BITCOIN NEWS EVRYDAY! From multiple sources.

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International Effort Brings Boost for Bitcoin in Vietnam
Jon Southurst (@southtopia) | Published on March 23, 2014 at 14:18 GMT | Asia, Companies, Exchanges, Regulation, Startups

Despite recent negative noises from the authorities, bitcoin in Vietnam is still making gains in both in daily use and public awareness – largely thanks to the efforts of an international group to promote the digital currency.

Vietnam will even host its first bitcoin conference on 23rd May, deliberately scheduled immediately after a ‘traditional’ bankers’ conference in Hanoi that closes on the 22nd.

While there are probably still less than a dozen businesses accepting bitcoin in Vietnam, one of them is Hanoi’s popular Yolo Cafe, which serves as the city’s ‘Bitcoin Central’.

It was only recently that Vietnam appeared to be sliding in the opposite direction, with a state bank edict that the country’s financial institutions could not participate in the digital currency economy.

However, as bitcoin users in other countries around the region have found, the situation is not always as simple as it appears on the surface.

International venture

A multinational project involving participants from Vietnam, Germany and Israel is setting up Vietnam’s first live and registered bitcoin and litecoin exchange and payment processor, called Bitcoin Vietnam, to accept local currency.

Working as a ‘bitcoin broker’ it is cooperating with an Israeli startup called Bits of Gold. Bitcoin Vietnam will be 100% Vietnamese-owned to avoid extra red tape, but the project’s underlying technology was developed in Tel Aviv.

“Tel Aviv is, from my point of view, the No. 1 place in the world regarding bitcoin – a high density of people with the right entrepreneurial spirit and engineering skills,” said Frankfurt-based Dominik Weil, a coordinator with the project.

“I was really quite amazed, when I visited Tel Aviv and its Bitcoin Embassy back in November last year.”

Bitcoin Vietnam will also work in partnership with another Israeli counterpart, Bit2C, which has operated a successful live exchange for over a year.

Family connections

Yolo Cafe, Hanoi

Despite being German, Weil considers Vietnam a kind of second home, thanks to his Vietnam-born wife, who is actively involved in the startup’s operations. He already has several years’ experience in Vietnam and, as well as having a strong appreciation for the local culture, is also impressed by what he sees happening economically.

“Vietnam is an emerging market with very high dynamics in its economic growth – at nearly every corner in Saigon or Hanoi, they are going to build new skyscrapers, the living standard is rising continuously, and in the bigger cities you will find an expanding middle class.”

This presents wonderful opportunities for bitcoin businesses. That’s unlike Western countries, he said, where the focus is often more on defending past prosperity as the economic base declines.

Said Weil:

“The ill-fated belief that you have the right to get paid nice benefit payments by the government, just because you exist and breathe does not exist in Vietnam. The people there know they have to work hard, if they want to have a better life.”

To educate customers and hopefully other stakeholders including regulators, Bitcoin Vietnam will maintain a blog in which it will translate popular bitcoin news from around the world into Vietnamese.

Vietnam also has the world’s 13th-largest population and is one of the top 10 destinations for remittances – a market that is still expected to expand by a further 20% this year, thanks to large numbers of family members living abroad, and that could benefit from the low fees associated with bitcoin.

Self regulation

The new Bitcoin Vietnam entity will follow strict KYC (know your customer) and AML (anti-money laundering) rules, said Weil, but will be largely self-regulated, thanks to the authorities’ reluctance to enter the space.

He said:

“We dont want to become a tool for illicit activity and give reasons to the authorities to shut us down. It is without doubt, that you have to choose your steps in this market very carefully. The whole environment regarding bitcoin is very close to the approach in China, and I think there are still a lot of misunderstandings of bitcoin around, like it’s just a currency for criminals, terrorists, paedophiles, drug-addicts, gamblers, etc.”

The Vietnamese Ministry of Public Security even recently invited the Vietnamese Bitcoin Foundation’s current chairman to visit and explain bitcoin in the hope of developing a better approach, hinting the government’s attitude is certainly not set in concrete.

The team currently consists of five people, including three Vietnamese located in Vietnam, US and Singapore, and two Germans in Frankfurt (including Weil himself).

Other activities

Digital currency mining remains a popular activity in Vietnam, Weil said, although locals had switched mostly to altcoins, thanks to lack of access to the modern ASIC rigs now required to mine bitcoin.

As well as the Yolo Cafe, some other Vietnamese businesses and organisations also accept digital currencies, such as parenting forum lamchame.com and The Go Vap orphanage, a charity that focuses on litecoin for its donations.

Weil said:

“In general the community is reaching out – and vice versa – for the government to get things sorted out and try to achieve an more-or-less open-minded stance regarding bitcoin.”

“We don’t know how it will play out in the end, but so far the signs make us kind of optimistic that bitcoin may become a big thing in Vietnam too,” he concluded.

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Exchange Vircurex Freezes Withdrawals, Claims Lack of Reserves
Jon Southurst (@southtopia) | Published on March 24, 2014 at 00:01 GMT | Companies, Exchanges, News

Beijing-based virtual currency exchange Vircurex has frozen most of its digital currency withdrawals effective immediately, claiming it no longer has the reserves to cover customer requests.

The freeze will affect all bitcoin, litecoin, feathercoin and terracoin withdrawals. A message on Vircurex’s site says it will create a new balance type called ‘Frozen Funds’ covering all balances in the aforementioned currencies. The company maintains it won’t be shutting down, saying it intends to “gradually pay back the losses”.

That Vircurex had a reserve shortfall had been known for some time, though not the exact amount. It froze BTC/LTC withdrawals in January 2013 after reporting that wallets had been compromised, but still allowed deposits in those currencies to continue. The attacker had apparently exploited a vulnerability in Ruby on Rails posted online just the day before.

The company pledged to cover the losses from its own income and had been doing so until yesterday, when “large fund withdrawals in the last weeks” completely depleted its cold wallet reserves.

Similarities

While Vircurex’s volumes and deposits were nowhere near Mt. Gox’s levels, the story is significant thanks to the similarities: hackers supposedly lift thousands of bitcoins from an exchange, the exchange desperately tries to cover the loss before users sense something more serious is up and start a run, leading to a withdrawal freeze.

It has raised questions about exchanges operating fractional reserve systems, either openly (as in Vircurex’s case) or covertly, in both cases due to a theft.

Proof of reserves

There are now calls for online exchanges and wallets to prove their reserves somehow, possibly using a cryptographically secure proof of inclusion and proof of reserves system such as a Merkle Tree, or hash tree.

South Korean exchange Korbit announced recently it would be the first major exchange to offer such a service with its opt-in ‘BitTrust’ system. Since 21st March, 57 of Korbit’s users have signed up to participate, covering a total balance of over 580 BTC. It has kept BitTrust opt-in only for now due to trade-off in transparency vs. 100% balance privacy.

Long standing exchange

Vircurex opened for business in October 2011, and traded between BTC, USD or EUR, plus up to 18 other cryptocurrencies against each other, eliminating some less popular coins over time.

Users on bitcointalk first started noticing bugs interfering with trading and withdrawals around late February and early March, which grew in number until this week’s problems. The site then apparently stopped any-to-any currency trades late last week before announcing the freeze.

Losses will be paid back according to a ‘top-down/bottom-up’ distribution logic, according to the site announcement. That means 50% of available funds will be used to pay the largest balance holders and the other 50% the smallest, meeting somewhere in between.

“All users will eventually receive their funds, though the timeframe depends on the monthly volume available,” the announcement continued, saying the logic guaranteed new users would not be penalized and thus supporting the platform’s operations until all amounts have been returned.

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Australian Manufacturer Debuts First Cashless Bitcoin ATM
Jon Southurst (@southtopia) | Published on March 24, 2014 at 11:53 GMT | Bitcoin ATM, Companies, News, Startups

An Australian company says it has produced one of bitcoin’s holy grails: a cashless ATM that allows users to buy bitcoins using a credit card, and sell bitcoins via a direct deposit to their bank account.

The first fully functional Diamond Circle ATM arrived from its manufacturer in Brisbane this week. Unlike competing ATMs and vending machines that rely on QR codes and cash, Diamond Circle’s solution is based on near-field communication (NFC) technology with paper receipt backups.

This unique approach is the brainchild of CEO Stephen Rowlison, a seasoned FinTech (financial technology) entrepreneur with 30 years of IT experience in Australia, Asia and the US. Before founding Diamond Circle, Rowlison was working on various projects developing NFC payment and loyalty card systems for retailers. He said:

“I was interested in NFC technology and payments, but just needed a unit of transfer. After learning about bitcoin, I figured I could combine the NFC chip with the ATM idea.”

He added: “What I’ve really done is just brought together two existing technologies: contactless NFC and BTC. QR code payments have been outlawed in China and have no inbuilt card security, which is why using contactless technology makes so much sense.”

Wallet tags

Although Rowlison is exploring other NFC devices for his ATMs, he has decided to focus on a ‘wallet tag’ for now, which is a small disc that can be used as a pendant or keychain.

“It’s got the same smarts as banking technology except we mandated a Personal Identification Number for all tags that are registered online.”

It’s the same contactless technology being deployed in some countries by Visa’s PayWave and Mastercard’s PayPass. Australia’s point-of-sale debit card network EFTPOS, which uses PC compatible devices, has also begun using NFC chips.

diamond circle btm

This all means Diamond Circle will be in a dominant position to launch its second phase: POS integration that will enable retail merchants to accept payment in bitcoin using devices they already have.

The ‘wallet tag’ devices function as cold storage wallets that communicate with the cashless ATMs. Customers also have the option to print out paper receipts and use them with more traditional smartphone or desktop wallet clients. The paper receipt can also be used as a backup for wallet tag users.

Diamond Circle customers can use the NFC ‘wallet tag’ device with a number of smartphones to check bitcoin balances and broadcast their public address.

More secure storage

Diamond Circle provides customers a secure way to store and use bitcoins. The company does not provide online bitcoin wallets that are often susceptible to theft. Diamond Circle wallets and private keys are stored only on the wallet tag devices and paper receipt backups.

“Even if we get hacked, there’s nothing to take,” Rowlison said.

Diamond Circle will save a fortune by not handling physical cash. Once a machine needs to handle paper (or in Australia’s case, polymer) dollar bills it reduces the value proposition by increasing the costs of its production, materials and maintenance.

He insisted the technology itself was a lesser challenge, since it uses mostly off the shelf components that have already been tested in other payment systems.

“Once we ironed out the problems of bitcoin, the value proposition for consumers and the entire supply chain becomes obvious. instant cheap international money transfer and payments.”

Working with the current financial system

Often the bigger test faced by Diamond Circle and other bitcoin startups is learning to function within the regulatory environment. Rowlison said his focus has been on developing a compliant product with all KYC/AML regulations built in, meaning Diamond Circle ATMs are fully compliant.

This focus has helped the company form the necessary partnerships with banks and other financial institutions, though there has still been some resistance.

“It hasn’t been easy, we’ve had two rejections from major banks,” Rowlison continued.

“They just need to understand risks can be managed, it’s just a matter of getting that through to them. I don’t see it as an ‘Us vs Them’ situation, bitcoin is just another currency, we can coexist. We need to figure out how we can cooperate.”

He said there had also been “a bit of pushback on locations” from larger shopping malls worried about the product being delivered. The company may need to prove its technology first in a smaller location, like the coffee shops and cafes that house bitcoin ATMs elsewhere, then move to larger centers.

International interest

The company is an ‘Enrolled Money Transmitter Business’ and is run by a team with extensive C-Level experience in various fields of compliance in Australia and in the US.

Diamond Circle has received international interest in their ATMs already with queries from customers in in the UK, Canada, USA, Asia and the Middle East, and says it has already sold two of its ATMs within Australia and one to the UK.

The company is listed on cryptostocks.com under the ticker XDC, a direct pass through to their underlying shares, which helped them raise initial seed capital.

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New York Gears Up for Inside Bitcoins Event
Pete Rizzo (@pete_rizzo_) | Published on March 24, 2014 at 15:03 GMT | Events, News

With Inside Bitcoins NYC 2014 fast approaching, event organisers continue to roll out more information about what its thousands of anticipated visitors can expect during the two-day conference on 7th April and 8th April.

Inside Bitcoins, to be held at the Javits Convention Center, most recently revealed via its website that American Banker executive director Marc Hochstein, with support from Wedbush Securities’ Gil Luria, will be giving the keynote for day two’s events.

The announcement finds Hochstein and Luria joining Circle CEO Jeremy Allaire and Blockchain CEO Nicolas Cary on the list of the event’s keynote speakers, though their presence is no doubt a signal of the increasing appeal of bitcoin outside the industry.

However, good news for Inside Bitcoins NYC isn’t limited to bolstering the event itself. As BitcoinNYC founder Jonathan Mohan can attest, Inside Bitcoins has a big impact on his weekly meetup group serving New York.

For Mohan, the conference is an opportunity to capitalize on increased local awareness of bitcoin. Explained Mohan:

“The conference is great as an onboarding progress, because it gives people who aren’t in the community an easy roadmap into the community.”

It’s also popular with his existing members. Mohan indicates that since informing his community about the event to his group, more than 100 of its members have expressed that they’ll be in attendance to access the show’s free vendor booths.

Added Mohan with an air of understatement: “There’s a lot of interest.”

Inside Bitcoins 2013

Bitcoin NYC hasn’t always been able to rely on strong strong support, however.

Mohan indicated that his group formed in March of 2013, a few months before the inaugural Inside Bitcoins NYC, held last July. Since then, he indicates he has noticed a key change at his meetup groups: attendees are more open about revealing their backgrounds in discussions, a sign he suggests that bitcoin’s credibility is increasing, thanks in no small part to events like Inside Bitcoins.

Said Mohan:

“Initially in early last, we’d have people say ‘I work in finance’ or ‘Oh, I work on Wall Street’. Now we have people who say [they] work at Morgan Stanley or Goldman Sachs or Bloomberg.”

Preparing for the event

Of course, Mohan will have a bit more responsibility at this year’s event than his fellow meetup attendees. That’s because Mohan will be moderating the “New Ideas in Bitcoin” discussion, one of two panels that will directly follow the event’s opening keynote speech.

That panel will include Peter Earle, chief economist at Huminit; Chris Odom, co-founder of Monetas; Ryan Charleston, CEO of Bitcorati; James Gatto, a partner at Pillsbury Law; and Bitcoin Center NYC deputy director Austin Alexander.

Still, Mohan isn’t phased at the prospect of leading one of the day’s first events.

“I see it as no different than a meetup, which is to say, I don’t see it as the Jonathan Mohan show, I see it as facilitating a discussion between the people in the group. It’s a logical extension of something I’ve been doing for a few hours a week for the last year.”

Event preview

Mohan was able to share some of the topics that he is excited to speak about with his panel at the event. These included distributed corporations (Ethereum, MasterCoin, BitShares) and branded coins, among other topics.

Mohan also suggested that his personality would be onhand to help energize event attendees for all that day one has in store.

“I’m a high energy guy. I’ll try to keep them awake.”

Though, if the event’s full speaker lineup is any indication, he likely will have plenty of support in this goal.

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Kraken’s Audit Proves it Holds 100% of All Bitcoins in Reserve
Nermin Hajdarbegovic | Published on March 24, 2014 at 10:45 GMT | Exchanges, News

Bitcoin exchange Kraken has passed a cryptographically verifiable proof of reserves audit with flying colours.

The audit, which was carried out by Stefan Thomas on 11th and 22nd of March, proved that more than 100% of Kraken’s bitcoins are held in reserve.

The process was designed to allow the auditor to verify that the total amount of bitcoins held by Kraken matches the amount required to cover an anonymized set of customer balances.

Covering all balances

Thomas said the audit was very strict, but at the same time it maintained “absolute privacy” for customers. He also added that Kraken have expressed interest in conducting regular audits in the future, with different auditors each time. Thomas said:

“I am attesting to is the root hash of a merkle tree containing all balances that were considered in the audit. If you are a customer of Kraken, you’ll be able to verify using open-source tools that your balance at the time of the audit is part of this root hash. If it is and if you believe that I am trustworthy, then you can be confident that your balance was covered by 100% reserves at the time of the audit.”

Using the ‘Merkle Tree’ technique originally proposed by bitcoin developer Greg Maxwell, the auditor went on to explain the gritty technical details. He was provided with a JSON file from Kraken, which contained the list of the exchange’s addresses and balances. The file was then compared against a copy of the block chain.

The results were in order, Thomas concluded: ”The actual holdings were very slightly (< 0.5%) above the required holdings, meaning Kraken had greater than 100% reserves at the audit block height.”

A competitive edge

Following the Mt. Gox crisis, many exchanges are keen to distance themselves from the troubled exchange and other bitcoin outfits with a chequered track record. Security and transparency have become selling points, hence exchanges appear to be doing their best to reassure investors on a regular basis.

Earlier this month UK-registered bitcoin exchange Bitstamp released the results of its own financial audit, which found that it held 100% of its validated BTC balance and USD funds. No issues were raised by the auditors.

Bitstamp CEO Nejc Kodrič told CoinDesk that his company plans to perform regular audits, with quarterly results posted on the Bitstamp website.

As investors demand more security and transparency, exchanges have to oblige or suffer the consequences and lose their competitive edge. Low fees are just one way of remaining competitive, but transparency and sound reporting practices might prove more important in the long run.

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UK Digital Currency Association Launches as Local Community Voice
Pete Rizzo (@pete_rizzo_) | Published on March 24, 2014 at 18:31 GMT | Europe, News

After a few months of behind-the-scenes work, the UK Digital Currency Association (UKDCA) announced its official launch on 24th March, a declaration that signifies it now has an incorporated entity, an operational website and established working groups.

The UKDCA is most notable for its work consulting with the UK’s tax body, Her Majesty’s Revenue and Customs (HMRC), on its decision to eliminate added costs imposed on bitcoin trades earlier this March. The decision was championed by the international community as a progressive move by the HMRC.

UKDCA member and Bullion Bitcoin owner Adam Clary spoke to CoinDesk about the launch, indicating that this will be just the beginning of the organisation’s work.

Clary said that the UKDCA will serve as a trade association that benefits both the domestic bitcoin community, as well as the wider UK population.

Bitcoin community members can join the public group, free of charge, though paid memberships come with more substantial perks. Likewise, Clary indicated that the public will gain a trusted informational resource.

Explained Clary:

“Governments, regulators, businesses, the media, [they] like to have these focal points they can deal with in old-fashioned, legacy terms. A trade association provides this focal point for the wider community.”

The organisation is being run by an interim board. An election will then be held to determine a full board of directors.

Interim board members include Clary, Elliptic CEO Tom Robinson and BankToTheFuture.com co-founder Simon Dixon, among others.

Membership tiers

Clary explained that the UKDCA plans to introduce three tiers of membership, using a model similar to the one the Bitcoin Foundation has parlayed to international success. The group had previously been operated as a part of the London meetup group.

The UKDCA’s three membership tiers will include:

Industry members – pay the highest membership fee in exchange for the ability to display the UKDCA logo on their websites
Individual members – pay a small subscription fee to have their name listed on the UKDCA website and for board member voting privileges
Supporters – do not pay a membership fee, but are able to signal their support.
Working groups will be focused on four topic areas – exchanges, regulation and accounting; business and financing; media, education and charity; technology and mining.

International collaboration

Clary indicated that the UKDCA has been in touch with the Bitcoin Foundation, and that the two groups are currently discussion how they can best work together.

The UKDCA, Clary noted, will be looking to support the foundation in the UK:

“We are absolutely 100-percent non conflictive. We are here to do our stuff in the UK, and to be a UK-centered organization, whereas the Bitcoin Foundation is global.”

Clary likened the organisation to successful groups formed in the Netherlands, Canada and Australia that operate as national trade organisations.

First public event

The UKDCA will hold a panel discussion on 31st March during FinTech Week to mark its launch.

Clary, who is moderating the talk, indicated that it will primarily highlight the technology of the blockchain. Panelists include Ethereum’s Stephan Tual; Netagio’s Simon Hamblin; and more.

Following the introduction, the event will feature a regulatory update, a startup stories exchange and an open networking period.

Those who wish to attended can visit Rain Making Loft, International House 1 St Katharine’s Way, London, E1W 1TW.

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Forget the Moon, Bitcoin Can Now Take You to the Summit of Mt Everest
Dan Palmer | Published on March 24, 2014 at 17:00 GMT | Exchanges, Lifestyle, Merchants, News

If the recent negative press concerning bitcoin has been getting you down, here is a bit of news that should put you on top of the world – quite literally.

Trek and expedition organiser Mt Everest Adventures has now started accepting bitcoin for its adventure packages – which include summiting Mount Everest itself.

The company, which is run from Australia by CEO Aseem Jha, offers a variety of excursions and treks in Nepal – from sightseeing trips around Kathmandu and its locale, to light tramps in the forested Himalayan foothills and tougher treks through stunning scenery to the Annapurna and Everest base camps.

However, the king of them all has to be the expedition to the very peak of the tallest mountain in the world – a trip that takes intrepid visitors up through the high grasslands on the Chinese side of the border, past yaks and their herders, to the Chinese Base Camp.

This is where the serious climbing starts towards a (hopefully) successful summit of the mountain at 8,848 metres above sea level.

Uphill climb

For companies such as Mt Everest Adventures, which rely on foreign customers for their survival, accepting payments from outside the country is both complex and expensive.

mt everest

One of the problems is that Nepali currency, the rupee, is tightly controlled. The company says:

“Even in [these] modern times e-commerce is not practised due to financial restrictions. For that reason, any kind of business has to be dependent on foreign e-commerce support [which entails] paying a lot on commissions just for running e-commerce on our behalf.”

Bitcoin offers a way to make international payments a lot easier for the company, and importantly, a lot cheaper, with fees far below those of traditional payments providers.

Ideal solution

Jha said that after talking to a friend about the expense of getting paid in fiat currencies, he realised that bitcoin could offer a solution.

After some investigation, he decided to team up with Australia-based exchange and payment solution provider CoinJar to start accepting the digital currency.

mt everest

“Nepali currency has no value when it leaves the country and is tightly controlled. We believe that bitcoin, a new decentralized cryptocurrency is the solution for a small, dominated country like Nepal,” the company said.

“We have a hope that we won’t have to depend on any restrictions imposed by foreign countries.”

CoinJar allows Mt Everest Adventures to place a bitcoin payments widget on the website and charges only a 1% fee to its merchants.

Said Jha:

“With bitcoin we only pay almost nothing. With the banks [...] first there is the 2 to 3% that your payment gateway charges, then they charge on forex exchange, and we also need to have a merchant account to accept payments which costs monthly fees. More than saving, though, it is about easiness.”

The service launched today and unfortunately there is a technical hitch with the bitcoin widget, so Jha says has not taken any bitcoin as yet. However, he has had positive feedback from potential customers about the new service:

“When i was building the site I shared this idea with bitcoin communities and they were quiet excited to trek in Nepal.”

So, if you have bitcoin to burn on the climb of a lifetime, Jha said that to summit Mt Everest will cost about $30,000 per person – which equates to about 53.3 BTC at today’s prices.

However, if that’s too steep a proposition, either fiscally or physically, there are plenty of cheaper and easier treks on the company’s website.

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Europol Seeks New Powers to Clamp Down on Digital Money Laundering
Nermin Hajdarbegovic | Published on March 24, 2014 at 19:44 GMT | Crime, Europe, News, Regulation

Europol, the European Union’s top law enforcement agency in charge of criminal intelligence, is urging legislators to provide law enforcement with greater powers to identify criminal activities online, including digital money laundering.

Europol is not a law enforcement agency in the traditional sense, but rather furnishes EU law enforcement agencies with support, including intelligence, information exchange, expertise and training.

The organisation launched the European Cybercrime Centre last year, and one of its goals is to target organised groups that make their money online.

Digital currencies as an instrument to facilitate crime

Speaking at a security conference on 24th March, Europol head Rob Wainwright issued statements that suggest he believes law enforcement agencies are ill-equipped to crack down on those who use digital currencies for illicit means, Reuters reports.

Said Wainwright:

“We’re seeing that virtual currencies are being used as an instrument to facilitate crime, particularly in regard to the laundering of illicit profits.”

Wainwright went on to argue that police should be given new powers that enable them to identify criminals online. He warned that police simply do not have the capabilities to operate online and identify criminals operating in “dark areas” of the internet, or the deep web.

The deep web is of course the vice-ridden part of the World Wide Web, used also by many privacy lovers, but its relative anonymity has also attracted a sizable cybercrime community. Pseudo-anonymous digital currencies like bitcoin remain one of few viable payment systems on the deep web.

The case for greater enforcement

Wainwright warned that criminals are “abusing freedoms” made possible by technology to damage society and potentially threaten the security of millions.

His sentiment is shared by a growing number of digital currency advocates, who have grown tired of people associating bitcoin with black hat hackers, Silk Road and ransomware.

Earlier this year, Irish lawmaker Patrick O’Donovan called for a parliamentary probe into digital currencies and their effect on illicit financial transactions. He warned that digital currencies and the deep web have effectively created an online supermarket for illegal goods and services, and called for an EU-wide response to the problem.

Although the risk of digital currencies being used for money laundering and crime is often overstated, many can agree that when it comes to organised criminal syndicates, the threat of abuse is real.

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Hip Hop Group First to Test FrostWire’s Bitcoin Integration
Tom Sharkey | Published on March 24, 2014 at 22:11 GMT | Lifestyle, Merchants, News

Global merchants have embraced bitcoin as a payment option for products and services, and now the music industry seems to have taken notice of the digital currency’s utility.

Electro-hip hop group Ain’t No Love released its second EP Tears Of Joy last week, and the Toronto musicians teamed up with FrostWire to make history with the launch.

Ain’t No Love’s decision to provide Tears Of Joy as a torrent download with integrated bitcoin donations came naturally to the group, according to their manager Mark Cwajna.

The group offered its first, self-titled EP as a free torrent download through FrostWire, and were already planning on doing the same with Tears Of Joy when FrostWire approached them about bitcoin.

Said Cwajna:

“FrostWire came back to us and approached us about a new feature they were offering, to integrate bitcoin donations for the torrents that are downloaded through the program. They asked if we would be the guinea pig for them and offer Tears Of Joy as a free download with bitcoin donations enabled.”

Reaching a new audience

Cwajna says the response to Tears Of Joy has been positive for Ain’t No Love. The EP has been downloaded more than 5,000 times in less than one week after its release, and the group has received close to 50 separate bitcoin donations, ranging from 0.001 BTC all the way up to 0.06 BTC (around $35 USD at the time of publication).

Speaking to CoinDesk about the reception of Tears Of Joy, Cwajna said:

“The response that we have received is really a testament to how tight knit the bitcoin community really is. We’ve reached more people with this release who otherwise may not have listened to Ain’t No Love, and we’re happy to bring awareness about bitcoin to the music industry.”

Cwajna went on to explain that while Ain’t No Love’s new EP is also available on iTunes, accepting bitcoin payments has allowed the group to “skip the middleman” and avoid the percentage of revenues that platforms like iTunes take from music sales.

Bitcoin in the music industry

The music industry has evolved significantly with the emergence of the Internet. Many consumers illegally pirate music online, putting a dent in record sales across the industry. Further, platforms like YouTube and various social media outlets have allowed artists to build their fame without the help of a major record label.

While Cwajna doesn’t think pirating will ever disappear, he believes bitcoin has the potential to shake up the music industry by allowing artists to sell their music to fans directly, keeping all of the profit instead of giving a chunk of it to Apple through iTunes.

Beanz, a rapper and one-third of the Ain’t No Love trio, added that bitcoin has the potential to impact the industry on a large scale:

“I think other musicians are definitely going to jump on the opportunity to accept bitcoin for their music. At the end of the day, it’s additional revenue stream for artists and it really does have the potential to change the game.”

To promote their new EP, Ain’t No Love has released a music video for their single Blinded (below), and the Tears Of Joy EP can be downloaded on FrostWire for free, with the ability to make bitcoin donations to the group.

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Gyft Adds Retail Giant Walmart to its Bitcoin Gift Card Network
Pete Rizzo (@pete_rizzo_) | Published on March 24, 2014 at 21:07 GMT | Merchants, News

Update 23:00 GMT - Updated with commentary from Gyft CEO Vinny Lingham

San Francisco-based mobile gift card app provider Gyft officially added US retail giant Walmart to its merchant network on 24th March.

The company took to Twitter to release the news that the largest physical retailer in the US, which earned more than $325bn from its US retail stores in 2012, and garnered more than $460bn in sales worldwide that year, had been added to its service.

Speaking to CoinDesk about the news, Gyft CEO Vinny Lingham indicated that he believes Walmart’s decision reflects the strong brand his roughly two-year-old company has already successfully built:

“I think it’s pretty clear that we’ve built a great interface, we have great customers and we offer a great user experience. [...] We’ve built a brand, and retailers see that we have a very valuable position as an alternative to the plastic gift card on the rack model.”

Walmart Gyft cards can be purchased in denominations of $25, $50, $100, $250 and $500. Gyft provides 3% cashback on all bitcoin purchases using its cards.

Notably, Walmart’s Gyft cards are also available for use at popular membership-only discount retail outlet Sam’s Club.

Private ways to pay

In an interview, Lingham stressed that he sees the success of bitcoin and mobile gift cards as reflective to how retailers are responding to the desire consumers have for increased privacy.

Lingham notes, for example, that gift cards are gaining popularity with parents who don’t want to share important financial information with their children, or risk that information in the hands of a companies that may be susceptible to data breaches.

Said Lingham:

“Privacy is important, and the gift card market is a way to offer that. If you want privacy, you can use bitcoin and PayPal with us.”

Why Walmart matters

Walmart has more than 11,000 locations in 27 countries, including upwards of 3,000 Walmart Supercenters with full-service supermarkets and gas stations, meaning Walmart’s Gyft cards will allow bitcoiners to redeem their bitcoins for a number of attractive new items.

Unsurprisingly, given Walmart’s size and the extent of its offerings, it was among the most requested retailers by Gyft users.

The largest merchant previously on the network was the Minnesota-based retailer Target, which boasts 1,790 locations in the US and more than 100 stores in Canada.

Community reaction

The announcement ends more than four months of calls from the community for Gyft to strike a deal with the Arkansas-based megastore. Bitcoin users were particularly active posting to reddit about the issue in the wake of Target’s November decision to join the Gyft network.

Lingham indicated that his company is always particularly proud after a big launch like this, saying: ”It’s great that the community is behind us and engaged.” But, he remains focused on the next major merchants coming down the pipeline, hinting that more big announcements for the bitcoin community are “in the hopper”.

So far, the outpouring has been highly visible on Twitter and reddit.

Gyft has been equally supportive of the bitcoin community, with CEO Vinny Lingham penning an open note to the community in November. That announcement indicated that Gyft would continue to invest heavily in adding merchants to its network that fit the needs of its growing bitcoin user base.

So far, it would seem, the company is showing it can get results.

[softron]

Sure i would read. To keep it intresting why not publish once a week

[MICRO]

Developers Battle Over Bitcoin Block Chain
Danny Bradbury (@dannybradbury) | Published on March 25, 2014 at 08:05 GMT | Analysis, Bitcoin protocol, Technology

It’s surprising what worm-filled cans a new version of the bitcoin protocol will open. The core developers released a much-anticipated update to the core software – version 0.9.0 – last week. Now, a third party developer group is already lobbying for change.

Counterparty, a financial trading platform built on the bitcoin block chain, issued an open letter to the Bitcoin protocol’s core developers last week, urging them to reconsider a key component of the protocol’s latest release. That component is called OP_RETURN, and it is a new feature, designed to allow people to store extra data in the block chain.

OP_RETURN was originally meant to store 80 bytes of extra data in a bitcoin transaction, but the core developers slashed it to 40 bytes. This upset CounterParty, because as a financial trading platform that allows people to create new asset classes and financial derivatives to be traded on the bitcoin block chain, it says that it needed those 80 bytes to store its data.

“A 40 byte limit (in place of the 80 bytes originally planned) makes OP_RETURN unusable for Counterparty’s purposes,” said the letter.

The other option is to use another feature of the Bitcoin protocol, called multi-signature outputs. These involve more than one signature for a particular bitcoin transaction, and are designed for features such as escrow payments. But that second signature can be used to store data instead.

“If the data cap is left at 40 bytes, we will be forced to use such awkward constructions to accomplish our goals,” the Counterparty letter said. Instead, the organization wants the core devs to play ball, and restore the original 80-byte cap.

In a discussion on the Bitcoin Talk forum, core developer Jeff Garzik makes an argument for why they shouldn’t. He warns that when a transaction is processed on the bitcoin network, everyone processes it, which means that the data you’re storing has to be stored by everyone.

“It is called a free ride.  Given that the overwhelming majority — >90% — application for the bitcoin blockchain is currency use, using full nodes as dumb data storage terminals is simply abusing an all-volunteer network resource,” he argues.

He accuses Counterparty and Mastercoin – another service that also uses the block chain for its own purposes – of having “simply flipped an ‘on’ switch and started using bitcoin P2P nodes as unwanted data stores.” And they didn’t engage the community before doing it either, he complains.

Get off of my block

Is it really the core developers’ job to make it possible for others to build extra services on top of the block chain? It had better, if it wants to stay relevant, says ‘PhantomPhreak’, a core developer for Counterparty.

PhantomPhreak argues that both parties get something from this kind of relationship. By piggybacking on the bitcoin block chain, Counterparty and other new services get pre-baked services including trusted timestamping, proof of publication,peer discovery, and anti-DOS measures.

Bitcoin, in turn, gets to stay relevant, (s)he argues: “Bitcoin can be very conservative with the kinds of functionality that it directly supports, while still rapidly acquiring the new features that it needs to stay relevant and useful.”

So now, Counterparty (which hasn’t contributed to the bitcoin core’s open source effort), and the bitcoin core (which has stated that it needs people using the protocol to pitch in) are stuck with each other, and neither is happy. Phantomphreak says that “a few of the Bitcoin developers are trying to prevent us from using the protocol as it stands, with all of the flexibility that it naturally provides.”

Core developer Mike Hearn has an idea to cut through the whole tangled mess. In fact, he had it in 2012, before Counterparty or Mastercoin even existed. Instead of trying to store lots of data in a special field in the block chain, why not simply store a pointer to a third party, P2P data storage pool, he asks? This could be achieved using something called a distributed hash table (DHT).

“That way it doesn’t matter how much data you want to store, the impact to the block chain is always the same,” Hearn says. “Nobody is against that – it’s why OP_RETURN is sized to allow for hashes. DHTs come in conveniently reusable libraries so it’s hardly a big engineering challenge. Instead they turned it into some kind of stupid political fight.”

Talking of fights, more tensions emerged among the core devs last week, and they’re indirectly related to this question of who gets to use the block chain for what, and why.

0.9.0 reduced the transaction fees – the money paid to get a message processed by the network – tenfold. This is a good way to encourage micro transactions on the network by keeping the costs of a single transaction low, so that you could, say, pay pennies for downloading a single story.

Peter Todd, a contributor to the bitcoin code, told CoinDesk that he was worried that this would open the network up to spam and denial of service attacks, because people could use the cheap transaction fees to flood the network.

“They turned it into some kind of stupid political fight.”

Gavin Andresen, the Bitcoin Foundation’s chief scientist and lead developer of Bitcoin Core, says that there are plenty of ways to slow down bitcoin transactions with DoS attacks – but he argues that they generally don’t happen, primarily because the attackers would have little to gain.

“I have never said that bitcoin is directly suitable for transactions less than a dollar; I think the jury is still out on how low we can go,” he says.

Vitalik Buterin, developer of the soon-to-be-launched Ethereum project, argues that the concepts of transaction fees and storing messages on the block chain are connected. Transactions are badly thought out in the bitcoin protocol, he says. Some core developers have admitted this to CoinDesk, which is why they’re working to change it using ‘smart’ fees.

If transactions were better managed, then people could just pay for what they wanted to store, Buterin says. Then, there would be no ‘free rides’.

“it’s the protocol’s fault the OPRETURN battle is such an issue. In an ideal world, the concept of “abuse” would not even exist; fees would be mandatory, and carefully structured to closely match the actual cost that a given transaction imposes on the network,” he says. “If you can pay the fees for what you’re doing then you should be able to do it, no questions asked.”

It doesn’t seem as though the core developers are about to change the OP_RETURN parameters to allow more data to be stored in the network. If they don’t, then Counterparty has some options.

It can hack together an inelegant use of the multi-signature protocol to store its data. It can explore Hearn’s idea of using pointers and distributed hash tables. Or it can simply jump ship and either build its own block chain, or use someone else’s service. Perhaps Ethereum’s for example.

But PhantomPhreak isn’t ready for that. “Ethereum is not really an alternative to Bitcoin for our purposes,” PhantomPhreak told CoinDesk. It isn’t tried and tested yet, the anonymous developer contends.

For now then, at least, some forward-thinking initaitives that want to expand beyond bitcoin’s core services still feel as though they need the bitcoin protocol to do it. And it looks as though that’s going to generate tensions, workarounds and in-fighting for some time to come.

[MICRO]

UK Cash-for-Bitcoin Service ZipZap Suspends BTC Transactions
Jon Southurst (@southtopia) | Published on March 25, 2014 at 09:47 GMT | Companies, News, Startups

Global cash payment network ZipZap has temporarily halted digital currency transactions, after partner and non-bitcoin payment processor PayPoint said it needed more clarification on surrounding regulations.

ZipZap CEO Alan Safahi told CoinDesk the company had not ended its relationship with PayPoint, adding that it was still working with them for non-digital currency clients, and to add more payment locations. He said such issues were a fact of life for bitcoin businesses who needed to operate within the traditional fiat world. He added:

“They only halted digital currency processing until they have better legal clarification from government which we hope to have within weeks. Meanwhile, we are pursuing other options as well.”

Cash for bitcoins

ZipZap had allowed customers to buy bitcoins with cash by first registering at its site and verifying ID, printing out a barcode on a payment slip and then taking it to a cashier at a physical location to hand over the money.

The service operated in five countries and customers could also login via existing accounts with Bittylicious, BuyBitcoin.sg and BIPS Market, using exchanges ANXBTC and ANXPRO. ZipZap had plans to also include Kraken, CoinMKT and BTCX.se.

There were 28,000 physical stores for customers to pay – all of them PayPoint clients.

Processor stopped deposits

PayPoint had reportedly halted deposits to ZipZap until the UK government and the financial conduct authority provide legal clarity on digital currencies.

Though the process of printing slips and visiting a store might seem a cumbersome way to acquire such currency, it remained simpler and much less risky then dealing with online bitcoin exchanges.

Identity and address verification requirements for exchanges have increased markedly in the past year and even seasoned bitcoin users have become reluctant to trust them with large amounts of money or customers’ personal banking details.

ZipZap allowed customers to transact within their own country, as long as it was one of the five, and with registered businesses.

Banks OK, others still wary

The company had apparently had no problems with its partners in the traditional banking world, but payment processors like PayPoint and PayPal have been treading far more cautiously with digital currency related activities.

If a solution cannot be found with PayPoint, there may still be other payment processing options for ZipZap in the UK. There hasn’t been any overt pressure from the UK’s authorities for either financial institutions or the public to avoid bitcoin transactions.

Despite hints about eliminating sales tax, there is also no legislation related to bitcoin in the UK as yet, which appears to leave businesses free to try new models but which can actually stifle innovation, as entrepreneurs and investors become reluctant to enter the unknown territory.

ZipZap, still a relatively new business, has been trying to grow across the UK and other European markets. However, it may now focus on other overseas markets (like the US) after finding Europe’s environment too challenging.

The company’s site lists its headquarters in San Francisco, and it also has operations in India and Argentina.

[MICRO]

European Central Bank: Bitcoin Shouldn’t be Ignored or Dismissed
Nermin Hajdarbegovic | Published on March 25, 2014 at 12:16 GMT | Europe, News, Regulation

The European Central Bank (ECB) has reiterated its position on digital currencies.

In a speech delivered at the at the ECB/Banca d’Italia Workshop on Interchange Fees, Yves Mersch, Member of the Executive Board of the ECB, said digital currencies are still too small to have an impact on retail payments and central banks.

Mersch reiterated what the ECB said two years ago in its Virtual Currency Schemes report, published in October 2012.

In the meantime digital currencies have gained quite a following, although they are still not even close to what could be described as ‘mainstream’. In any case they are gaining popularity and as a result regulators around the world are starting to take notice.

Last December the European Banking Authority (EBA) issued a warning on potential risks related to virtual currencies, focusing on fraud and theft.

For its part, the ECB has remained silent on the matter since its 2012 report.

Phenomenon that shouldn’t be ignored

However, this time around Mersch stressed that digital currencies should not be ignored despite their relatively small impact on the economy. Keep in mind that Mersch was talking about retail payments and interchange fees, hence the limited focus on other cryptocurrency-related issues.

“Many media commentators have been wondering what impact these currencies will have on retail payments and even on central banks. I agree that virtual currency schemes are an interesting phenomenon and should not be ignored or dismissed,” he said.

“The ECB was one of the first public authorities to see their potential and their risks and published a detailed analysis in 2012. Despite the overall rise in the value of bitcoin since the publication of the report and the media attention it is getting, our conclusions still seem to be valid, namely, that such currencies are not (at least yet) economically important.”

He went on to conclude that cryptocurrencies do not pose a serious risk to price stability or financial stability in Europe, but they do pose a risk for users, which is what European central banks and the EBA have been saying for months.

Interestingly, Mersch made a clear distinction between speculative investments in bitcoin and the use of bitcoin for payments.

“However, this user risk is more related to speculative investments and consumer protection, and not necessarily to payments. Nevertheless, we are closely following developments and keeping in touch with other authorities,” he said.

A risk for retail?

Mersch said novel and unconventional challenges are facing regulators, but he did not offer any thoughts on digital currency regulation. The fact that he clearly singled out payments as a safer niche for bitcoin is encouraging, especially given the tone of his address and the focus on retail.

Consumer protection remains an issue in many situations, but in theory it could be addressed by bitcoin payment processors and merchants to some extent, although many argue that nothing short of real regulation will solve the problem.

Protection offers and buyer recourse are important for merchants and consumers alike. Merchants aren’t exposed to financial risk if there is no protection in place, but they do stand to lose credibility or risk their reputation if something goes wrong.

At the same time, consumers cannot be expected to pay for big-ticket items using a payment method that effectively strips them of consumer protection. Both parties stand to gain from lower transaction fees: merchants can increase margins, while at the same time passing part of the savings down to consumers.

Sadly though, regulatory ambiguity and uncertainty are two sizeable hurdles that won’t be overcome anytime soon.

[MICRO]

Money2020 Conference Announces Winklevoss Brothers as Keynote Speakers
Pete Rizzo (@pete_rizzo_) | Published on March 25, 2014 at 14:46 GMT | Events, News

Money2020 2014, a five-day conference dedicated to innovations in money to be held this November, has announced Winklevoss Bitcoin Trust principles Cameron and Tyler Winklevoss as keynote speakers.

Running from 2nd-6th November, Money2020, which this year features the (Bit)coinWorld track, will provide the digital currency community with a platform to raise awareness about distributed payment protocols, showcase the ecosystem’s newest innovators and hold networking events.

Last year’s event featured more than 440 speakers from across the financial industry, including such notable names from the digital currency community as Fred Ehrsam, co-founder of Coinbase; angel investor Roger Ver; Ripple CEO Chris Larsen; BitPay CEO Tony Gallippi; and Tradehill CEO Jered Kenna.

Money2020 indicated that the Winklevoss brothers were selected for the speaking slot due to their demonstrated commitment to the future of distributed payment technologies and industry involvement.

Said Simran Rekhi Aggarwal, co-founder and president of Money2020:

“Cameron and Tyler are high-profile industry executives who have been thorough and thoughtful in their involvement with bitcoin. As stakeholders and visionaries in this space, we feel they offer a unique perspective to engage and inspire our large, diverse and senior audience.”

Sponsors for this year’s event include American Express, PayPal, BitPay and Google Wallet, among others.

Money2020 bolsters digital currency coverage

Aggarwal told CoinDesk that Money2020 will be expanding its coverage this year to focus more broadly on distributed payment protocols and digital currencies, not simply bitcoin.

Said Aggarwal:

“We believe they’re important new technologies that hold the potential for disruptive innovation in payments and financial services.”

The event exec went on to say that Money2020 would serve to “cross-pollinate” innovators in the digital currency space with like-minded individuals taking similar approaches to the mainstream evolution of money.

Added Aggarwal: “That’s one of the key benefits of being at Money2020, and something we feel the entire ecosystem of innovators in money need to do more.”

Winklevoss brothers take the stage

Given that the Winklevoss brothers are the largest single investors in bitcoin, they have become a staple presence at bitcoin events, taking prominent roles at Bitcoin 2013 and at this January’s New York bitcoin hearings

In addition to their industry expertise, Money2020 noted that the Winklevosses’ recent high-profile endeavors such as their bitcoin pricing index Winklevoss Index or Winkdex, and the yet-to-be-approved exchange-traded fund, Winklevoss Bitcoin Trust, bolstered their qualifications for the headlining position.

About Money2020

One of the largest financial conferences on the annual calendar, Money2020 expects to draw more than 6,000 attendees from 50 countries, including more than 500 industry-leading CEOs in 2014.

This year’s conference will be held at the Aria in Las Vegas. Discounted tickets are still available.

[MICRO]

Internal Revenue Service to Treat Digital Currencies as Property
Pete Rizzo (@pete_rizzo_) | Published on March 25, 2014 at 18:32 GMT | News, Regulation, US & Canada

The Internal Revenue Service (IRS) issued a new notice meant to clarify the tax treatment of digital currencies on 25th March.

The US tax body indicated that it plans to treat digital currencies like property, not currency, a change that means that:

Wages paid to employees in digital currencies are taxable and must be reported
Payments made to independent contractors must be reported via Form 1099
Profits and losses from the sale of digital currencies are subject to capital gains when used as investments.
In total, the IRS released answers to 16 frequently asked questions including how the fair market value of digital currency assets will be evaluated; whether miners are subject to business or self-employment taxes; and whether penalties would be imposed on taxpayers who did not abide by these rules prior to the release.

Said the IRS:

“In some environments, virtual currency operates like ‘real’ currency — i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance — but it does not have legal tender status in any jurisdiction.

The notice provides that virtual currency is treated as property for U.S. federal tax purposes. General tax principles that apply to property transactions apply to transactions using virtual currency.”

For more information read the release in full below.

WASHINGTON – The Internal Revenue Service today issued a notice providing answers to frequently asked questions (FAQs) on virtual currency, such as Bitcoin. These FAQs provide basic information on the U.S. federal tax implications of transactions in, or transactions that use, virtual currency.

In some environments, virtual currency operates like “real” currency — i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance — but it does not have legal tender status in any jurisdiction.

The notice provides that virtual currency is treated as property for U.S. federal tax purposes. General tax principles that apply to property transactions apply to transactions using virtual currency.

Among other things, this means that:

Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.

Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply. Normally, payers must issue Form 1099.

The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.

And here is a full Q&A:

SECTION 4. FREQUENTLY ASKED QUESTIONS

Q-1: How is virtual currency treated for federal tax purposes?
A-1: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.

Q-2: Is virtual currency treated as currency for purposes of determining whether a transaction results in foreign currency gain or loss under U.S. federal tax laws?
A-2: No. Under currently applicable law, virtual currency is not treated as currency that could generate foreign currency gain or loss for U.S. federal tax purposes.

Q-3: Must a taxpayer who receives virtual currency as payment for goods or services include in computing gross income the fair market value of the virtual currency?
A-3: Yes. A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received. See Publication 525, Taxable and Nontaxable Income, for more information on miscellaneous income from exchanges involving property or services.

Q-4: What is the basis of virtual currency received as payment for goods or services in Q&A-3?
A-4: The basis of virtual currency that a taxpayer receives as payment for goods or servicesin Q&A-3 is the fair market value of the virtual currency in U.S. dollars as of the date of receipt. See Publication 551, Basis of Assets, for more information on the computation of basis when property is received for goods or services.

Q-5: How is the fair market value of virtual currency determined?
A-5: For U.S. tax purposes, transactions using virtual currency must be reported in U.S. dollars. Therefore, taxpayers will be required to determine the fair market value of virtual currency in U.S. dollars as of the date of payment or receipt.

If a virtual currency is listed on an exchange and the exchange rate is established by market supply and demand, the fair market value of the virtual currency is determined by converting the virtual currency into U.S. dollars (or into another real currency which in turn can be converted into U.S. dollars) at the exchange rate, in a reasonable manner that is consistently applied.

Q-6: Does a taxpayer have gain or loss upon an exchange of virtual currency for other property?
A-6: Yes. If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable gain.

The taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of the virtual currency. See Publication 544, Sales and Other Dispositions of Assets, for information about the tax treatment of sales and exchanges, such as whether a loss is deductible.

Q-7: What type of gain or loss does a taxpayer realize on the sale or exchange of virtual currency?
A-7: The character of the gain or loss generally depends on whether the virtual currency is a capital asset in the hands of the taxpayer. A taxpayer generally realizes capital gain or loss on the sale or exchange of virtual currency that is a capital asset in the hands of the taxpayer. For example, stocks, bonds, and other investment property are generally capital assets.

A taxpayer generally realizes ordinary gain or loss on the sale or exchange of virtual currency that is not a capital asset in the hands of the taxpayer. Inventory and other property held mainly for sale to customers in a trade or business are examples of property that is not a capital asset. See Publication 544 for more information about capital assets and the character of gain or loss.

Q-8: Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities?

A-8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525, Taxable and Nontaxable Income, for more information on taxable income.

Q-9: Is an individual who “mines” virtual currency as a trade or business subject to self-employment tax on the income derived from those activities?

A-9: If a taxpayer’s “mining” of virtual currency constitutes a trade or business, and the “mining” activity is not undertaken by the taxpayer as an employee, the net earnings from self-employment (generally, gross income derived from carrying on a trade or business less allowable deductions) resulting from those activities constitute self-employment income and are subject to the self-employment tax. See Chapter 10 of Publication 334, Tax Guide for Small Business, for more information on self-employment tax and Publication 535, Business Expenses, for more information on determining whether expenses are from a business activity carried on to make a profit.

Q-10: Does virtual currency received by an independent contractor for performing services constitute self‑employment income?
A-10: Yes. Generally, self‑employment income includes all gross income derived by an individual from any trade or business carried on by the individual as other than an employee. Consequently, the fair market value of virtual currency received for services performed as an independent contractor, measured in U.S. dollars as of the date of receipt, constitutes self‑employment income and is subject to the self-employment tax. See FS-2007-18, April 2007, Business or Hobby? Answer Has Implications for Deductions, for information on determining whether an activity is a business or a hobby.

Q-11: Does virtual currency paid by an employer as remuneration for services constitute wages for employment tax purposes?

A-11: Yes. Generally, the medium in which remuneration for services is paid is immaterial to the determination of whether the remuneration constitutes wages for employment tax purposes. Consequently, the fair market value of virtual currency paid as wages is subject to federal income tax withholding, Federal Insurance Contributions Act (FICA) tax, and Federal Unemployment Tax Act (FUTA) tax and must be reported on Form W-2, Wage and Tax Statement. See Publication 15 (Circular E), Employer’s Tax Guide, for information on the withholding, depositing, reporting, and paying of employment taxes.

Q-12: Is a payment made using virtual currency subject to information reporting?
A-12: A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.

For example, a person who in the course of a trade or business makes a payment of fixed and determinable income using virtual currency with a value of $600 or more to a U.S. non-exempt recipient in a taxable year is required to report the payment to the IRS and to the payee. Examples of payments of fixed and determinable income include rent, salaries, wages, premiums, annuities, and compensation.

Q-13: Is a person who in the course of a trade or business makes a payment using virtual currency worth $600 or more to an independent contractor for performing services required to file an information return with the IRS?

A-13: Generally, a person who in the course of a trade or business makes a payment of $600 or more in a taxable year to an independent contractor for the performance of services is required to report that payment to the IRS and to the payee on Form 1099-MISC, Miscellaneous Income. Payments of virtual currency required to be reported on Form 1099-MISC should be reported using the fair market value of the virtual currency in U.S. dollars as of the date of payment.

The payment recipient may have income even if the recipient does not receive a Form 1099-MISC. See the Instructions to Form 1099-MISC and the General Instructions for Certain Information Returns for more information. For payments to non-U.S. persons, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.

Q-14: Are payments made using virtual currency subject to backup withholding?
A-14: Payments made using virtual currency are subject to backup withholding to the same extent as other payments made in property. Therefore, payors making reportable payments using virtual currency must solicit a taxpayer identification number (TIN) from the payee.

The payor must backup withhold from the payment if a TIN is not obtained prior to payment or if the payor receives notification from the IRS that backup withholding is required. See Publication 1281, Backup Withholding for Missing and Incorrect Name/TINs, for more information.

Q-15: Are there IRS information reporting requirements for a person who settles payments made in virtual currency on behalf of merchants that accept virtual currency from their customers?

A-15: Yes, if certain requirements are met. In general, a third party that contracts with a substantial number of unrelated merchants to settle payments between the merchants and their customers is a third party settlement organization (TPSO).

A TPSO is required to report payments made to a merchant on a Form 1099-K, Payment Card and Third Party Network Transactions, if, for the calendar year, both (1) the number of transactions settled for the merchant exceeds 200, and (2) the gross amount of payments made to the merchant exceeds $20,000.

When completing Boxes 1, 3, and 5a-1 on the Form 1099-K, transactions where the TPSO settles payments made with virtual currency are aggregated with transactions where the TPSO settles payments made with real currency to determine the total amounts to be reported in those boxes. When determining whether the transactions are reportable, the value of the virtual currency is the fair market value of the virtual currency in U.S. dollars on the date of payment.

See The Third Party Information Reporting Center, http://www.irs.gov/Tax-Professionals/Third-Party-Reporting-Information-Center, for more information on reporting transactions on Form 1099-K.

Q-16: Will taxpayers be subject to penalties for having treated a virtual currency transaction in a manner that is inconsistent with this notice prior to March 25, 2014?
A-16: Taxpayers may be subject to penalties for failure to comply with tax laws. For example, underpayments attributable to virtual currency transactions may be subject to penalties, such as accuracy-related penalties under section 6662.

In addition, failure to timely or correctly report virtual currency transactions when required to do so may be subject to information reporting penalties under section 6721 and 6722. However, penalty relief may be available to taxpayers and persons required to file an information return who are able to establish that the underpayment or failure to properly file information returns is due to reasonable cause.

[MICRO]

Tera Group Hopes to Offer First Bitcoin Swap
Nermin Hajdarbegovic | Published on March 25, 2014 at 16:41 GMT | Investors, News, Prices, Regulation, US & Canada

The world’s first bitcoin swap could be just days away, provided Tera Group Inc has its way.

The start-up derivatives exchange claims to have created the first bitcoin swap and hopes the new derivative will allow financial institutions to hedge the volatility of bitcoin.

Tera says it has already constructed the terms for a multi-million dollar swap between two US institutions which would hedge the value of bitcoin against the US dollar.

In layman’s terms, if betting on derivatives does not get your adrenaline pumping, betting on bitcoin volatility probably should.

Standard swap framework with bitcoin on top

Tera says the legal framework behind its bitcoin swap is more or less standard. Institutions can make transactions at a specified bitcoin exchange rate against any currency and hedge the exchange rate for a specified period of time. The initial transaction agreement is a 25-day affair.

However, it also points out that this type of transaction is not regulated, hence its availability will be privately arranged and over the counter. Tera is seeking permission from the Commodity Futures Trading Commission (CFTC) to offer a similar swap instrument on a regulated marketplace.

Said Tera President and co-founder Leonard T. Nuara:

“The infrastructure and regulatory protocols already exist in the conventional OTC swaps markets to support these hedging instruments. [...] Regulatory approval is crucial to the long-term growth of the market utilizing bitcoin.”

If Tera gets the green light, it plans to offer bitcoin swaps on TeraExchange, which is a CFTC regulated swap execution facility.

More questions than answers

The problem with Tera’s plans is that regulatory approval might not be forthcoming. For the time being, it is not clear whether the CFTC even has authority over digital currencies and fancy financial products built on top of them.

Tera says it has provided the CFTC with information about its swap framework and that it is actively seeking approval, but won’t make much of a difference if the CFTC concludes it has nothing to do with digital currencies. If, on the other hand, it decides to treat bitcoin and other digital currencies like commodities, Tera might get regulatory approval after all.

Tera CEO and co-founder Christian Martin argues bitcoin swaps could be an “inflection point” in the evolution of cryptocurrencies.

“There is incredible momentum and support behind this alternative global currency. But even with all this excitement it is critical that the market participants have tools at their disposal to hedge their price risk.”

In theory, a bitcoin swap would make a lot of sense, as it would allow reluctant investors to employ an effective hedge when dealing with bitcoin.

For example, merchants could protect their interests against a sudden drop in bitcoin value, allowing them to accept bitcoin payments and hold bitcoins without many of the risks associated with volatility.

A swap would allow them to take volatility out of the equation, while speculators could effectively buy the risk and reap the potential windfall, or take a hit of the price goes down.

[MICRO]

Andreessen at CoinSummit: Bitcoin Today is the Internet in 1994
Carrie Kirby (@carriekirby) | Published on March 25, 2014 at 20:21 GMT | Events, News

Marc Andreessen, Balaji Srinivasan, Kashmir Hill
Marc Andreessen helped start the Internet revolution when he co-wrote early web browser Mosaic and co-founded Netscape. Now he views bitcoin as the next technological revolution on the scale of the Internet. Andreessen Horowitz, the venture capital firm Andreessen runs with longtime collaborator Ben Horowitz, has invested about $50 million in Coinbase and other bitcoin companies, and Andreessen recently vowed to invest hundreds of millions more in the space.

Balaji S. Srinivasan is a general partner at Andreessen Horowitz and is a vocal bitcoin proponent. Srinivasan co-founded Counsyl, a genetic screening company.

Andreessen and Srinivasan kicked off CoinSummit San Francisco with a ‘fireside chat’, moderated by Forbes reporter Kashmir Hill.

Like the Internet in 1994, bitcoin today is seen by the mainstream as “weird and scary,” Marc Andreessen said in the opening session of CoinSummit San Francisco on Tuesday 25th March.

Like bitcoin, he said, the Internet “arrived as a fringe technology. It arrived with fringe politics and it arrived with fringe characters. [...] I don’t know how you get fringe technology without fringe characters and fringe politics.”

But, just as he saw it happen with the Internet, Andreessen now sees a crop of high-quality entrepreneurs stepping forward to prove bitcoin’s usefulness to the mainstream. Somewhere along that journey to the mainstream, he predicted, these “fringe characters” common to the bitcoin community will feel alienated and move on.

Andreessen’s investment plans

With that comparison in mind, Andreessen Horowitz is looking to invest in a whole ecosystem of digital currency technology.

Said Andreessen:

“In 1994, as a venture capital firm, it would have been a good idea to take the Internet seriously and it would have been a good idea to invest in a cross section of [Internet] companies [...] the venture firms that did do that did extremely well.”

Andreessen Horowitz is looking to fund two specific kinds of companies, Srinivasan said.

One is a company that would do for the Bitcoin protocol what Red Hat did for Linux, he said, professionalizing work on the open-source code. The other is a sort of Underwriters Laboratories for bitcoin, to verify the security and quality of bitcoin implementations.

Once these types of infrastructure companies are established, the opportunities for bitcoin to enable technological applications is almost limitless, Andreessen said.

He offered an example of an app that would allow drivers in San Francisco to find available garage spots and buy them from their mobile devices, maybe even through a real-time auction. Another idea would be to stop spam by imposing tiny fees on each email address sent, an application of bitcoin’s usefulness in micropayments.

Explained Andreessen:

“Twenty years ago, we were talking about this idea, and we just had no way to work out the payments.”

Bitcoin emerges from the shadows

After four years of obscurity and perceived ignobility, bitcoin is finally emerging as the game-changing technology it was all along, the pair said.

The technology community needed “four years of bashing on it in different ways” to prove that the code is reliable, in part because of the protocol’s possibly pseudonymous origin, Srinivasan said.

Bitcoin has finally moved beyond being associated with the Silk Road drug marketplace in every single article, an association that was “overblown” to begin with, Andreessen said.

“The exact same thing happened in the early ’90s with the Internet. It was just this horror show, for God’s sake, you would not want your teenager to go on this crazy Internet thing. By ’95, ’96, everybody went, ‘Oh, this is actually pretty cool’.”

Hill wrapped up the session by asking Andreessen and Srinivasan for a response to Berkshire-Hathaway chairman Warren Buffett’s famous dismissal of bitcoin as a “mirage”.

“The historical track record of old white men who don’t understand technology crapping on new technology is 100%,” Andreessen quipped, and received an appreciative chuckle from the bitcoin-friendly crowd.

Replied Srinivasan:

“Bitcoin has outperformed Berkshire-Hathaway by a lot in the last year.”

[MICRO]

Bitcoin Exchange Kraken Raises $5m in Latest Funding Round
Stan Higgins | Published on March 25, 2014 at 20:53 GMT | Exchanges, Investors, News

Payward, Inc., the owner of US-based digital currency exchange Kraken, announced on 25th March that it has raised $5m in new capital as part of a Series A fundraising round.

Kraken, first launched in September 2013, allows users to buy and sell bitcoin, namecoin, dogecoin and Ripple, among other digital currencies.

The round was led by Hummingbird Ventures, an early-phase venture capital firm that has invested in digital properties like Dubai-based price comparison platform Souqalmal.com and object-based software defined storage service provider Amplidata in recent months.

The funding will be used by Payward to strengthen Kraken’s position in the global digital currency market.

Conservative approach

Jesse Powell, CEO at Kraken, told CoinDesk that the company plans to deploy its new funding to meet key development and regulatory needs.

“We’re taking a very conservative approach to [regulation and compliance], and this funding allows us to continue to be conservative and to be compliant to the law, and we think this is just the best approach in the long term.”

The news comes as the US government issued new guidance on digital currencies. The Internal Revenue Service announced on 25th March that it would treat them like property, making them subject to capital gains tax treatment.

Given the increased burden of compliance requirements, Kraken is taking its approach to these matters seriously.

“We’re really excited, we’ve been putting the round together for a long time, the funding is going to go to development, regulatory stuff, getting all the licenses in the United States and around the world. A lot of it is going to go into legal.”

Pressure on exchanges

Earlier this week, Kraken announced that it had passed a verifiable proof of reserves audit. The test was carried out in order to bolster confidence in the exchange’s ability to meet customer balance demands.

During the interview, Powell went on to speculate that some exchanges may face greater scrutiny in the months ahead.

“This has been more of an issue lately with exchanges like Gox going down. We may see an increasingly greater heat on these unlicensed money transmitters and these exchanges that are a little more shady.”

In the wake of the collapse of Mt. Gox, exchanges have faced financial difficulties. China-based Vircurex froze withdrawals this week, in just the latest in a string of high-profile bitcoin exchange issues.

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Denmark Declares Bitcoin Trades are Tax-Free
Tom Sharkey | Published on March 25, 2014 at 22:28 GMT | Europe, News, Regulation

It seems like the United States is not the only country making important decisions about bitcoin in the middle of its tax season.

Shortly after the US Internal Revenue Service declared that they will treat digital currencies like property for tax purposes this afternoon, the Tax Board in Denmark has ruled that gains and losses from casual bitcoin trading are not subject to taxation.

Politiken reports that Denmark’s top tax authority met today to discuss digital currencies and how to approach their taxation, and the Tax Board concluded that any gains made from bitcoin trading are exempt from being taxed by the Danish government, and similarly any losses from trading are not deductible.

A long-awaited decision

The Danish government has been under pressure to decide the fate of digital currency taxation for months, according to Michael Popp-Madsen, a member of Denmark’s bitcoin community.

The increasing popularity of bitcoin and other digital currencies combined with uncertainty about their tax status in Denmark has brought a lot of attention on the Tax Board to decide one way or another whether bitcoin will be taxed.

Said Popp-Madsen:

“They have postponed this decision since December and were originally supposed to come to a conclusion in January. Today is the first time they have made a decision, and I think that’s a sign that the Tax Board was unsure how to approach bitcoin.”

Popp-Madsen says that he ultimately thinks the Tax Board made the best decision, and that they may have had a hard time trying to tax digital currencies anyway, given their cryptographic nature.

Bitcoin transactions considered “purely private”

Part of the reasoning behind the Tax Board’s decision to keep bitcoin gains and losses exempt from taxation is that because digital currencies don’t exist in a physical form, they can’t be considered “real” money to be taxed by the government.

Hanne Søgaard Hansen, the chairman of the Tax Board, explained the organisation’s decision:

“We see the outcome of bitcoin transactions as a result of something purely private. Therefore, any gains on bitcoin are tax-exempt, and losses are not deductible.”

The exception to this new ruling is for businesses whose primary focus is in digital currencies. Businesses who directly trade with bitcoin as their primary function must declare their winnings and losses to the government.

Community reaction

Denmark’s decision to make bitcoin winnings tax exempt (and losses non-deductible) strikes a contrast against the US’s decision to classify bitcoin as property for tax purposes.

Members of the bitcoin community quickly voiced their opinions on Reddit, comparing the decisions made today by the US and Danish governments:

Denmark Bitcoin tax free

Denmark Bitcoin tax free

As more countries around the world start to take notice of digital currencies, different regulatory approaches are being seen.

While governments may disagree about how much regulation is necessary, one government official in Japan recently called for an international effort in approaching bitcoin regulation.