BITCOIN NEWS EVRYDAY! From multiple sources.

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With Bifubao’s Wallet, Users Can Prove Funds via Cryptography
Jon Southurst (@southtopia) | Published on March 18, 2014 at 10:45 GMT | Companies, News, Wallets

Can bitcoin exchanges and online wallets can be trusted to hold all the bitcoins they claim to? Well, it’s a contentious issue.

However, Chinese startup Bifubao claims it has solved this conundrum with its new user-verifiable wallet service.

Many bitcoiners will have faced the question: “If bitcoin transactions are public and secure, why didn’t anyone know Mt. Gox wasn’t really holding their funds?” The answer here is that Mt. Gox and many other online coin-keepers, including wallets and gambling sites, keep their transactions ‘off-chain’.

Once the money is sent to the company, it leaves the public bitcoin block chain and goes into that company’s proprietary transaction system, re-entering the full public chain when it is withdrawn – if it is still there to be withdrawn, that is.

Following Mt. Gox and other high-profile disappearing acts in bitcoin’s short history, users are demanding more accountability from their online services. Anyone holding any amount of your bitcoin in future will need to prove the funds are there.

Proof of reserves

Bifubao has implemented what it claims is a world-first ‘proof of reserves’ trust system – a verifiable guarantee that most or all bitcoins it holds are actually held in reserve. Bifubao’s system uses the ‘Merkle Tree’ technique originally proposed by bitcoin developer Greg Maxwell.

Bifubao users can also send and receive bitcoins with email addresses and mobile phone numbers. The system also includes support for merchant payment buttons and an API for application integration.

Bifubao’s CEO is Jack Wang, who referred to the importance of openness in regaining user trust in bitcoin services. He said:

“Even though this approach reveals some of our data, we think it is worth the trade-off for the additional transparency. We have also open-sourced our code so that the community can see our implementation.”

‘Merkle Tree’ approach

It does this by deploying a cryptographic technique named the Merkle Tree, or hash tree. Similar to bitcoin’s own block chain with some extra values, it is a method of quickly proving whether data or files in certain places are true. Hash trees have been used by various P2P networks over the years to verify file segments, including Gnutella and LimeWire.

Any bitcoin-keeping company could simply publish a flat, public list of all balances for users to check, but the Merkle Tree approach allows the company to obscure most of that information while allowing users to verify their funds have been counted as part of the company’s reserves.

hashtree

The Merkle Tree approach allows users to verify that their exchange has enough funds to cover their balance, without actually knowing the total or amounts held by other users. Unlike the block chain, a tree structure means not every new addition needs to be connected to every other.

An exchange would publish a hash of the ‘root node’, or base of the tree, publicly. Upon logging in, a user would see their own account ‘node’ containing their balance, and encrypted hashes of everything between their balance and the tree’s base, proving that a user’s account is included in that original value.

Wang explained it further:

“The second half of the equation is proving assets equivalent to the amount shown at the root node of the tree. To that end, we provide links to two cold storage addresses. We’ve signed a message using the private key of each of those addresses to prove ownership.”

“Since these cold storage addresses won’t contain 100% of the bitcoins we hold, the number of bitcoins stored at these addresses will differ from the bitcoins shown at the root node. However, this should reassure users that we control at least the vast majority of those funds.”

Still relies on user checks

For the system to be effective, however, users (or enough of them) must actually check their information against the company’s from time to time.

Bifubao’s code can be found on GitHub. A full technical explanation of the system with code examples is on the company’s blog.

“Trust in bitcoin is directly related to trust in bitcoin companies. We hope this encourages other companies to follow suit,” added Kevin Pan, Bifubao’s CTO.

Fractional reserves

For those new to the ‘traditional’ banking system we have today, the term ‘fractional reserve’ means banks hold only a small (as low as 10%) amount of the total currency units their customers have entrusted to them. The rest is put to use elsewhere, usually in the form of investments or loans.

Should all customers decide to withdraw their funds at the same time, the bank has a problem. Or rather, you the customer have a problem. These ‘bank runs’ are not so rare, and have often happened in times of national emergency or even economic uncertainty, as was the case with the UK’s Northern Rock in 2007.

It’s fair to say those who believe in bitcoin due to ‘sound money’ principles have a problem with the current fractional-reserve banking system for this very reason. This makes claims of bitcoin storers running fractional reserve systems, without their customers’ knowledge, all the more outrageous.

While a tree technique like Bifubao’s does not prevent a fractional reserve system, it does force a company to be honest about exactly how much of a reserve it keeps.

Just as bitcoin itself uses cryptography to enforce transparency and honesty (at least as far as transactions are concerned) so too will cryptography build other structures to return user trust in the networked services they need to function in the modern world.

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Mt. Gox Allowing Users to Login, Check Balances
Jon Southurst (@southtopia) | Published on March 18, 2014 at 03:08 GMT | Companies, Exchanges, Mt. Gox, News

Updated (18th March, 5:43 GMT)

Mt. Gox has apparently updated its website, now allowing users to log in and confirm exactly how much money they have locked away.

The otherwise plain page shows balances both in unobtainable BTC and fiat currency, with no explanation given for the change. It also does not list the exchange’s current bitcoin value.

Mt. Gox’s customer call center confirmed the login page is genuine. A post earlier in the day on Reddit had claimed the site was compromised and someone was collecting login credentials, but this now appears to be a hoax. The call center representative did, however, mention that balances users see after logging in may not be 100% accurate.

Before anyone has their hopes raised too much, a legal announcement underneath each balance reminds users the feature is effectively, for now, of novelty value only:

This balance confirmation service is provided on this site only for the convenience of all users.

Please be aware that confirming the balance on this site does not constitute a filing of rehabilitation claims under the civil rehabilitation procedure and note that the balance amounts shown on this site should also not be considered an acknowledgment by MtGox Co., Ltd. of the amount of any rehabilitation claims of users.

Rehabilitation claims under a civil rehabilitation procedure become confirmed from a filing which is followed by an investigation procedure. The method for filing claims will be published on this site as soon as we will be in situation to announce it.

Aaron G, who joined the recent doorstop protest at Mt. Gox’s Shibuya office for its duration, said:

“Hackers already liberated the MtGox database, and I was able to confirm my balance there. I’d be much more interested in having MtGox release the wallet addresses so the supposedly stolen coins can be traced.”

He added that he too suspected the ‘compromised page’ warning on Reddit was a hoax, but said if Mt. Gox’s homepage joined its account databases and customer information by falling into hackers’ hands, it would be good reason to petition the court to end the company’s current bankruptcy protection.

Everything still unknown

Users are still in the dark as to whether the balances they see upon logging in actually exist or will ever be made available, in full or even in part. For a few it may be comforting to know that at least a record exists.

Since its site went blank just under a month ago, the only additions posted to Mt. Gox’s home page have been public notices that no further information is available, and more recently legal notices regarding implications of bankruptcy proceedings in Japan and the US.

There was also a warning about customers being targeted by phishing emails asking for login credentials and bank account details.

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BTC China to Drop Trading Fees to 0%
Emily Spaven (@emilyspaven) | Published on March 18, 2014 at 18:01 GMT | BTC China, Companies, Exchanges, News

BTC China is set to reduce the trading fees across its digital currency exchange to 0% and it has today added the option for users to trade bitcoin for litecoin and vice versa.

At the beginning of the month, BTC China added litecoin support, enabling users to buy the popular altcoin using local currency CNY with 0% trading fees.

CNY-BTC trades on the site currently come with a 0.1% fee, but from 21st March, this will be removed.

A statement from the company reads:

“In order to standardize the three trading methods, we have decided to waive the BTC/CNY trading commission fee from March 21, 11:00am (GMT +8)!”

Those who want to withdraw their litecoins from the site will have to pay a fee, though, of 0.001 litecoins (under $0.01). The current CNY withdrawal fee is 0.5%.

The company has also added a collection of new features to its service, including the option for users to add and manage multiple bank accounts.

Other new features include:

New Voice SMS Verification Code
If you are unable to receive SMS, you can opt for Voice SMS Verification Code.

New Confirmation Dialogue Box
A confirmation dialog box will pop-up when you place an order to minimize error occurrences.

No minimum CNY withdrawal limit
Even if your account balance is under 200CNY, you are able to withdraw all the remaining balance.

Litecoin API trading is now available

More Markets added to the Homepage

Back in November, BTC China beat Bitstamp and the now-defunct Mt. Gox to become the world’s number one bitcoin exchange. Its daily trading volumes regularly exceeded 14,200 BTC.

At the time, Bobby Lee, CEO of BTC China, said: “It’s an honor to see that BTC China has been propelled ahead to number one in the worldwide rankings. The real credit goes to the people in China, for having recognized the importance and value of bitcoin.”

However, this has since changed dramatically, with Bitcoin Charts showing the exchange’s current daily volume at around 3,370 BTC. Bitstamp is currently at the top of Bitcoin Charts’ table, with a daily volume of around 15,625 BTC.

Bitcoin exchange data site BTCKan shows Chinese exchange Huobi as having a volume of 86,871 BTC over the past 24 hours, with OkCoin’s volume reaching 79,691 BTC in the same period. There have been suggestions that both these exchanges are faking volume data, but Huobi’s CEO recently emphatically denied doing so.

Lee told CoinDesk the motive behind dropping trading fees was to create consistency across the platform, having the same 0% rate for litecoin and bitcoin. However, it could be an attempt to gain back some of the customers it lost to its competitors when it imposed fees late last year.

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Polish Bitcoin Exchange Bitcurex Relaunches Following Hacking Attack
Jaroslaw Adamowski | Published on March 18, 2014 at 18:56 GMT | Europe, Exchanges, News

After last week’s hacking attack forced the site to temporarily shut down, Polish bitcoin exchange Bitcurex resumed service on 18th March.

The platform said the perpetrators did not manage to break its security measures and gain full access to its operational hot wallet.

“Today, we launch trade in Polish zlotys, and on Thursday at 12:00 local time in euros to ensure our support team has sufficient capacity of handling bids in this important period,” Filip Godecki, a representative of Bitcurex, told CoinDesk.

As earlier reported, the exchange decided to temporarily close its site on 14th of March at 09:37 am local time as a result of a hack that targeted funds in user wallets.

Company representatives told CoinDesk that shutting down the site would allow its IT team to “perform a necessary verification”.

Bolstered security measures

Bitcurex said in a statement on its website that its safety procedures prevented the hackers from further actions after the initial theft.

Explained a representative:

“The service was shut down to carry out repair works and implement the necessary improvements to our system. Our internal procedures prevented any further losses which were limited to between 10 and 20 percent of our operational Hot Wallet Bitcurex.”

In addition to the installed IT security measures, the site was able to combat last week’s hacking attack thanks to its team of staff who monitor all the transactions and flag suspicious trading activity, according to Godecki.

The Polish exchange said that all the incurred losses were covered from its own funds.

“Our fees will not be raised, nor will we introduce any other restrictions,” Bitcurex stated, adding that it has submitted a formal notification to relevant authorities regarding last week’s attack.

“Due to this, we cannot disclose any further details on the attack which could hinder the activities of law enforcement authorities,” Godecki said.

The exchange also cautioned its users not to use a recently established site with a domain name similar to Bitcurex’s.

Development plans

The company representative also said that, independently of the latest attack, the site is working on implementing additional security measures that will create additional layers of security and enhance user experience.

“Over the following weeks, Bitcurex will enter a phase of rapid development,” Godecki said.

Several hours after the site resumed its operations on 18th of March, bitcoin was trading at a low of 1835.90 PLN ($607.80) and a high of 1969.00 PLN ($651.90) on Bitcurex. The exchange had a total volume of 238.2 BTC, according to the latest available data.

Established in July 2012, Bitcurex is based in Łódź, Poland, and is operated by local company Digital Future Ltd.

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Western Union CEO: ‘First-World’ Bitcoin Not Ready for Global Use
Pete Rizzo (@pete_rizzo_) | Published on March 18, 2014 at 19:54 GMT | Analysis, News

Western Union CEO Hikmet Ersek offered a strong criticism of bitcoin and other virtual currencies today, calling the payment methods “first-world in nature” and suggesting they do not currently have practical uses for consumers in underdeveloped nations.

The statements echo previous concerns from the Colorado-based global remittance giant issued last year, in which it first stated digital currencies were not yet ready for cross-border, international money transfer.

In the post, the first of what will be a three-part series for Fortune, Ersek offered his take on why bitcoin and other digital currencies may struggle to take hold in the remittance market, choosing to focus on the issue of whether recipients would be able to use the funds.

Said Ersek:

“Up to this point, the digital currency conversation has not addressed the practicalities on the receive-side.”

Ersek indicated that while bitcoin has made a more practical use case as a payments vehicle in the developed world, adoption will need to become more widespread there before nations with less tech-savvy consumers are encouraged to develop an infrastructure.

Unanswered questions

Ersek also listed three major questions he believes the digital currency community has yet to answer when it comes to the technology’s use in cross-border payments.

These included such concerns as whether persons receiving digital currency outside first-world countries would be able to use it, whether small or medium-sized enterprise recipients in these areas would be equipped to spend or transfer it and whether these consumers and businesses would not prefer another option even if bitcoin was usable for this purpose.

Ultimately, Ersek indicated that the industry’s ability to enact and follow consumer protection best practices will be the deciding factor.

“Without continued enhancements to ensure consumer protection, which ultimately translates to increased reliability, I believe consumers and businesses will continue to gravitate to cash, bank accounts and cards.”

Untapped potential

Despite these issues, Ersek suggested that he is watching virtual currency developments with “great interest”, a fact that is evidenced by his analysis of the topic as part of a larger work.

The benefits of digital currencies clearing these hurdles, Ersek suggests, make them worthy of consideration. In particular, he noted their ability to potentially transform business models and promote financial inclusion

Still, even with consumer adoption questions resolved, Ersek suggested regulation and compliance would likely remain significant hurdles, even to their use in first-world nations, potentially hinting at topics for future articles to come.

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Is Bitcoin a Digital Currency or a Virtual One?
Danny Bradbury (@dannybradbury) | Published on March 19, 2014 at 06:02 GMT | Analysis

Is bitcoin a virtual currency, a digital currency, or both? And why does it matter?

In press reports, it’s often referred to as both. The Bangkok Post today refers to “virtual currencies including the bitcoin”, while the Toronto Star describes the collapse of a bitcoin exchange after hackers stole its “digital currency”. But digital and virtual currencies are two different things, with different behaviours.

It’s more than a semantic distinction. It’s a discussion of how a form of money functions.

If we replace the word ‘currency’ with ‘economy’, then the distinction may be clearer. When we hear ‘digital economy’, then we generally think of money whizzing its way electronically around the world, and being used in real life interactions. If we say ‘virtual economy’, then the first thing that many of us will think of is Second Life, EVE Online, or World of Warcraft.

Perhaps that’s why Peter Earle divides it into cryptocurrencies vs. ‘simulated’ or ‘game’ currencies. Earle is the chief economist at Humint, a marketing agency that is planning to launch altcoin services for brands, and also handles economies for multiplayer online games.

“The main difference is that the latter are typically limited to use within a bounded, specified economic system,” he says.

Virtual currencies may have value against real-world currency, but that doesn’t necessarily make them easily exchangeable.

“They tend to be subject to one-way flows: real-world money is converted into simulated/game currencies, but not back out,” says Earle. “This is because game/simulated currencies are essentially goods, and not an actual medium of exchange.”

Gold in World of Warcraft is generally exchanged mostly within the game.That isn’t to say that it doesn’t get traded with other currencies through third-party exchanges, but that isn’t its purpose. Instead, oils the wheels for everything else that happens in the game, and that is its sole purpose. The same goes for Eve Online, which uses the ISK as its unit of exchange, or Second Life, which uses the Linden.

What currency is used for matters

There’s another key difference between in-game virtual currency, and a digital currency used extensively outside the boundaries of a virtual world: their usage. In online game worlds, the issuers of the currency are created for a specific purpose.

Charles Hoskinson, cryptographer and co-founder of the Ethereum cryptocurrency framework, describes virtual currencies like these as “tokens”.

“A central entity issues the tokens and then they’re used for specific contexts. They can appreciate real-world value though. So WoW and Eve Online ISK do have a market price,” he says. “This is why people in China spend days earning them.”

They do this via a process known as gold farming, where banks of player-workers manually play games to accrue gold or other in-game currencies. This can then be exchanged for fiat currency: if people don’t want to spend time in the game earning their fortune, then they can buy their way in. But that’s a long way from making the currency properly and systematicallly exchangeable.

“Real-world money is converted into simulated/game currencies, but not back out.”

These behaviours extend beyond mere in-game currencies, though, argues Wences Caseres, who founded mobile payments network Lemon, and who just launched a mobile wallet called Xapo. There is another type of asset with those characteristics, that is used in the real world: loyalty points. Like in-game currencies, these are issued by a central body.

“Virtual currencies are owned and controlled by a counterparty (Facebook credits, American Airlines miles, American Express Points, etc) and you have to trust that counterparty since it is up to them to set the value and redemption rules,” Casares says. “Digital currencies on the other hand are designed in a way in which, just like with gold, you do not need to trust anyone.”

What we’ve been describing here are what Hoskinson refers to as three core characteristics of money. The first, exchangeability, involves the ability to switch something for a different currency. The second is the ability to act as a store of value, meaning that an asset will more or less hold its value over time without suffering from massive fluctuations. The third is to be a unit of account (usable widely, rather than to buy virtually-drafted broadswords and breastplates).

Virtual currencies, as used in games, exhibit few of these characteristics, except maybe the ability to hold value. But what about bitcoin?

So what should we call bitcoin?

Bitcoin is exchangeable, and it isn’t used just to keep a game or a loyalty points system running. So does that make it a digital currency, rather than a virtual one? CoinDesk generally describes it as such, but Hoskinson doesn’t agree. In fact, he doesn’t think it’s a currency at all.

It is also working its way towards becoming a unit of account, in which it is used to price goods and services, and doesn’t need to be referenced against anything else for its value.

This is the holy grail for a currency: if you can live your life using it, without worrying about having to transfer it to any other form of exchange, then you know it’s arrived. “Bitcoin is getting there, with about 15,000 products and services available, maybe more,” Hoskinson says.

It also needs to be a store of value. so that value can be deposited in it, and then retrieved at a later date, while still having held that value, or at least decayed in value at a predictable rate. Bitcoin’s suitability here is open for debate.

Although many advocates talk up its long-term value, bitcoin has jumped and plunged in value at various points over the last year. You wouldn’t want to store your life savings in it today, and even unit trust and ETF managers are saying that it isn’t yet a vehicle for retail investment.

“We want it to be predictable, because that gives you the ability to issue credit. Which is one of the most important things in an economy,” says Hoskinson. “It behaves much more like a digital commodity, or a tech stock.”

That’s certainly how some are classifying it. Finland recently decided that it was a commodity, and the Bank of England thinks that it looks rather similar to one, too. And Goldman Sachs doesn’t think it’s a currency either.

This makes the case – at least for the time being – for cryptocurrencies to be in a class of their own – neither digital currencies, nor virtual. Once they strongly satisfy those three underlying standards for money, they could be technically considered currencies. The ‘crypto’ would simply be a subcategory.

So, technically speaking, bitcoin could be described as a cryptocurrency. Or a digital currency in waiting. But for now, we’ll use ‘cryptocurrency’ and ‘digital currency’ interchangeably at CoinDesk. That’s easier to type than ‘crypto-proto-digital currency/commodity’.

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CoinEX.pw: We Were Hacked, But Will Cover All Losses
Emily Spaven (@emilyspaven) | Published on March 19, 2014 at 11:36 GMT | Companies, Crime, Exchanges, News

CoinEX.pw has confirmed it recently suffered a hack resulting in the theft of all the bitcoins in its possession.

The digital currency exchange has assured customers that it is going to cover the losses out of its own pocket.

In a post on the Bitcoin Talk forum, a CoinEX.pw representative under the username ‘erundook’ said:

“Long story short: yes, our wallet server got hacked and all funds were withdrawn.”

He also asked users to keep calm and asserted the company’s operators are not “doing a runner”.

Erundook (real name Vitaly A. Sorokin) mentioned that the company has suffered similar problems in the past and, in those instances, it covered the losses.

Of the recent hack, the company spokesperson said: “The only way I can see to restore this is to sell more shares at cryptostocks to cover the losses *and to hire a professional security audit team to prevent this from happening again*. Long story short, we’re covering this from our own pockets again.”

On 16th March, CoinEX.pw indicated on Twitter that it was facing problems.


 

However, the company did not issue any further updates until yesterday evening.

Concerned customers noted that the exchange’s co-founder (erundook) had deleted his personal Twitter profile and his Gist page on Github, which detailed CoinEX.pw’s API documentation.

Erundook suggested he did so because he was scared of the response he would get from users. The response from those on Bitcoin Talk has been largely positive, thanking erundook for the update, but criticising him for taking so long to deliver it.

Some have not been so understanding, though. Forum member Albinito said:

“I really wonder whats wrong with some people. Imagine running a jewelry store or money exchange without insurance, beeing robbed several times, waiting for the final blow before thinking about security. There are no words to describe this way of working.

It is quite obvious that you are not capable of running a business like this. No one should support this and give the owner new confidence over and over. This wont work.”

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Litecoin Tops $20 As Traders Await Addition to China’s Huobi Exchange
Pete Rizzo (@pete_rizzo_) | Published on March 19, 2014 at 07:43 GMT | Altcoins, Litecoin, News, Prices

The price of litecoin surged across major exchanges in anticipation of Huobi, one of the largest China-based digital currency exchanges, officially adding support for litecoin trading today.

The exchange added to the anticipation after announcing the news last week and adding a ‘moon landing’ countdown clock to its site:

Huobi_moon

As of press time, the price of litecoin on exchanges BTC-e and Bitfinex had hit a high of $20.25 and $20.33, respectively, before dropping to $19.35 and $19.39. These figures were up from opening prices of $17.49 and $17.50, according to data from BitcoinWisdom. Against bitcoin, the litecoin price also hit highs of 0.033 BTC earlier in the day before falling back to 0.030 BTC, still far higher than recent prices and yesterday’s 0.028 BTC.

The news is particularly welcome for the litecoin community, as litecoin prices had remained down substantially from a peak of $48 observed last November, the time when many traders began to turn to litecoin as a long-term investment option that could one day pay bitcoin-sized dividends.

News spread quickly about litecoin’s potential beginning in early November, and its market cap quickly passed the $100m and $200m milestones within days amid a swift boom in the currency’s popularity.

However, litecoin has more recently seen a decline in value to the low teens following a string of bad bitcoin news.

Litecoin’s long stagnation

The day’s excitement was particular welcome for the community given that it has watched as litecoin, once the assumed frontrunner for the title of number two digital currency, has faced threats from ascendant competitors dogecoin and auroracoin, the latter which recently passed litecoin in market cap before retreating to fourth place.

Litecoin’s decline in value also coincided with continued setbacks regarding its addition to Mt. Gox. Given the exchange’s then top-tier status, this was long viewed as a potential benchmark for litecoin, though plans have been shelved indefinitely in the wake of the Japan-based exchange’s bankruptcy.

Further, in recent months, critics of community began to question whether litecoin provided any new innovations to digital currency, even while supporters maintained that litecoin could persist simply as a reliable, lower-cost alternative to bitcoin.

New momentum

Due in part to this long lull, launch expectations were high on the litecoin thread throughout the day, with one user even creating a dedicated countdown clock for interested litecoin fans and traders.

Litecoin has gained new movement in recent weeks as China-based exchanges have moved quickly to add the currency. Though Huobi was rumored to be working on adding litecoin since February, it was not the exchange that triggered the recent rise. Rather, it was BTC China that added the digital currency first on 4th March, introducing 0% commission on trading.

By 9 pm GMT, the price of litecoin on BTC-e and Bitfinex rose to $19.70 and $19.80, respectively, in anticipation.

Still, even with the additions, a portion of investors may simply be using the price increase to cut losses and break with the digital currency.

As such, the true test of whether it retains momentum will likely be seen in the coming days and weeks.

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Investment Firms Launch Bitcoin Fund, Headed by Pantera
Nermin Hajdarbegovic | Published on March 19, 2014 at 10:40 GMT | Bitstamp, Exchanges, Investors, News

Investment firms Fortress Investment Group (FIG), Benchmark Capital and Ribbit Capital have teamed up with Pantera Capital to launch a bitcoin investment fund.

The new fund will be known as Pantera Bitcoin Partners LLC and, as the name implies, it will be controlled by Pantera. Fortress, Ribbing Capital and Benchmark Capital will be minority equity partners.

Fortress became the first Wall Street investment firm to enter the bitcoin space. Last year it was rumoured to be acquiring bitcoins and a regulatory filing published in February revealed it had set aside $20m for bitcoin investments in 2013.

The company also reported a loss of $3.7m on its bitcoin investment.

Crunching numbers

Fortress has an estimated $58bn in assets under management, so it might be unfazed by the initial loss.

Back in December Pantera Capital (which manages money for FIG executives) created an investment advisor entity named Pantera Bitcoin Advisors LLC. At the time it was listed as a hedge fund with a total value of $147m. Pantera reportedly invested $10m in Bitstamp last year.

Only Benchmark Capital and Ribbit Capital are new to bitcoin. In the past Benchmark Capital has dabbled in high-tech investments such as Twitter and eBay.

The launch of Pantera Bitcoin Partners LLC comes hot on the heels of a digital currency regulatory push in New York. Earlier this month New York State started accepting applications for digital currency exchanges.

The decision was the culmination of an initiative launched by Benjamin Lawsky, superintendent of financial services for the State of New York. The New York Department of Financial Services (NYDFS) held several highly publicised hearings on the matter in January.

Pantera goes all-in

According to the Wall Street Journal, Pantera is shifting its investment focus “solely to bitcoin ventures.”

Pantera chief excutive Dan Morehead says he is fascinated by the promise that bitcoin can fundamentally change the way people interact with money. ”So about a year ago, I decided to begin investing in bitcoin and devoting my full attention to it,” he said.

The firm’s staff is now fully focused on digital currencies, a far cry from macroeconomic hedge-fund strategies, currencies and interest rates that were Pantera’s main focus in the past.

Changing the bitcoin landscape

Over the last few months bitcoin’s public image has been eroded by arrests, bitcoin heists and, of course, the collapse of Mt. Gox. However, these headline grabbing events did not deter investors, quite the opposite in fact.

The pieces of the puzzle may be shifting, but they are starting to fall into place. Regulation might not be a problem, at least not in New York and a few other jurisdictions.

Is the Mt. Gox debacle a good argument for regulation? Some argue that it will attract investors to secure platforms headed by Wall Street veterans. Why deal with shady exchanges set up by enthusiasts and coders if there are regulated alternatives set up by reputable investment firms? That is a question many parties will undoubtedly ask if more institutional investors get on board.

Perseus Telecom recently teamed up with Atlas ATS to announce the launch of a globally integrated bitcoin exchange. Perseus also launched the Digital Currency Initiative (DCI) with the aim of making sure that bitcoin investors get the same level of financial institution security as other public market investors.

Pereus is a major provider of high-bandwidth communications platforms used by trading firms, hedge funds and financial media. It has a strong presence in numerous markets, including financial hubs like London, New York, Tokyo and Singapore.

Telecom EMEA head of business development Carl Weir described the collapse of Mt. Gox as a “learning opportunity.” It was also a way of saying bitcoin investors were taught a painful lesson.

Oddly enough, the arrest of Charlie Shrem coincided with the NYDFS hearings, while the collapse of Mt. Gox occurred just a few weeks before Perseus, FIG, Pantera and other players made their move.

In the grand scheme of things, could Shrem’s and Karpeles’ fall from grace be the excuse institutional investors and regulators were looking for all along?

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Danish Central Bank Compares Bitcoins to ‘Glass Beads’
Nermin Hajdarbegovic | Published on March 19, 2014 at 13:33 GMT | Europe, News, Regulation

Danmarks Nationalbank, the Danish central bank, has issued a stern warning on bitcoin, saying that it is not money in the true sense of the word, as it is not backed by an issuing institution.

Rather than functioning like money, bitcoins display the characteristics of commodities – that is, users attach value to them, not issuers or central banks.

Yet, said the bank, bitcoins do not have intrinsic value like gold and silver, and they bear a closer resemblance to “glass beads” – an apparent reference to the beads that were traded in past centuries for gold, ivory and other commodities.

No value anchor

“Bitcoin is a virtual currency without any value anchor and hence it may rise sharply or fall very suddenly. A core property of money is that its value is stable so that its purchasing power does not change markedly from day to day,” said the bank’s Governor Hugo Frey Jensen. He added:

“In spite of the considerable focus, use of bitcoins as a means of payment remains very limited. Against that background, the risks linked to their use are currently assessed to be limited to the individual user.”

He added that European authorities are analysing the need to regulate such virtual currencies. In December 2013, the European Banking Authority (EBA) issued a warning on the potential risks related to virtual currencies, focusing on fraud and theft.

The bank warns that bitcoin is subject to wild fluctuations and recent events such as cyber attacks launched against bitcoin exchanges illustrate the risks associated with digital currencies. Since bitcoins are not protected by depositor guarantees or consumer protection legislation, investors face high levels of risk.

Reluctant to regulate

Last year, Denmark’s Financial Supervisory Authority (FSA) clearly stated that the use of digital currency in the country is not regulated. The FSA said it would not police digital currencies, as they are not covered by existing regulation.

Most countries in Europe have adopted a similar stance. They do not view digital currencies as money, hence regulators do not think it is within their purview to deal with them.

The FSA also outlined a number of concerns and risks associated with bitcoin and other digital currencies. These ranged from tax implications to the risk of losing money invested in digital currencies through theft or volatility.

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Bitcoin Version 0.9.0 Brings Transaction Malleability Fixes, Branding Change
Pete Rizzo (@pete_rizzo_) | Published on March 19, 2014 at 14:45 GMT | Bitcoin protocol, News, Technology

Bitcoin’s core developers have released the latest update to the Bitcoin protocol, version 0.9.0, which includes transaction malleability-related fixes, as well as updates to how transactions are relayed on the network.

Version 0.9.0 notably includes coin control features and a Windows 64-bit installer, among other updates, bug fixes and minor feature additions.

Bitcoin core developer Gavin Andresen took to Twitter to publicize the news.


In addition to the technical fixes, however, the update also comes with a branding change. The developers announced they are renaming the bitcoin reference client Bitcoin Core to reduce confusion between the network and the software.

Key updates

The most noteworthy changes were those aimed at transaction malleability issues. These problems gained notoriety for the key role they played in helping hackers launch large-scale attacks against most major bitcoin exchanges in February, and for being named as a scapegoat by now-bankrupt exchange Mt. Gox.

Transaction malleability updates include tweaks that prevent the relaying and mining of mutated transactions, and fixes to RPC commands meant to report incorrect balances for double-spent or mutated transactions.

In addition, version 0.9.0 drops the default fee for relaying transactions across the entire network, though it still does not guarantee transactions will be accepted by miners.

Among the other important changes was the update for Windows, which was made after frequent reports that users would run out of memory in 32-bit systems. Furthermore, an update has been made to the behaviour of ‘walletpassphrase’, which previously failed when already unlocked.

Core developer Tamas Blummer, who is also the CEO of bitcoin technology company Bits of Proof, indicated one of his favourite updates were to “OP_RETURN relay”, which standardizes how to commit short data to the block chain, and “reject message”, which gives feedback on transactions created by organisations that use a reference client.

Reaction

The community reacted on both reddit and Bitcoin Talk forum, with bitcoin users lauding the quality of the development team and the breadth of the changes.

Still, though there are improvements, not everyone in the community believes the update goes far enough. Bitcoin Core remains, after all, a work in progress.

Said Blummer:

“I am disappointed to see no significant refactoring of the client toward a more modular architecture. It is foreseeable that the reference implementation will evolve to the router of the network while wallet functionality will be taken over by specialized software just like it happened with mining.”

Updating to version 0.9.0

The official release advises those running older versions of the protocol to proceed through the following steps:

Shut down the older version
Uninstall all earlier versions
Run the installer (Windows) or copy the application (Mac and Linux).
Those running versions 0.7.2 or earlier will need to have their blockchain files re-indexed, a process which the development team suggests will take between 30 minutes and several hours.

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Bitcoin price info:


Bitcoin average price:

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BitPay Opens Offices in San Francisco and New York
Emily Spaven (@emilyspaven) | Published on March 19, 2014 at 17:18 GMT | BitPay, Companies, News

BitPay has expanded its operations by opening offices in San Francisco and New York.

The bitcoin payment processor is headquartered in Atlanta, but the new offices will help the company to bring in new business and offer operational support to the merchants it currently works with.

“BitPay has many merchants accepting bitcoin throughout Silicon Valley so we are thrilled to extend our exceptional sales and customer support by opening an office in San Francisco,” said Paige Freeman, VP of sales at BitPay, adding:

“We look forward to expanding into various markets both here in the US and internationally.”

BitPay now employs 31 full-time workers across the world, with 22 of these employees located at the company’s headquarters in Atlanta, six in Argentina, two in San Francisco and one in New York.

Freeman will be joined in the San Francisco office by John Dreyzehner, the leader of BitPay’s Client Operations on the west coast. In New York, Andy Goldstein has taken up the role of regional sales manager, bringing with him 15 years of experience at Visa where he was a senior business development leader for its Merchant Sales and Solutions group.

BitPay recently announced that it works with over 26,000 merchants, having surpassed the 10,000 mark just six months ago.

Its partners range from blog platform WordPress and leading Middle Eastern music streaming platform Anghami to UK computer retailer Scan and basketball team the Sacramento Kings.

So far, the company has received $2.7m in angel and capital funding, with the investors including Founders Fund, A-Grade Investments, Bitcoin Opportunity Fund and CoinDesk’s founder Shakil Khan.

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Bankrupt Bitcoin Mining Company Alydian to Sell 218TH/s of Mining Power
Pete Rizzo (@pete_rizzo_) | Published on March 19, 2014 at 21:38 GMT | Mining, News, Technology

Enterprise-scale bitcoin mining company Alydian, the CoinLab-backed company that filed for bankruptcy in November, has revealed that it will sell its bitcoin mining systems in the runup to its eventual shutdown.

The Seattle-based company has since settled with all of its creditors, and the sale marks the end for what was CoinLab’s first startup launched in August of last year.

Alydian director of engineering, Robert Batten, indicated that the company is now accepting bids for three mining systems with a combined 218TH/s output, for $5,000/TH to interested buyers.

Batten said that though the systems may not be new models, they still represent a great investment opportunity for the right buyer or buyers looking seriously for a quick way into the bitcoin mining business.

Explained Batten:

“[The equipment is] a small step behind the current state-of-the-art [systems], but it will still make money in its lifetime. It’s not obsolete to the point where there’s no value.”

What’s for sale

The company offered a number of details about the available equipment. For example, the mining systems are configured as 1TH/s rackmount systems in 19-inch racks, and each system uses roughly 6kW of power. The systems were custom-built by Alydian engineers.

The systems are currently installed in three different data centers in the Pacific Northwest, according to Batten, and are ready to go for buyers. Alydian was headquartered in Seattle, but had its engineering offices in Portland, Oregon.

Said Batten:

“[Buyers] wouldn’t need to pick up the components or do anything like that. They’d essentially just have to point the miners at their specific bitcoin back-end services.”

The systems have contracts with two hosting companies. The rigs are being sold as is and on location.

Making an offer

Alydian indicated that all offers are subject to review and approval by the company, though Batten could not comment as to the eventual use of the funds. The minimum sale price of $5,000/TH includes the extra equipment and parts.

The final purchase price can be paid in bitcoins or USD. Offers for the company’s mining systems should be submitted to Batten from 19th March through 5pm PDT on 25th March. Interested buyers can contact Batten via robert@coinlab.com.

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$500,000 Villa Sold in What May be Biggest Bitcoin Purchase on Record
Pete Rizzo (@pete_rizzo_) | Published on March 19, 2014 at 22:24 GMT | News

Online bitcoin-only luxury marketplace BitPremier has completed the sale of a fully managed villa at the deLMango Villa Estate in Bali, Indonesia, in what may be the largest reported bitcoin transaction to date.

Founder and CEO Alan Silbert indicates that the 3,000-square-foot villa sold for more than $500,000, though the exact price paid by the buyer was not revealed.

Silbert, brother of SecondMarket CEO and BitPremier investor Barry Silbert, indicated that the sale is “by far the largest” completed to date via the marketplace, which was launched last May.

Further, he sees the purchase as proof that bitcoin buyers will be increasingly willing to diversify their assets with other investment opportunities.

Explained Silbert:

“This definitely validates the business model. It shows that bitcoin users want to buy things that are unique, and that are above and beyond t-shirts and electronics.”

The sale was finalized in late February.

More details

Speaking to CoinDesk, Silbert did not reveal many more details about the buyer, mentioning only that the individual was an early bitcoin adopter based in the US.

Said Silbert: “He’s been in the bitcoin community for at least a couple years.”

As for the house sale, Silbert indicated that due to Indonesia’s unique laws regarding the ownership of real estate by foreigners, the buyer is technically purchasing a long-term lease.

The property boasts an intricate design that blends the indoors and outdoors with open-sided rooms, a dedicated dining pavilion and a private pool.

In addition, the villa features two modern bedrooms and two bathrooms.

The buyer will earn income based on the performance of the rental unit and villa as a whole, Silbert said.

Bitcoin’s biggest transactions

The $500,000 sale price would trump the $103,000 paid for a Tesla Model S in December, believed to be the largest single consumer purchase conducted in bitcoin.

However, it falls well short of the $147m mystery transaction, later revealed to be the product of a Bitstamp audit, that is the largest single transaction ever.

About BitPremier

An online marketplace that connects bitcoin buyers and sellers, BitPremier has hosted a range of exotic items on its forum, including most recently a pair of Wooly Mammoth tusks that were put up for sale for the asking price of $175,000.

BitPremier facilitates communication between both parties, who remain anonymous until the terms of the deal are settled. Funds are then held in escrow until the buyer confirms an item has been delivered. BitPremier then sends funds to the seller, with a 5% fee deducted from the proceeds.

The website is currently listing other notable items such as a 16-inch pearl necklace valued at $10,000; a Paris property with a view of the Eiffel Tower listed for €4.6m; and a 1969 Boss 429 Mustang being offered for $290,000.

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ATM Industry Association Publishes Report on Bitcoin ATMs
Jon Southurst (@southtopia) | Published on March 20, 2014 at 13:38 GMT | Analysis, Bitcoin ATM, Companies, News

The ATM Industry Association (ATMIA) has published a report titled “An Introduction to Bitcoin ATMs”, providing the industry’s first in-depth view of bitcoin and its implications for the ATM world.

The ATMIA commissioned the report, which was written by Tremont Capital Group, a leading consulting firm specializing in the ATM industry.

“We’ve been asked as an industry body to comment on the significance of bitcoin and digital currencies to the ATM and cash industries,” said Mike Lee, the association’s CEO.

“This paper is our first report of many which will enable us to draw some logical conclusions about how bitcoin will affect payments and regulations in future.”

Bitcoin overview

The report’s comprehensive analysis was conducted by ATM industry expert Sam M Ditzion and offers an overview of bitcoin’s history, how the currency works and significant landmark events and controversies. It goes on to cover the evolving regulatory landscape, and the expanding role of bitcoin ATMs.

The report further provides a summary of the current major players in the bitcoin ATM space, with a focus on the US and Canada, but also with reference to Singapore-based companies.

While several years have been devoted to building bitcoin’s basic infrastructure, the report says, the focus is now on consumer awareness and managing bitcoin’s reputation as a credible payment system.

Much of its growth is expected from younger generations, an increasingly powerful segment under-served by the ‘traditional’ finance industry, it adds.

Implications for the industry

According to the report, the growing popularity of bitcoin ATMs is due mainly to ease of access, compared to the often cumbersome procedures required by online exchanges and risks often associated with anonymous in-person trading.

It acknowledges that the bitcoin ATM industry is still in its infancy, and that many new companies will attempt to enter the space over the coming year.

Compliance with local regulations, wherever machines are located, presents a significant challenge to operators, both in bureaucracy and cost. There are also the technical challenges of ensuring machines have sturdy connections to ensure transactions are secure and reliable.

The report provides a rundown of regulations in various North American jurisdictions, including financially significant US states and Canada.

Overall the report’s tone is cautiously optimistic, although it stresses that the bitcoin ATM industry is still nascent and there are many issues that need to be resolved further to attract more deployers.

Growth industry

Bitcoin ATMs have become a booming industry in the past six months, with machines produced by at least six different companies operating live in many countries around the world at present, and several more to come online shortly.

They range in type from simple cash-to-bitcoin vending machines to full two-way exchange platforms – some offering security and compliance features, such as palm vein scans and ID recording.

About ATMIA and Tremont Capital Group

ATMIA is an independent, non-profit trade organization which promotes ATM use and convenience worldwide, while also protecting the ATM industry’s reputation and assets, and providing networking opportunities for its members. The association has chapters in all regions of the world.

Tremont Capital Group is the leading provider of business strategy consulting, research, and merger & acquisition advisory services to the ATM and related industries.

The proprietary research report is available free to all ATMIA members, or for purchase by non-members until April 30th at a discounted price of $145.00 USD (regular price $195.00).

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Coinbase Hires Big Names From Amazon and Facebook to Bolster Security and Business Development
Daniel Cawrey (@danielcawrey) | Published on March 20, 2014 at 10:24 GMT | Coinbase, News, Startups, Wallets

Coinbase is adding some notable technology veterans to its team, it says.

The new faces at the company – former Facebook security director Ryan McGeehan and Todd Edebohls, Amazon’s former director of business development & sales – will bring with them extensive experience in the areas of security and business development.

When asked for comment, the San Francisco-based company issued a statement regarding the new team members, which have yet to be formally announced:

“These hires represent Coinbase growth, momentum and commitment to security. As an industry it shows bitcoin is growing up, attracting top talent.”

Coinbase co-founder Fred Ehrsam told TechCrunch: “The industry is continuing to evolve. We’re attracting very, very top talent from prior rocketships that were successful.”

Fraud prevention

The addition of McGeehan is a confidence builder for Coinbase’s hosted wallet service.

The company faces a lot of risk in terms of security and, with the company hosting over a million wallets, there’s a lot at stake.

Immediately after the Mt. Gox collapse, Coinbase invited Andreas Antonopoulos, a noted bitcoin developer and head of security for Blockchain.info, to check its security procedures.

Antonopoulos came away satisfied with Coinbase’s practices, but McGeehan’s new role as Director of Security Incident Response will bring to Coinbase more expertise in this area and should further reassure users and investors that the company is doing the right thing.

Merchant draw

Todd Edebohls
Amazon’s Todd Edebohls
Along with Coinbase’s role as a consumer-friendly wallet, it also provides merchants with bitcoin payment options. The company’s payments API is used by a number of companies and organisations alongside normal POS systems.

Recently, the company has added technology-focused customers to its portfolio, such as Mint, Fiverr and Glyde. Big Fish Games is also a recent notable addition in the casual gaming sector.

The hiring of Edebohls as a business development executive should help the company bring new merchants on board and perhaps see its business expand into unchartered terrain.

Quick growth

Coinbase’s success and ability to attract talent can be attributed to a number of factors. A banking partnership with Silicon Valley Bank and a stable method of bitcoin exchange carried out via Bitstamp have helped turn Coinbase into a bitcoin business leader in the US.

Verified Coinbase members with a US bank account are able to use ACH transfers to move fiat into bitcoin relatively easily. Furthermore, Coinbase’s ‘Instant Buy’ feature, when used with a US credit card, allows customers to obtain bitcoin immediately.

These key component have piqued the interest of venture capitalists and Coinbase raised $25m in a Series B round last December, led by Silicon Valley VC firm Andreessen Horowitz.

McGeehan says he is starting in April. Edebohls already lists himself as VP for a “to be announced” company on his LinkedIn profile.

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SecondMarket Will Open Up Private Bitcoin Fund to All Investors
Nermin Hajdarbegovic | Published on March 20, 2014 at 11:44 GMT | Investors, News

SecondMarket is planning to open up its private bitcoin investment fund to ordinary investors. The change should be in place by the fourth quarter of 2014, the Wall Street Journal reports.

SecondMarket launched its Bitcoin Investment Trust (BIT) last September, but it was reserved for private investors with $1m in assets and incomes above $200,000.

The trust buys and sells bitcoins and allows investors to place bets on the value of bitcoin without owning any coins directly. The company currently has $54m in assets under management.

SecondMarket now seems to be looking to expand the fund by opening it up to all investors – a move probably brought on by impending competition.

The Winklevoss effect

Tech entrepreneurs Tyler and Cameron Winklevoss filed a bitcoin investment fund with the US Securities and Exchange Commission (SEC) in July 2013. However, the trust is not yet up and running.

The Winklevoss Bitcoin Trust is likely to be an exchange-traded fund (ETF) open to all investors.

The Winklevoss twins also recently launched a new blended bitcoin price index. Called the ‘Winkdex’, this will be used to determine the value of bitcoins in their trust.

Winklevoss chief legal counsel Kathleen H. Moriarty told CoinDesk that the ETF should be approved by the end of the year.

Different approach

This deadline gives SecondMarket plenty of time to play with. However, instead of creating an all-new ETF, the firm has decided to transform the BIT into an open fund available to ordinary investors.

SecondMarket plans to enlist the support of OTC Markets and trade the fund on an electronic marketplace operated by them. To bring all this about, SecondMarket needs approval from OTC Markets, as well as the Financial Industry Regulatory Authority (FINRA).

If the proposal is approved, the fund could become publically available as early as the fourth quarter of 2014, so it could start trading before the Winklevoss Bitcoin Trust.

One way of circumventing the SEC’s preapproval process is simply to publically list the fund’s existing investors after a 12-month lockup expires this September. This move should save significant time and make the fund publically available as soon as the process is complete – that is, in the early fourth quarter of this year.

The Winklevoss twins might not be so quick to the finishing line, as the ETF process takes slightly longer. Therefore SecondMarket believes it will be the first firm to publically offer a regulated bitcoin fund.

Tyler Winklevoss believes his fund will be a safer option, though, as it will trade on a fully regulated exchange and it will have to jump through more hoops to meet regulatory standards.

Going public

So far ordinary investors have been unable to make bitcoin investments on the regulated, open market. Their only way of investing in bitcoin was directly, through bitcoin exchanges.

This approach, though, favours speculators and tends to keep many investors away, especially institutional investors who cannot invest in unregulated markets.

However, in recent weeks several investment firms have moved to enter the bitcoin space and bring bitcoin investments to a much wider audience – namely ordinary investors who would rather not deal with bitcoin exchanges.

Just this week, Pantera Capital teamed with Fortress Investment Group, Benchmark Capital and Ribbit Capital to launch the Pantera Bitcoin Partners investment fund. Pantera Capital says it is shifting its investment focus solely to bitcoin ventures.

And, earlier this month, Perseus Telecom announced the launch of a globally integrated bitcoin exchange and the Digital Currency Initiative, which aims to bring financial industry-grade security to bitcoin trading. The company has teamed up with Atlas ATS to integrate multi-tiered security into its platform.

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When Will Bitcoin Be Truly Inclusive?
Danny Bradbury (@dannybradbury) | Published on March 20, 2014 at 03:35 GMT | Analysis, Bitcoin Foundation, Companies

If bitcoin is the great leveller, then why is it still mostly driven by people who are young, white, tech-savvy, and with full access to banking services?

This month, the Bitcoin Foundation has been quietly setting up a committee for Financial Inclusion. The aim, says committee head Andreas Antonopoulos, is to increase awareness and education about bitcoin’s potential role in that area.

Around 2.5bn people in the world don’t use formal or semi-formal banking or financial services, according to the World Bank. But Antonopoulos – a luminary in the bitcoin space, and the chief security officer of Blockchain.info – points out that many of those that are ‘banked’ are not given access to full financial services such as stock markets and trading exchanges, and (relatively) easily transferrable money.

“There is a vast gap between that and the privileged, international liquid banking that only a billion enjoy,” he says.

He wants to help everyone outside that category, which he describes as “the other six billion”. But he’s starting with a smaller target group.

“I’m under no illusion that we will address extreme poverty. There are a large number of people who find themselves outside the privileged banked, but they are still part of the 2bn people on the internet,” he says. “They can be helped. Immediately.”

Bitcoin could be a big part of that, he says. The lack of centralized control means that the conventional barriers – the high prices, and the slow processes – disappear.

Antopoulos sees applications in key areas that could bring immediate benefits to large communities. The biggest is remittances. Today, it costs large amounts of money for migrant works to send home their $414bn in annual earnings to developing countries. “That situation is incredibly unbalanced. The poorest places in the world have the highest fees,” he laments.

The second is microfinancing, where small amounts of money (by western standards) are given to local entrepreneurs. Conventional payment systems make that difficult, Antopoulos says. “Between the lenders and the borrowers, there is an enormous amount of overhead that is the aggregation and distribution and management of the funds over international borders.”

A bitcoin-enabled microfinance economy could help with that, by forcing out centralized payment systems that can lead to corruption, reducing the social impact of the capital.

Not there yet

So, how far has bitcoin come so far in solving these problems?

“It’s an underdeveloped market,” says Ben Jones, founder of the blog Bitcoin Microfinance, and a member of the team at the Bitcoins Berlin startup incubator and consulting firm. He argues that remittances will happen first.

“We have seen some other charity projects. It would be cool if a micro lending platform like Kiva would do bitcoin. We will definitely see some companies moving into the remittance space,” Jones believes.

The technology for cheap mobile remittances is already there. Safaricom has experienced huge success with M-Pesa, its mobile money movement system, which works well using low-cost phones. 43% of Kenya’s GDP is handled that way, say reports.

The problem with M-Pesa is that a centralized system, privately controlled, without the ability to easily transfer money abroad, points out Jones. But it’s still significant, as an example of a solution that came from outside the traditional technology community in the developed world.

“M-Pesa was an exception and it was because people really needed a solution. There wasn’t any room to dramatically improve the hardware,” says Jones.

That’s another problem for bitcoin. Most wallets need smartphones to work, and there’s a dearth of those in developing markets. That’s one reason why Pelle Braendgaard developed Kipochi Wallet. This wallet is HTML5-based, making it lightweight, and it can run on pretty much any phone with a web browser, including some feature phones, he says.

More importantly, it lets you send and receive bitcoin simply using a phone number, mimicking (and integrating with) M-Pesa, but allowing for international payments.

Braendgaard sees other challenges for bitcoin among the unbanked, though, and one of the biggest is regulatory, particularly in South Africa.

“Banks are fairly open, but they’re still a little bit nervous about what the government is saying,” he says, speaking to CoinDesk from a Johannesburg banking conference where he was promoting bitcoin.

The other challenge is liquidity. It has to be easy to transfer bitcoin into something usable at a local level (at least until everyone in a village is using bitcoin).

Africa is a good example of underdevelopment here. There are hardly any exchanges there, and more must be developed to help the currency grow.

However, those exchanges that do run will have a tough time hitting the unbanked target market in that region because of tough anti-money laundering laws, Braendgaard muses.

There are of course other areas with large numbers of unbanked or ‘semi-banked’ people, where bitcoin is needed. 65% of Latin America’s adult population has no banking, while 67% of those in the middle east and 58% of southern Asians are unbanked.

In some of these countries, though, governments have taken a hard line in some of these places, too. India, for example, has millions of unbanked, and a government that has frowned on the cryptocurrency in the past.

One of the other challenges to bitcoin’s development is its origin. As bitcoin activity grew, it was seized by a familiar crowd: younger people, from the developed world, with easy access to and familiarity with technology. There will be outliers, of course. But just look at the average bitcoin conference: speakers are mostly from the developed world, with the same kinds of access.

This is a common issue, says Andrea Castillo of the Mercatus Center at George Mason University, who co-authored a primer on bitcoin for policymakers.

“Individuals who share these hobby interests often—but not always—have other things in common: background, education, gender, etc. This is generally how the Bitcoin experiment grew,” Castillo says.

But it doesn’t have to be that way forever. “We can’t change the past. But we can affect the future through outreach and open innovation,” she adds. “The Bitcoin community, for its part, welcomes all who wish take part in this peaceful experiment. This attitude is very helpful, and I believe it will continue to drive successful outreach to new demographics going forward.”

Antonopoulos and his as-yet-unnamed team will be a good example of that. But their work to educate and provide access to bitcoin must be matched by grassroots activity among the “other six billion”. Where will that come from?

Developments such as M-Pesa show that it is already happening, as developing markets like Africa leapfrog payment systems in the west with these first-generation mobile payment systems.

The follow-up grassroots activity is likely to come from the same kinds of tech-driven communities, only in developing markets. In Kenya, for example, bitcoin users fit a certain demographic, according to Braendgaard. “Not necessarily rich, but maybe someone who’s a 22 year-old Kenyan computer nerd. You get a lot of them, and most of the users of the service fits in the 20-30 year-old category, but African,” he says.

The same is true in China, another highly-regulated space where there is a strong demand for bitcoin, says Singapore-based Calvin Soh, co-founder at alt coin marketing firm Humint.

“The data from China is it’s 95% male, from tertiary education levels up. They all tend to be professionals, 25 to 45 and savvy enough to understand the current financial system,” he says. “These are the new early adopters, with the knowledge who see the potential or are comfortable with the risks. That is the psychographic mindset.”

Grass roots

Those are the people with the most potential to kickstart bitcoin services in the developing world that could bring new financial power to those without it.

In subsaharan Africa, where eight in ten people are unbanked, Pelle is already trying to find services that will enable Africans to bootstrap their own exchanges.

Significantly, he has had many enquiries from Somalia, where there isn’t much regulation. The Somalis have been international money transfer for hundreds if not thousands of years via Hawala, a network of traders who relay money on behalf of their clients.

These traders have already been digital for a long time, using various channels from SWIFT transfers through to M-Pesa. It’s an example of how communities outside bitcoin’s traditional sphere are already doing things for themselves.

Pelle adds that these kinds of innovative communities will jump on bitcoin or a variation thereof, as it surfaces more in these large, unbanked communities. “I half joked that the minute the Somali money traders in Eastleigh (Nairobi’s Somali neighbourhood) learn how this works, they’ll be having bitcoin sitting next to dollar bills there,” he says.

Tech-savvy leaders in unbanked communities are already using bitcoin and other related services. For that to expand, regulations have to allow it, and technology access has to improve. But Antonopoulos, as is fashionable these days, likens the early era of bitcoin to the first years of the Internet.

“It started as a white male military project,” he says. “But I don’t think that any of the Egyptian bloggers who used it to start a revolution are particularly worried that DARPA built it.”

That will take a while to unfold, but if and when it does, the cryptocurrency will become – in practice, rather than just in theory – more than a revolutionary financial tool for a bunch of young white guys.

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Canadian Bitcoin Exchange Loses $100,000 in Unorthodox Attack
Pete Rizzo (@pete_rizzo_) | Published on March 20, 2014 at 03:13 GMT | Exchanges, News, US & Canada

Ontario-based bitcoin buying and selling service Canadian Bitcoins has revealed that it was the victim of an unusual attack last October that resulted in the loss of 149.94 BTC ($100,000).

The Ottawa Citizen reports that an unidentified scammer contacted a technical support agent at its now former web hosting service, Granite Networks, claiming to be owner James Grant. Using only the owner’s name, the thief was allegedly able to have the site reboot into recovery mode, allowing him to bypass all protections on the server.

The media outlet indicates that it has obtained a text copy of the chat transcript between the web hosting company and the male suspect, and that the results are particularly damning for Granite Networks.

The newspaper concluded:

“At no point during the nearly two-hour-long conversation was the caller asked to verify his identity.”

The news follows several high-profile attacks that were more sophisticated in nature, including most notably the loss of millions in customer funds by now-bankrupt Japan-based exchange Mt. Gox and the theft of 12.3% of Poloniex’s bitcoins earlier this March.

Stemming the damage

While security remains a top concern across the entire bitcoin industry, it seems Canadian Bitcoins‘ additional protections stood up to the purported lapse in judgement by the support operator.

Grant only kept a portion of his company’s bitcoins in a hot wallet, housing the rest in a cold storage wallet locked in a safety deposit box.

Since learning of the theft, Grant said his firm has paid for the loss out of its own pocket, and that he has moved his computer equipment out of the facility.

Grant published a full response to the article on 18th March, emphasizing that no customer data was affected during the breach, and stating that it has requested a full accounting of the incident from Granite Networks’ parent company Rodgers Communications.

Further action

Rogers Data Centres told the Citizen that it is cooperating with the investigation, but that the security issue is not indicative of larger problems at its company.

“The situation surrounding this customer is unique to this customer, and does not apply to any other customer of Rogers Data Centres. Rogers has been fully co-operative with authorities in the investigation.”

It has offered Grant a credit for the error. Grant is said to be contemplating legal action, but did not confirm or deny the reports in talks with CoinDesk.

Reaction to the theft on reddit was mixed. Some users were irate over Granite Networks’ seemingly negligent actions, while others suggested this provided more evidence that bitcoin businesses need to move away from relying on cloud services were funds may be susceptible to theft.

About Canadian Bitcoins

The company was an early bitcoin startup, launching in July 2011. Grant had previously accepted bitcoin at his web hosting and voice over Internet protocol (VOIP) company Lightbox Technologies, and founded Canadian Bitcoins to provide a simple, straightforward way to buy and sell bitcoins using $CAD at rates pegged to an exchange, though Canadian Bitcoins does not function as an exchange.

Canadian Bitcoins accepts only cash, delivered to its office or through express mail, or direct deposit for its bitcoin orders.