell sryptocurrencies are something substantial when companies like Western Union are trying to patent some elements of the concept.

Challenges Ahead

Still, Bitcoin faces challenges in the days ahead that are not trivial. There is still the question of whether Bitcoin developers can keep ahead of hackers and scammers and, right now, the consumer protections against Bitcoin theft are largely informal.

There's also the bigger question from the consumer point of view, of why use Bitcoin when you can just as easily pay with a debit or credit card? The answer is consumers will use Bitcoin when the items they purchase cost less. The most disruptive and exciting potential for Bitcoin and cryptocurrencies is the challenge to the stranglehold that banks have on payment processing. If vendors shave 2%-5% off the price for the people paying with Bitcoin, that's when Bitcoin will have real-world value. Until then there's little incentive for customers to slog through the technicalities and accept the associated risk.

To see sustainable growth and stability in its value proposition, Bitcoin has to grow its presence in the mobile market. Right now Bitcoin payments are shut out of both Apple and Google, although there is some indication Google is at least looking. Ironically, it may be the potential for frictionless micro-payments in Bitcoin that could be the biggest driver of growth in mobile infrastructure.

The value of cryptocurrencies is clear as is the value of the blockchain. For Bitcoin itself, time will tell. There are numerous examples in history when the first entrant into a new market is not the one that eventually comes out on top.





-Redtea
Independent News for the Right-Minded American



redteadotcom


Mod note: Doxxing discussion split and moved to: https://bitcointalk.org/index.php?topic=632151.0

Thanks to a surge in buying on Tuesday, Bitcoin managed to pull off a win for the week by posting higher prices on strong volume.

The six month chart keeps the higher prices in perspective but, even on that longer scale, there’s a definite leveling of prices around the $500 mark. It’s still too soon to say if this really is the floor for Bitcoin, but there’s no denying the deceleration in the downward trend — and that’s a win all on its own.

So far Bitcoin has been dogged by being technically difficult for the average person to understand, and a target for hackers, crooked businessmen, and skeptical regulators. With no intrinsic value, Bitcoin is getting some much needed institutional support from new players in the market backed by VC money. One of those new ventures, which hopes to transform Bitcoin into something that resembles a simple banking service, is called Circle.

Current Bitcoin applications require users have at least some understanding of public key encryption, and the system functions like an unregulated trading platform. That’s great for hackers, thieves, and sharp speculators, but it’s not so good for people new to the technology. What Circle has done is create a safe, universally accessible and, at least for the moment, free platform to make Bitcoin more approachable for the next tier of early adopters.

Circle’s co-founder, Jeremy Allaire, sees speculators leaving the Bitcoin market as a positive sign, believing Bitcoin’s value as a payment medium outweighs its value as an investment.
 
Circle is also working with regulators to ensure compliance with financial regulations, provide proper disclosure regarding risks, and create some level of consumer protection. Right now Bitcoin exchanges are mostly overseas, and there’s no structured environment to address issues like liquidity and liability. For early tech-savvy adopters, those concerns are largely irrelevant; but for Bitcoin to build the infrastructure necessary to attract business and a broader user base, those issues will have to be addressed — and that’s the focus of Circle, as described by Allaire in this interview with Bloomberg TV.

Circle addresses these concerns with a platform that insures deposits and complies with anti-money laundering regulations. Customers can deposit money into their account, and see it immediately converted into Bitcoins without any fees. The user interface also makes it easier to send and request money. Instead of marketing itself as an investment platform, Circle seeks to capitalize on Bitcoin’s frictionless exchange to drive the value proposition inherent in the technology.

In the current market dynamic, there is little incentive for consumers to slog through the technicalities and associated risks to pay for goods and services with Bitcoin. But if services like Circle can capitalize on lower transaction costs to provide merchants with incentive to use Bitcoin, that would be a big win for consumers and merchants alike.

Currently, companies like Visa and MasterCard sit atop every digital transaction flowing through our banking system, sucking off a percentage of every exchange; a stealth financial tax that manifests as higher prices. If merchants started offering Bitcoin users a discount by passing on the savings from lower transaction fees, that could drive much wider Bitcoin adoption and provide predictability in Bitcoin pricing, something that is acutely lacking in the market that exists today.

I put in a request to try a Circle account, and will report back with a detailed overview of how the system works in a future column.




Sources:
http://redteanews.com/2014/05/21/circle-bitcoin-made-easy/#.U3zbb_ldXfI




-Redtea
Independent News for the Right-Minded American



redteanewsdotcom

This has been another week of disappointing price action for Bitcoin enthusiasts. On the five day chart, Bitcoin prices have dropped from near $455 down to $445. The good news, if you can label it as such, is that prices had reached $435 on Sunday before recovering on Monday.

For perspective, it might be illustrative to compare recent price action with the historical trend.

As you can see, Bitcoin has spent the bulk of its existence trading for mere pennies. It wasn’t until 2013, just last year, that the insane price hikes kicked in. Most everyone realized the sudden spike up was a speculative bubble that was going to end badly, the way speculative bubbles do.

Any attempt to apply traditional market analysis techniques to Bitcoin is just nonsense. Bitcoin is not a stock, option, currency or commodity in the traditional sense — and trying to apply market analysis techniques, developed for analyzing the trading patterns of actual stocks, options, currencies, and commodities, is not going to yield supportable results. Bitcoins are literally nothing but encrypted blips in a distributed network of computers, that belong to the person holding the proper cypher.

Bitcoin’s value can’t be calculated using traditional metrics, and any attempt to do so is at best folly and at worst deliberately misleading.
Before anyone thinks I’m dissing Bitcoin, let me remind readers that US currency is also nothing to most people but abstracted blips in a bank’s computer system that can be traded for paper that also has no intrinsic value. The only difference between Bitcoins and dollars is that dollars have the full faith and credit of the United States of America standing behind them, and that actually means quite a lot out in the real world.

I’m not suggesting Bitcoins have no value; I’m saying that a Bitcoin’s value can’t be calculated or analyzed using traditional metrics, and any attempt to do so is at best folly and at worst deliberately misleading. That statement is required as a backdrop in saying that “investing” in Bitcoin is financial insanity, and the steady decline in prices would apparently indicate that the message is finally sinking in.

Steadily declining prices create a dilemma for Bitcoin that doesn’t exist in other markets. If you buy Bitcoin today, you’re almost guaranteed to lose money on the purchase. If you’re a merchant that accepts Bitcoin, your optimum strategy is to immediately convert the Bitcoin into cash, otherwise you can actually watch your profit margin eroding on the five day chart. The speculative bubble was bad for Bitcoin because it attracted all the wrong types to the market, and set up an equally bad long-term decline that has no bottom. That decline discourages new players from getting involved and, since there’s no theoretical bottom to the market, the number of actual Bitcoin traders is going to continue to shrink until Bitcoin finally finds an equilibrium price. The long-term equilibrium price will likely be some number above $0, but what that exact number will be no one can say.

While dollars face an equally dismal fate in a declining market, the US dollar has the Federal Reserve to prop up its value. The price of gold and silver may decline, but both of those metals have an intrinsic value, to the jewelry industry if nowhere else. If the price of General Electric stock declines, I know the company can restructure, add new product lines, and make other changes to recover and grow. With Bitcoin there’s nothing putting a floor on that price, and no avenue for growth.

The influx of venture capital money and involvement of players like Richard Branson is a clear indicator that there is value in the Bitcoin concept. Right now that value is Bitcoin’s potential for the technology to democratize banking — and that potential is huge, but how do you price that? The simple answer is that, right now, you can’t.

Unless you’re fond of losing money, the wise course is to stay on the sidelines until Bitcoin finds a market niche which will lead to an equilibrium price.



Sources:
http://redteanews.com/2014/05/14/why-bitcoins-downward-trend-spells-trouble/#.U3OazPldXfI



-Redtea
Independent News for the Right-Minded American



redteanews.com

It’s fascinating to watch Bitcoin evolve, as more players begin to understand the technology. Law enforcement, financial regulators, investors, big banks, Congress, and now the US military are all struggling to understand how Bitcoin and virtual currencies fit into our financial world of the future.

The only mildly disturbing entry into the Bitcoin world is the military, putting out bids to understand the role of virtual currencies in financing terror networks. Bitcoin Magazine discovered an unclassified memo that lists project funding for understanding cryptocurrencies and lists Bitcoin specifically. There are other government and law enforcement agencies working on understanding terrorist finances, and it’s hard to see the value in so many duplicate efforts. The core mission of the military is to be the best in the world at breaking things and killing people. The farther they stray from that core mission, the less desirable the outcome. Mission creep has rarely resulted in something good happening.

bitcoinYet the biggest threat to Bitcoin and virtual currencies doesn’t come from government or law enforcement; by far the more ominous threat to emerge is Wall Street. Big banks and electronic payment systems are studying the underlying technology of virtual currencies to see if public ledgers, like those used in Bitcoin, could have value in the financial services market. The answer to that question is most definitely “yes,” but that’s not really the question they’re trying to answer. What Wall Street wants to know is how it can implement the underlying technology to lower costs, while still maintaining its grip on the nation’s system of financial exchange.


 
Even Goldman Sachs believes the “blockchain” technology that underlies Bitcoin has commercial potential. The current money transfer system used by banks in the US is called the Automated Clearing House, or ACH network. ACH settles money transfers in business a day, an eternity in Internet time. That’s why it can take as long as three or four days to get money transferred from your PayPal account to your bank account. Bitcoin settles trades in minutes; and a newer variation of the blockchain technology, called Ripple, settles trades in seconds. All of those cryptocurrency transactions are carried out securely over public networks by systems that have no central authority.

There is even talk of banks using Bitcoin as a medium of exchange directly, but it seems more likely banks would develop their own digital currency for exchange, one that couldn’t be used in any other context.

It’s obvious by now that government is not going to be able to stop Bitcoin or other digital currencies. If the Chinese can’t stop digital currencies with a blanket prohibition, no one can. But Wall Street interests, working closely with the government regulators they’ve spent so much money shaping to their own benefit, represent a clear and viable threat to budding digital currency networks. Big money has the potential to corrupt the technology to its own devices, and then squash any would be competitors.

It’s not hard to imagine the outcome if Wall Street manages to reign in digital currency; just imagine what the Internet would look like today without net neutrality. Instead of an open and healthy marketplace, we would have a collection of Balkanized services controlled by a handful of players at the top. That’s why companies like AT&T, Verizon, and Comcast have all been so relentlessly attacking net neutrality and, until just recently, have been thwarted in those efforts.

Banks don’t like open markets or competition, and they’re not going to repeat the mistakes of history by letting competing technologies develop without challenge.


Sources:
http://redteanews.com/2014/05/07/why-does-the-us-military-think-bitcoin-is-a-terrorist-threat/#.U20i5PldXfI



-Redtea
Independent News for the Right-Minded American


redteanews.com

It was interesting to watch the reaction of regulators to the arrival of cryptocurrency. Some of that government reaction was what one might expect, a bit of overreaction based on common misconceptions, followed by a short burst of overreach. China went full crazy, banning Bitcoin outright and telling banks not to touch it. Outside China, the reaction of regulators was surprisingly cautious. In the US, there was a strongly worded letter from the Treasury Department to a handful of businesses — threatening to follow up with even more strong language in the future.  In an unrelated action, the IRS declared Bitcoin to be real property, not currency, and hence taxable. Legislators are split, with some demanding outright bans, while others support a more accommodating approach. Canadians took the radical step of studying the issue before recommending any enforcement action.

The concern of law enforcement was that Bitcoin would be used to fund illegal activities including terrorism, and enable money laundering. Those are not unreasonable concerns — and basically the downsides of any stateless medium of exchange, including cash.

If Visa and MasterCard feel digital currencies are a threat to the stealth tax they levy on nearly every electronic transaction, then Dark Wallet is a tailor-made talking point for lobbyists who want legislators to crush competition.
None of those problems were new, and all regulators and Bitcoin exchanges had to do was work out a set of rules for Bitcoin traders that mitigated those concerns. There was progress in those negotiations; regulators were getting more comfortable with the concept of cryptocurrencies, more businesses accepted Bitcoin, and an influx of venture capital was moving the concept of digital currency slowly but surely toward financial legitimacy.

bitcoin_chartAt MIT, students are set to become part of a giant Bitcoin experiment, as the MIT Bitcoin Club secured $500,000 in funding to give every student at MIT $100 worth of the digital currency and watch what happens. The goal of the project is to gather data about how people actually use digital currency, in hopes that information will lead to improvements in the system implementation.

Now, in the midst of those first tentative steps forward, comes an announcement by a group called unSystem about the release of a new version of the user software Dark Wallet, which beefs up anonymity in Bitcoin transactions.

Dark Wallet encrypts and then blends Bitcoin transactions to make tracking individual transactions all but impossible. If Dark Wallet works as advertised, it will be a clear message to regulators that digital currencies can’t be regulated or trusted, which is not particularly helpful if you’re one of the people hoping to see Bitcoin expand into commercial markets.

Using a process called CoinJoin, Dark Wallet creates a stream of encrypted and anonymous Bitcoin transactions, and only the private keys held by the originator will be able to decrypt and claim the Bitcoins being transferred. Basically the Dark Wallet clients test every transaction to see if it belongs to them; if the decryption works, it’s theirs. The philosophy is simple and effective.

Another wildcard is the news that MasterCard is paying lobbyists to focus on Bitcoin and digital currencies on Capitol Hill. There’s no word as yet on what position MasterCard is taking on cryptocurrency, but the fact they’re sinking a sizable amount of their corporate cash into lobbying efforts related to digital currency should raise a warning flag for cryptocurrency traders. If the companies sitting on the nation’s electronic payment system, Visa and MasterCard, feel digital currencies are a threat to the stealth tax they levy on nearly every electronic transaction made in America — and cryptocurrency most certainly is a threat to that monopoly — then Dark Wallet is a tailor-made PR talking point for corporate lobbyists wanting legislators to crush potential low-cost competitors.

It’s unlikely the push and shove in the quest for anonymity will end with Dark Wallet in any respect. Other Bitcoin developers could find a way to deny Dark Wallet transactions, setting up a developer arm’s race, and fracturing the Bitcoin user base between business interests and the more radical faction demanding absolute privacy. In the end Dark Wallet may be just one more wooden shoe in the machine of those pushing for Bitcoin financial legitimacy; another hurdle to overcome in their quest to see Bitcoin go mainstream.


Sources:
http://redteanews.com/2014/04/30/bitcoin-dark-wallet-the-excuse-regulators-needed/#.U2E4hvldXfI



-Redtea
Independent News for the Right-Minded American


redteanewsdotcom

Last week saw Bitcoin prices mostly continue to slide, a trend that’s been with us since December of last year. Every time that buying kicks to raise prices, it’s met with a wave of selling.

It’s hard not to see the current Bitcoin price action as one or more very large holders of Bitcoins converting their inventory in a gradual, methodical fashion to keep from pushing the market into a tailspin. Normally this kind of gradual selloff would indicate what aircraft crash investigators euphemistically call “controlled flight into terrain.” In this case it appears to be more of a normal price adjustment.


Bitcoin went through a “tulip bulb” phase early on when people rushed into the new cryptocurrency frontier and drove prices to unsustainable levels. Bitcoin was also joined by competitors like LiteCoin, FeatherCoin and DogeCoin, which siphoned away some of the early adopters and fractured the market. In that light, prices trending lower are no real surprise.

Despite the gloomy price action lately, there are good reasons to believe in the future of Bitcoin.

VC Money

Bitcoin projects and new exchanges continue to find support with VC money, from investors who are putting money into building new exchanges that qualify as money-transmitting agencies. Getting those licenses, which are issued separately by all 50 states, is a painful and time-consuming process. Two new US-based exchanges, Kraken and CoinMkt, are currently slogging their way through that labyrinth of sometimes conflicting state regulations.

In a slightly different approach, Atlas ATS is partnering with the National Stock Exchange [paywall], which is recognized as a Self-Regulatory Organization (SRO) by the Securities and Exchange Commission. By partnering with an SRO that will write the exchange regulations that Atlas ATS will follow, developers hope to avoid a lengthy approval process.

Traders in overseas markets have new options, including the UK-based CoinFloor Limited, a Sterling denominated exchange that is backed by Passion Capital, one of the larger European tech VCs.

Blockchain Implementations

The real genius of Bitcoin and of cryptocurrencies in general is the blockchain technology, that allows an unregulated network to accurately maintain a record of changes in ownership. Whether or not cryptocurrencies survive, the underlying blockchain mechanism will find its way into a world of new uses.

In one of the first non-currency uses of the blockchain technology, the Danish Liberty Alliance political party is using a blockchain-based voting system for internal voting by members [in Danish].

Since blockchain transactions are both secure and transparent, the technology is a natural match for voting and polling systems. It also won’t be long before blockchain makes an appearance in markets and exchanges, where it would enable a near frictionless exchange of almost any type of commodity.

With Bitcoin’s multiple personalities of being a currency, a commodity, and a technology, it should come as no surprise that the Bitcoin market is going to take a while to sort itself out.



Sources:
http://redteanews.com/2014/04/23/bitcoin-dogged-by-stubborn-downtrend/#.U1gjGvldXfI


-Redtea
Independent News for the Right-Minded American


redteanews.com

The charts don’t lie, and the data plainly show that Bitcoin remains on a slow but steady price decline. A little over a month ago, prices were near $700 — but it’s been all downhill ever since. In some ways a long, slow slide is a worse sign for Bitcoin than a great crash, as the gradual decline may signify a loss of confidence in the system itself. That fear, that the Bitcoin infrastructure itself is insecure, is not entirely without merit.

First came a string of high-profile exchange hacks that bled millions out of exchanges that were insignificant in size, but the headlines tarnished all. The source of the hacks was eventually traced to a flaw in the Bitcoin exchange system. It was a small flaw that was easily fixed — but the damage to Bitcoin’s reputation was already done.

Then there was the nagging speculation that the hack of the Mt. Gox Bitcoin exchange might have been more of a loss than a hack — possibly even a theft. That impression was reinforced by the discovery of $117 million tucked away in a cold storage server. There were rumors of free-spending largess by the CEO of the now defunct exchange in the days prior to the hack. While those rumors are as yet unsubstantiated, the mere fact that the truth behind the disappearance was so difficult to pin down was another blow to user confidence in Bitcoin transactions.

Added to the growing pains of the technology itself were regulators lining up to voice their skepticism about all things Bitcoin, a list that now includes Attorney General Eric Holder. The IRS is labeling Bitcoin as property, a decision that’s currently being appealed.

In yet another minor but frustrating security concern, comes news of the Heartbleed SSL vulnerability. Heartbleed exploits a flaw in OpenSSL, a critical component in the Bitcoin system. While it’s not clear whether any hacks have been directly attributed to Heartbleed, the news caused at least one major exchange to clamp down on Bitcoin withdraws until it’s fixed. While the Heartbleed vulnerability is certain to be patched quickly, it’s just another razor cut to user confidence in Bitcoin.

It’s not any one piece of news that’s particularly bad for Bitcoin, it’s the impression left by the cumulative weight of many annoying little problems. Couple all that with the independent and sometimes aloof nature of the Bitcoin community, and you get a formula for a loss of confidence and declining prices.

As I’ve said before, I remain skeptical of any pronouncements of Bitcoin’s imminent demise. The Bitcoin universe has some very compelling engineering ideas incorporated into its DNA, and there is real value in the frictionless exchange inherent in the system design. The security problems will get resolved, and the community will totter along, weighing the pros and cons of making compromises with “the man” on a number of key issues, including regulation.

For now much of the tech world, and many potential investors, are taking a wait and see approach. Bitcoin is the pioneer in the field soaking up all the arrows, and there’s an unfortunate human tendency to pile on those suffering misfortune.

For the meantime I’d remind my readers that we went through all these mental gyrations and more during the early days of the Internet. We got through those, and I believe Bitcoin will get through this current period of skepticism and instability.



Sources:
http://redteanews.com/2014/04/09/bitcoin-the-downward-trend-continues/#.U0caaPldXfI




-Redtea
Independent News for the Right-Minded American


redteanews.com

Despite an unusually quiet span with no bad news, the price of Bitcoin has struggled since the IRS announced it was property and that gains would be taxed as simple capital gains. After briefly dropping below $450, Bitcoin struggled back to $485 early Wednesday.

In an interesting fit of government honesty, the Federal Reserve Bank of St. Louis issued a report on Bitcoin that was oddly bullish in some aspects. The report recognizes the inherent financial weaknesses of Bitcoin — but does so in a even-handed way.

One of the charges frequently leveled at Bitcoin by regulators is that the cryptocurrency facilitates illegal activities. In the report, the St. Louis Fed recognizes the same can be said about gold or virtually any currency. The report also recognizes that government regulation of Bitcoin itself is nearly impossible. It’s clear from reading this report that some regulators understand the technology better than others.

bitcoin_chartBitcoin’s greatest strength — the ability to make large, anonymous transactions — is also turning out to be its greatest weakness. For many reasons, at least a few of which are legitimate, the government doesn’t like people trading large stacks of currency anonymously. Law enforcement is concerned that anonymous transactions can be used to finance criminal activities and drug deals; the IRS is concerned anonymous transactions won’t be reported properly; and Homeland Security is worried anonymous transactions would be used to fund terrorist activities. All those are, to a greater or lesser extent, reasonable concerns.

The chances of the Bitcoin community altering any aspect of the transaction, mining, or storage systems to accommodate the concerns of regulators, law enforcement, or the mainstream financial industry are exactly zero. Bitcoin was designed specifically to thwart any attempt by those institutions to co-opt it, or to pierce the veil of encrypted anonymity.

That’s why price weakness, like we’ve seen lately in the Bitcoin market, is largely shrugged off by the community. They don’t care if Bitcoin loses value as the rest of the world measures it — the cryptocurrency has value to them because they use it. While that sounds circular, that is the underlying value of Bitcoin — the users, not the intrinsic value of the commodity.  Ultimately the Bitcoin process may be more valuable than the product itself.

Bitcoin’s ledger of transactions, the “block chain,” is not designed to support auditing or to conform to reporting standards. Yet, when the block chain is viewed as a mechanism for verifying and transferring ownership, it’s a frictionless marvel of technology.

Even if Bitcoin disappears from the financial play of history, it’s likely the block chain will live on, adapted to the transfer of ownership of a myriad of different products and services. Properly implemented block chain technology could speed financial transactions across borders, virtually eliminating middlemen institutions. Block chain technology could also be applied to big ticket items to enable fractional ownership. That is roughly the same concept as a mortgage or lien holder, only far easier to implement and track.

For the meantime the block chain technology remains wrapped up with Bitcoin, which is currently losing favor in some circles — and the price is only slowly coming back. Whether prices hold at current levels, or end up sliding further, will depend on the health, legitimacy, and security of the exchanges. There are currently a lot of investors willing to put up a lot of money to secure the future of Bitcoin and we don’t, as yet, have any idea how that process is going to play out.

Until the IRS rules are clarified, Bitcoin traders will likely keep their fortunes offline in cold storage, avoiding any reporting requirements for the time being. Don’t expect any big price moves until the dust settles on the cryptocurrency landscape. Right now, for the Bitcoin world, the strategy is to wait and watch.




Sources:
http://redteanews.com/2014/04/02/bitcoin-muddles-along-in-sideways-trading/#.Uzxg0vldXfI



-Redtea
Independent News for the Right-Minded American


redteanewsdotcom

Every week is interesting when it comes to Bitcoin — but some weeks are more interesting than others, and this week was full of surprises. Mt. Gox, the Bitcoin exchange famous for getting hacked and losing 850,000 Btc, made the surprise announcement that it found 200,000 Btc in old shoe box. Okay, it wasn’t really a shoe box, it was a “cold storage” machine, which is basically a computer not connected to the Internet or company network. There was no explanation of how the Bitcoins got there, or what will happen to the $117 million dollar recovery in bankruptcy court.  It does point up the hazards of trusting serious money to an organization founded on trading playing cards.

That news was trumped by the IRS announcing that, as far as taxation is concerned, Bitcoins are property, not currency, and can be taxed like any other investment. The ruling means that Bitcoin trades would be subject to capital gains taxes, just like a stock or mutual fund. What’s less clear is exactly how that would work for businesses accepting Bitcoin as payment. Under this technical definition, if a buyer purchased a $2 used comic book with Bitcoin purchased for $1, that would mean a $1 in capital gains taxes for the buyer and $2 in capital gains for the used book store. Trying to apply those taxes to every Bitcoin transaction is going to rewrite the definition of burdensome regulation. The IRS announcement further eroded Bitcoin prices on global markets, with prices gradually sliding to the $580 range on lower than normal volume.

If it’s not Iceland, some small country or island nation is going to get the wild idea of giving cryptocurrency a try.
In another bizarre incident, all 320,000 residents of Iceland, who already had a reputation as mavericks in global financial circles, woke up to discover they were deeded a stash of Auroracoin. The Icelandic branded cousin of Bitcoin is intended to take a shot at the country’s strict currency controls, put in place in 2008 after the Icelandic krona got hammered in world markets during the recession.

In a larger country, such a move would simply be swept away with aggressive enforcement action —  but in a population the size of Iceland everyone knows everyone else, and such a heavy-handed move is neither advisable nor necessary. It’s equally likely that the Icelandic parliament could end up embracing Auroracoin, as the country has a history of setting monetary policy with little regard for the rules followed by the rest of the world. If someone in the Icelandic government gets the wild idea to back a cryptocurrency with a real commodity, like gold or silver, that’s going to open up a new medium of global exchange virtually overnight. If it’s not Iceland, some small country or island nation is going to get the wild idea of giving cryptocurrency a try, if nothing else as a cost-saving measure.

What’s more certain is that Bitcoin is starting to attract serious startup capital from people who were early players in the electronic payment business. While Bitcoin earns the same type of scorn and ridicule as email received in the early 1990s, it does represent the latest undiscovered country in both technology and finance. Yet, despite some very public growing pains that seemed to prove the naysayers correct, Bitcoin has managed to come through with a healthy market still in operation.

It remains to be seen what effect the IRS ruling will have on the Bitcoin trade, but my sense is the impact will be minimal. There are certainly many Bitcoin traders in the US, but cryptocurrency recognizes no borders; and when Bitcoin stumbled in the US, prices barely budged in overseas exchanges. It’s apparent that trying to regulate Bitcoin would be like trying to nail Jello to the wall — apply pressure in one place, and the supporting system simply flows to a country where there is less pressure.

As digital currency moves ahead, look for regulators to be constantly stymied by the fluid nature of transactions. Ultimately, when it comes to technology, it’s always safe to bet on convenience and efficiency to win out — and Bitcoin offers both.


Sources:
http://redteanews.com/2014/03/26/bankrupt-bitcoin-exchange-finds-117-million-in-old-shoe-box/#.UzNH6_ldXfI


-Redtea
Independent News for the Right-Minded American


redteanews.com

If Bitcoin were an adolescent human being it would find itself in therapy, for life. In the space of a month it’s been ridiculed by the likes of Goldman Sachs, Warren Buffett, and the Who’s Who of hedge fund managers. Bitcoin has been alternately called a Ponzi scheme and the digital equivalent of tulip bulbs. If the ridicule by the financial entertainment industry wasn’t bad enough, Bitcoin was denied by its own father, who claimed he had nothing to do with the upstart digital currency, a statement bold enough to prompt journalists to start questioning Newsweek’s motivations and see the first hints of potential lawsuits.

If all that wasn’t bad enough, Bitcoin has gotten to watch its younger sibling, Dogecoin, surge in both market capitalization and popularity as supporters, fueled by Red Bull and boundless enthusiasm, take to social media to gush over the new arrival. It’s probably fortunate that Bitcoin lacks the ability to start drinking.

Yet, despite the tide of woe and steady stream of bad news, Bitcoin has managed to maintain prices around $600, and trade in a range over the last month that is, for the most part, normal.

bitcoincharts_com
Graph courtesy of bitcoincharts.com
The normality of trading stands in bizarre juxtaposition to MtGox reopening after filing for bankruptcy, to allow users to see how much they’ve lost — with no way to reclaim the funds.

The strangely inconsistent normality of the Bitcoin market is further proof of a point that I’ve made repeatedly on the subject of digital currency, and that is the people at the core of the new wave of exchange don’t give a fig about the financial industry, government regulators, or popular opinion, all of which are backward-facing institutions that operate in favor of the status quo. These people, and they are real people, don’t care what anyone in the financial industry thinks and they never will. They won’t recognize the seemingly obvious fundamentals of how business gets done, or seek out the advice of the old sages of financial wisdom.

The mistake the financial media and finance industry make is thinking that Bitcoin represents some new type of currency. Bitcoin will never make sense thinking about it as a monetary tool; that is completely peripheral to understanding the whole system of exchange. Digital currency is a disruptive technology and doesn’t really make sense anywhere outside that context.

Consequently, when an organization like Goldman Sachs says Bitcoin will never be a serious player in the financial system, the Bitcoin faithful are just fine with that. In fact, the core of the Bitcoin system may actually like large financial institutions mocking Bitcoin, because that will tend to diminish digital currencies as a threat in the eyes of regulators.

Bitcoin was perfectly happy being the obscure plaything of a relative handful of techno-geeks scattered around the world, just like the early days of the Internet when it was used by a relative handful of government and educational institutions to exchange cryptic text messages. Even after privatization, it wasn’t until AOL came on the scene, with its unwashed and unruly masses intruding on the relative sanctity of the technical community, that the full potential of the Internet as a disruptive communication tool really became apparent.

So it is with Bitcoin and digital currency in general; the great unwashed masses have discovered Bitcoin and, like newbies on the early Internet, many have gotten chewed up by the Wild West nature of the technology. Just like we tamed the West, and the Internet evolved to include the larger public, digital currency will also evolve, and find a place in our financial lives.

Sources:
http://redteanews.com/2014/03/19/bitcoin-shines-in-spite-of-turmoil-ridicule/#.UyoWsPldXfI


-Redtea
Independent News for the Right-Minded American

redteanewsdotcom

As usual, it’s been a bizarre and eventful week for Bitcoin, and for cryptocurrency in general. This week saw regulators become increasingly skeptical of Bitcoin, and a Texas state regulator issued an emergency cease and desist order against an energy company taking investments in Bitcoin. Even FINRA, the financial industry’s self-regulation body, a group known for being the watchdog that never barks, managed to tear themselves away from expense account lunches long enough to issue a warning about Bitcoin.

The Bitcoin world also watched, partly in horror, as Newsweek outed Dorian Satoshi Nakamoto, the 64-year-old engineer who almost certainly was the creator of Bitcoin. Mr. Nakamoto added to the general confusion, as he alternated between denying being the original developer of Bitcoin, and claiming he turned the project over to other developers and had nothing to do with it anymore.

This week also saw Bitcoin traders come to grips with the limitations of their cryptocurrency passion. Bitcoin is like a digital bearer bond, where possession is more than a nine-tenths proposition, it is the law. Digital currency in general is like a steep stairway with no handrails, a system with few safeties, where it’s possible to make a million dollars disappear with the errant click of a mouse. With Bitcoin, you can send too much money, or send it to the wrong place, or send it nowhere at all — and it’s just as gone and there’s no getting it back. Like any realm inhabited by those comfortable in the chaotic world of technology, Bitcoin operates without a safety net, something that’s just fine with the core of power users and developers. Fraud and theft are just part of the Bitcoin landscape. Digital currency is the ultimate Libertarian playground, where none of the slides have safety rails, and a long fall to the asphalt awaits the unwary.

 Digital currency is the ultimate Libertarian playground, where none of the slides have safety rails, and a long fall to the asphalt awaits the unwary.
One might expect all the bad publicity, regulatory angst, and minefield nature of handling digital currency would have tarnished the luster of Bitcoins as a medium of exchange — but that’s not the case. Bitcoins have actually gone up this week, with the price at a healthy $637.49 for just one of the encrypted computer blips.

Even if the cost of a Bitcoin dropped to $0.25, a quarter, it would not deter the core of Bitcoin traders. Certainly Bitcoin’s digital fingerprint on the Internet and in the tech media would shrink, but Bitcoin will never go away. There are new digital currencies out there, and one or two of them are trading for around a quarter.

The resilience of cryptocurrencies does not come from their real-world value, which is exactly zero. Digital currencies cannot be exchanged for anything in a regulated market, even though it required an investment in computer hardware and electricity to create them. The reason people like Paul Krugman don’t understand the value of Bitcoin, is because they don’t understand the people who trade digital currencies.

The majority of Bitcoin traders grew up in a world where they spent the bulk of their free time, sometimes hours and hours a day, building up characters in virtual online worlds. They would make trades with other players, exchanging digital gold earned in the game for tokens and game objects that gave their virtual characters an advantage in the game. Many of the virtual world game players were people who worked in IT or other tech related industries; people who grew up in a world where the Internet was their primary connection to the outside world.

Those digital realms have names like Quake, World of Warcraft and Second Life, games lumped under the general heading of MMORPGs, or “Massively Multiplayer Online Role Playing Games.” For an entire generation of young adults, those worlds are as comfortable to them as their own skin. The significant technocratic core of Bitcoin consists of people who grew up trading digital gold; to them Bitcoin is a perfectly natural abstraction of real money.

To my grandfather’s generation, currency was something backed by something real, like gold and silver. My parents’ generation wrote checks, and currency was something you sent to the bank to pay your credit card bills. To my generation, currency is little beyond computer blips behind a plastic debit card. Today we can get buy without the paper, which is still convenient in some scenarios, but not totally necessary.

With the continued abstraction of currency to computer blips in a bank account, it’s not a huge leap to computer blips that are not backed by the government. That’s why people like Mr. Krugman will never accept Bitcoin — because that’s not the world they grew up in. To a greater or lesser extent, we’re all a product of our times.

Sources:
http://redteanews.com/2014/03/13/bitcoin-faithful-shrug-off-this-weeks-bad-news/


-Redtea
Independent News for the Right-Minded American


redteanewsdotcom

Pure genius^^

You really think so? -_-

woah i do not get this. care to explain?