BITCOIN NEWS EVRYDAY! From multiple sources.

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IRS Confirms Capital Asset Rules, but Are They Realistic for Small Transactions?
Danny Bradbury (@dannybradbury) | Published on April 1, 2014 at 06:17 BST | Analysis, Regulation, US & Canada

Does the IRS really want to you to track your capital gains on bitcoin every time you buy a sandwich or a sweater in the digital currency?

After our analysis of the Internal Revenue Service guidelines on bitcoin, released in March, some people expressed surprise.

They were amazed that the IRS could seriously be applying capital gains rules to something that the bitcoin community sees as a currency, and which in many cases uses as such.

“This can’t be good for bitcoin”, said one commenter privately to Coindesk. ” If it’s not a currency, then how are you supposed to use it like one?” he mused.

But as far as the IRS is concerned, it isn’t a currency. It’s property, pure and simple. And the laws for tax on property are already pretty clearly defined.

When dealing in currencies, you declare the foreign losses and gains if you exchange them for another currency. But when you’re dealing in property, then whenever you’re trading it for something else, you declare the capital gains taxes that you have incurred.

This can be a good thing for investors who are in it for the longer term. They will end up having to pay long-term capital gains tax when exchanging their bitcoins for fiat currency, as long as they have held those bitcoins for longer than a year and a day. If they have held them for shorter than that, then they will pay short-term capital gains tax, which is the same as the ordinary income tax rate.

We double checked this with several people, including Keith A. Aqui, who wrote the IRS Notice. ”When you exchange property for other property, then you have to declare, because it’s a capital asset,” he confirmed.

We also spoke to another IRS spokesperson with the authority to speak about these matters.

“You’re not a dealer, if you’re a typical person, whether you call yourself an investor or not, that is essentially what you’re going to be under the tax code,” said the staffer, who did not want to be named. “So if I have 10 bitcoins sitting around and I use them in a transaction and I realize a gain from the transaction compared to the original price, I will pay tax on that gain, as a capital gain.”

Richard Peterson, chair of Perkins Coie’s tax practice, also confirmed the interpretation, pointing to Q&A No 6 of the IRS Notice on the subject.

“It makes clear that using the bitcoin as a payment triggers taxable income. The type of income would depend upon how the bitcoin was being held by the person making the purchase,” he said.

“If that person was an investor, the gain would still be capital gain, the same as if they had cashed in the bitcoin and then spent the cash at the retailer.”

The only way around this is if an an exception applies to make it ordinary, such as classifying the bitcoin as inventory. But it would not be inventory in the hands of a consumer, he said.

This also has sticky connotations for firms wanting to pay bitcoins in wages or to buy services with it, confirmed another spokesperson for the IRS.

“There is a capital gains obligation there. It doesn’t matter if you’re holding them to pay someone’s wages or not,” he said. “Any non-dealer has a tax obligation, if there are gains.”

It’s already the law

Anyone questioning this further need only look to existing tax law, said Bryan Smith, a colleague of Peterson’s and a partner with the firm’s business practice. The IRS is simply applying it to virtual currency, he points out.

“Unless a specific exception applies, if you use any asset other than cash to make payments of any nature, you have taxable gain,” he said. “The notice doesn’t make this the law. It already is.”

In reality, though, it’s going to be extremely hard to police that law. “Most people want to be tax compliant, but at a certain point people will throw their hands in the air,” points out Tyson Cross, a tax attorney working in San Diego who specialises in advising people about bitcoin tax issues.

The concept of capital gains on tiny transactions is difficult to enforce, and enforcement is going down, not up. The IRS has released its latest statistics on the number of audits carried out. The overall audit rate in 2013 was 0.96%, which is the lowest since 2005.

Where it does audit people, it tends to go after big fish, with big transactions.

The highest percentage of people audited in 2013 with an income under $200,000 was the $0-$25,000 bracket. Of which 1% were nobbled.

Above $200,000, the rates keep rising, all the way up individuals with more than $10m in earnings on their tax returns for the year, where almost a quarter of people were audited.

Among this super-rich set, it will be presumably be looking for capital gains taxes on large property transactions (including large amounts of bitcoin).

The chances are that most bitcoiners using the digital currency (or property, depending on which government agency you’re talking to) for daily transactions aren’t going to be worrying too much about this in daily practice.

Nevertheless, if someone were to develop a mobile app with functionality built-in to track those capital gains taxes on bitcoin purchases, it might well appeal to a broad audience.

Would you use one?

Statements in this article should not be considered tax advice, which is best sought directly from a qualified professional.

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Shrem’s Case Postponed for Possible Plea Deal
Jon Southurst (@southtopia) | Published on April 1, 2014 at 04:56 BST | Crime, Law, News, Regulation, US & Canada

Prosecutors have requested a second postponement of bitcoin entrepreneur Charlie Shrem’s court case over alleged money-laundering, as the participants look to cut a plea deal, according to reports.

Assistant US Attorney Serrin Turner asked that the case be postponed to 28th April and confirmed that plea deal discussions were taking place, according to a 28th March filing in the Manhattan federal court.


Shrem, 24, faces charges of money laundering, with accusations he used BitInstant, the now-defunct exchange he founded, to actively facilitate bitcoin transactions to allow users to purchase illegal items on the Silk Road Marketplace, which itself was shut down by the Feds in October.

His co-defendant in the case is 52-year-old Florida native Robert M. Faiella, also known as ‘BTCKing’.

House arrest

Shrem has lived under house arrest at his parents’ house in New York City on a $1m bond since his very public arrest in January. He was stopped at John F. Kennedy airport on his return to the US after speaking at a conference in Amsterdam.

Questions have been raised about the nature and timing of that arrest, and whether it was a publicity stunt to intimidate bitcoin businesses just before investigatory hearings by the New York State Department of Financial Services (NYDFS) where Shrem was due to testify.

NYDFS Superintendent Benjamin Lawsky, who chaired the hearings, answered such questions by saying: “Let me be clear on this. Absolutely not true.”

In interviews, Shrem has expressed bewilderment at his treatment and maintained he had been cooperating with authorities by answering any questions openly and honestly, providing information he expected would help authorities draft sensible regulations for digital currency, but which was ultimately used against him instead.

Once the Vice Chairman of the Bitcoin Foundation and a New York City restaurateur, Shrem was forced to resign from his positions, but has attempted to stay active in the bitcoin community since his arrest, giving regular interviews and commentary on current issues such as the recent Mt. Gox debacle.

CoinDesk reached out to Shrem on the current matter earlier, but he replied he was unable to comment at this time.

[MICRO]

Are the IRS Capital Asset Rules Realistic for Small Transactions?
Danny Bradbury (@dannybradbury) | Published on April 1, 2014 at 06:17 BST | Analysis, Regulation, US & Canada

Does the IRS really want you to track your capital gains on bitcoin every time you buy a sandwich or a sweater in the digital currency?

After our analysis of the Internal Revenue Service guidelines on bitcoin, released in March, some people expressed surprise.

They were amazed that the IRS could seriously be applying capital gains rules to something that the bitcoin community sees as a currency, and which in many cases uses as such.

“This can’t be good for bitcoin”, said one commenter privately to Coindesk. “If it’s not a currency, then how are you supposed to use it like one?”

But as far as the IRS is concerned, it isn’t a currency – it’s property, pure and simple. And the laws for tax on property are already pretty clearly defined.

When dealing in currencies, you declare the foreign losses and gains if you exchange them for another currency. But when you’re dealing in property, then whenever you’re trading it for something else, you declare the capital gains taxes that you have incurred.

This can be a good thing for investors who are in it for the longer term. They will end up having to pay long-term capital gains tax when exchanging their bitcoins for fiat currency, as long as they have held those bitcoins for longer than a year and a day. If they have held them for shorter than that, then they will pay short-term capital gains tax, which is the same as the ordinary income tax rate.

We double checked this with several people, including Keith A. Aqui, who wrote the IRS Notice. ”When you exchange property for other property, then you have to declare, because it’s a capital asset,” he confirmed.

We also spoke to another IRS spokesperson with the authority to speak about these matters. Said the staffer, who did not want to be named:

“You’re not a dealer, if you’re a typical person, whether you call yourself an investor or not, that is essentially what you’re going to be under the tax code. So if I have 10 bitcoins sitting around and I use them in a transaction and I realize a gain from the transaction compared to the original price, I will pay tax on that gain, as a capital gain.”

Richard Peterson, chair of Perkins Coie’s tax practice, also confirmed the interpretation, pointing to Q&A No.6 of the IRS Notice on the subject.

“It makes clear that using the bitcoin as a payment triggers taxable income. The type of income would depend upon how the bitcoin was being held by the person making the purchase,” he said.

“If that person was an investor, the gain would still be capital gain, the same as if they had cashed in the bitcoin and then spent the cash at the retailer.”

The only way around this is if an an exception applies to make it ordinary, such as classifying the bitcoin as inventory. However, it would not be inventory in the hands of a consumer, he said.

This also has sticky connotations for firms wanting to pay bitcoins in wages or to buy services with it, confirmed another spokesperson for the IRS. He said:

“There is a capital gains obligation there. It doesn’t matter if you’re holding them to pay someone’s wages or not, any non-dealer has a tax obligation, if there are gains.”

It’s already the law

Anyone questioning this further need only look to existing tax law, said Bryan Smith, a colleague of Peterson’s and a partner with the firm’s business practice. The IRS is simply applying it to virtual currency, he points out.

Said Smith:

“Unless a specific exception applies, if you use any asset other than cash to make payments of any nature, you have taxable gain. The Notice doesn’t make this the law. It already is.”

In reality, though, it’s going to be extremely hard to police that law. “Most people want to be tax compliant, but at a certain point people will throw their hands in the air,” said Tyson Cross, a tax attorney working in San Diego who specialises in advising people about bitcoin tax issues.

The concept of capital gains on tiny transactions is difficult to enforce, and enforcement is going down, not up. The IRS has released its latest statistics on the number of audits carried out. The overall audit rate in 2013 was 0.96%, which is the lowest since 2005.

Where it does audit people, it tends to go after big fish, with big transactions.

The highest percentage of people audited in 2013 with an income under $200,000 was the $0-$25,000 bracket. Of which 1% were nobbled.

Above $200,000, the rates keep rising, all the way up individuals with more than $10m in earnings on their tax returns for the year, where almost a quarter of people were audited.

Among this super-rich set, it will be presumably be looking for capital gains taxes on large property transactions (including large amounts of bitcoin).

The chances are that most bitcoiners using the digital currency (or property, depending on which government agency you’re talking to) for daily transactions aren’t going to be worrying too much about this in daily practice.

Nevertheless, if someone were to develop a mobile app with functionality built-in to track those capital gains taxes on bitcoin purchases, it might well appeal to a broad audience.

Would you use one?

Statements in this article should not be considered tax advice, which is best sought directly from a qualified professional.

[MICRO]

Federal Bank VP: Bitcoin Threat Means Banks Must ‘Adapt or Die’
Daniel Cawrey (@danielcawrey) | Published on April 1, 2014 at 13:18 BST | Law, News, Regulation, US & Canada

On 31st March, the Federal Reserve Bank of St. Louis – one of the 12 Federal Reserve banks – held a talk on bitcoin from a banking and economic viewpoint.

The session, entitled ‘Bitcoin and Beyond: The Possibilities and the Pitfalls of Virtual Currencies’, was presented by economist David Andolfatto, who is Vice President at the bank and a professor at Simon Fraser University.

Andolfatto offered some interesting insight into bitcoin from his perspective. Many aspects of the talk were positive about the digital currency, some were more negative, and overall the session was quite balanced.

At points, Andolfatto even seemed fascinated with the concept of bitcoin:

“What do we have here? A stroke of genius, I think.”

Bitcoin through a banker’s eyes

The central bank's auditorium for the bitcoin session. Source: Federal Reserve of St. Louis
The bank’s auditorium for the bitcoin presentation. Source: Federal Reserve Bank of St. Louis
To begin with, the ‘Bitcoin and Beyond’ session took newcomers to the concept of digital currencies through some of the basics. Explained Andolfatto:

“Bitcoin is a set of rules written down as a computer program. The object here ultimately is to get the costs of transactions as low as sending an email.”

The economist talked about bitcoin’s open source nature, saying that, “it’s not something set in stone, it is a living object, that evolves over time”. Furthermore, as bitcoin can be improved over time, so can the dollar.

Said Andolfatto: ”That’s what we do at the Fed, we fix bugs, in a way.”

The dismal state of banking

In the sometimes candid talk, Andolfatto said it was no surprise that decentralized systems of money came along, because ”everybody hates banks, even I hate banks.”

The problem with banking is that it lacks innovation and many people don’t have access to financial institutions, he said.

As an example of a common criticism of the banking system, the economist mentioned the costs of sending $100 from St. Louis to Vancouver, Canada. A bank charges $10, or 10% for that transaction. Said Andolfatto:

“Even in well-developed economies, banks don’t always work as well together as we’d like.”

Email, on the other hand, is simple and costs very little, if anything at all. Andolfatto believes that money transmission over the Internet should be the same way.

Is bitcoin money?

Bitcoin is a technology that competes with money. It has two central goals, according to Andolfatto:

“The hope is to basically slay the inflation dragon. And to drive transactions costs down to zero. That’s the vision.”

However, he argued that bitcoin isn’t stable enough to be money.

“Is bitcoin a good money?” he asked. “Good money should maintain a stable purchasing power over a short period of time.”

At this point, Andolfatto presented a series of graphs: one showing the stability of the USD, which the Fed targets an annual 2% inflation rate, compared to other currencies:

Source: Federal Reserve Bank of St. Louis
Source: Federal Reserve Bank of St. Louis
Another graph illustrated the volatility of bitcoin in relation to the US dollar:

Source: Federal Reserve Bank of St. Louis
Source: Federal Reserve Bank of St. Louis
Over the short term, Andolfatto argued, bitcoin is too volatile to be considered money. The value tomorrow could be much different than today, which creates uncertainty in bitcoin as a purchasing tool.

Payments innovation

Andolfatto believes that while bitcoin is not stable enough as a form of money, it has other properties that will spark innovation in banking.

Reducing friction in payments is where cryptocurrencies will force banks to evolve, he said:

“I think that the Federal Reserve can compete with bitcoin as a currency. But not the payments portion.”

The Federal Reserve has been in existence for 100 years, and Andolfatto said that banks should not fear competition from bitcoin. However, they should see it as a sign that the times have changed:

“Well-run central banks should welcome the emerging competition.”

Regulating the ‘Hydra’

Not all central banks are well run, of course. Bitcoin regulations that will eventually be introduced in different countries all over the world will force many central bankers to reveal how confident they are in their money systems.

That’s because trying to control distributed systems like bitcoin will prove to be a very difficult task. The lack of a central bitcoin authority was likened by Andolfatto to the many-headed Lernaean Hydra in Greek mythology.

Source: Federal Reserve of St. Louis
Source: Federal Reserve of St. Louis
The legend told that, for each head of the Hydra that a warrior cut off, two more would grow back in its place. Said Andolfatto:

“How do you regulate something that has no central head? It’s like trying to slay the Hydra.”

Outlook

“What’s striking is the rapid price growth and the volatility” in bitcoin, said Andolfatto. From an economic perspective, he said it’s hard to determine whether bitcoin is really a good investment or not.

“We have very good economic theory that asset prices are hard to forecast. How do you forecast these things?”

Belief in bitcoin, according to Andolfatto, will come down to trust in the system and whether or not investors are confident they will be able to exchange bitcoin for other stores of value.

He said:

“Most assets are valued by how easily they can be liquidated. [Bitcoin investors] view it as a liquid instrument, that someone will accept it in exchange down the road.”

IRS Ruling

David Andolfatto during his presentation. Source: Federal Reserve of St. Louis
David Andolfatto during the presentation. Source: Federal Reserve of St. Louis
A recent IRS ruling indicated that bitcoin should be treated as property, and capital gains from buying and selling it must be accounted for in terms of tax reporting.

This regulatory guidance from the IRS is a way to make virtual currency adoption too expensive to use as real money. Said Andolfatto:

“Compliance means added record-keeping costs.”

Protocols that zip money digitally around the globe derived from bitcoin, such as Ripple Labs, may be one benefactor in terms of the IRS’s regulatory guidance:

“Ripple is a currency-agnostic protocol. Ripple is the winner. It processes anything. It’s quite possible this ruling benefits payment processors, rather than virtual currencies.”

‘Adapt or die’

Andolfatto is sure that, ultimately, new systems will upend the monetary hierarchy of today – eventually forcing substantial changes within the banking and payments industry.

The future may be unclear for virtual currencies, but they should, in the long run, bring change:

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CEO of Bitcoin Officially Bans China
Nermin Hajdarbegovic | Published on April 1, 2014 at 11:26 BST | Lifestyle

Following rumours of China’s plans to ban bank transfers to bitcoin exchanges, the CEO of Bitcoin™ has decided to ban China.

The decision was unanimously approved by Bitcoin’s shareholders, the Bitcoin Board of Directors, HaCkerz4BITZ and the Bitcoin Steering Board.

As of 8th April, bitcoin transfers to and from the Glorious People’s Republic of China will no longer by supported by the Bitcoin Network™. The decision will not affect the Republic of China (Taiwan) – unless it gets invaded in the meantime. It is unclear whether or not it will apply to Hong Kong, which is sort of part of China, but really it isn’t – you know?

Pre-empting the PBOC ruling

The decision was announced by Bitcoin™ CEO Warren Winkleberg via reddit on Tuesday morning. It was made following extensive discussions with members of the bitcoin community, Chinese exchanges and Dorian S Nakamoto himself.

Although there were a few dissenting voices, they were drowned out in a lengthy discussion thanks to Godwin’s Law – hence the decision was unanimous.

As a result, Bitcoin Inc.™ decided to pre-empt the imminent announcement of an official People’s Bank of China (PBOC) notice, which is expected to effectively prohibit banks from doing business with bitcoin exchanges in mainland China, which happen to be wholly-owned subsidiaries of Bitcoin Inc.™

Warren Winkleberg stated:

“In light of China’s imminent decision to clamp down on bitcoin exchanges, we had no choice but to completely ban China. We are aware that the decision will have a long-term impact on the proliferation of bitcoin and the price, but frankly we had no alternative.”

“We had to act in the best interest of our shareholders and Bitcoin™ investors worldwide,” he added.

Reactions, backlash, counter-backlash reactions

CEO of The Internet™ Kal-El Al-Gore told CoinDesk that while the decision is controversial, in the grand scheme of things it will help the bitcoin community and The Internet™ as a whole. He added:

“The Great Firewall of China has been hampering development and eating into our margins for more than a decade. Here at The Internet™ we know full well that restrictive policies advocated by certain circles in the Chinese government can have a devastating effect on growth and the adoption of new technologies. I should know, I invented The Internet™.”

“In addition, carbon dioxide emissions caused by the firewall are contributing to China’s air quality problems and they have become a public health issue. We all need to reduce our carbon footprint.”

CEO of Dogecoin™, Mr Shibah Inews said:

doge
Mr Inews modelling for Mensweardog
In addition, The Socialist Union of Bitcoin Miners warns that the decision will not do much to help the plight of Chinese bitcoin miners, who are often compelled to work in unregulated bitcoin mines under harsh conditions with no union protection.

The International Labour Organisation reports that more than a dozen canaries (bred for their ‘bitcoin’ yellow hue) died in Chinese bitcoin mines last year.

“Children are being forced to mine for blocks to add to the master block chain. However the difficulty is astronomical – these kids don’t even earn the transaction fees they’re mining for,” an investigator told bitcoin’s premier news source The Coinion last December.

Even Apple has called for a thorough investigation from the authorities.

“It is even worse than Foxconn. We did not believe it was humanly possible, but it is,” Apple CEO Tim Cook tweeted in response. “It is almost as inhumane as reading the iTunes terms of service.”

Price swings gone wild

The move is expected to cause even greater volatility on an already volatile bitcoin market. Many Chinese investors and exchanges are expected to start dumping their bitcoin holdings over the next week. This could trigger a ripple effect, causing many investors to unload their wallets before the price tanks.



Bit-o-coin price slide | Create Infographics
 

However, it is seen as an opportunity for speculators and even some governments. Ukraine is rumoured to be planning to acquire as much as $1bn worth of bitcoins, which it plans to use to pay off its $1.6bn gas bill and to irk Russia in the process.

Russian President Vladimir Putin is not impressed.

“I bought into bitcoin at $14 and sold at $800. I’m all doge now,” he said, adding: “In Putin’s Russia bitcoin exchanges you.”

Analysts expect the price to bottom out later this month, but before it does it will spend a couple of weeks in negative territory, literally.

It is not all bad news. Speculators can expect great returns if they pounce at the right moment. In related news, Mt. Gox is widely expected to miraculously “find” a few hundred thousand bitcoins once they are worth next to nothing.

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Ross Ulbricht’s Attorney Cites IRS Guidance in Motion to Dismiss Charges
Tanaya Macheel | Published on April 1, 2014 at 21:35 BST | Regulation, Silk Road News, US & Canada

An attorney representing alleged Silk Road mastermind Ross Ulbricht has asked that a federal judge dismiss four charges against his client as part of his ongoing New York indictment.

In a 64-page filing submitted to the District Court of the Southern District of New York this weekend, Ulbricht’s defense attorney, Joshua Dratel, argues that one count of money laundering, running a criminal enterprise, narcotics conspiracy and conspiracy to commit computer hacking be dismissed, stating that they are vague and do not cover his client’s alleged conduct.

Perhaps most interestingly, Dratel took issue with the money laundering charge, adopting the position that bitcoin does not qualify as a money instrument under the law, due in part to the wording used in formal FinCEN and IRS guidance on the issue.

Read the filing:

“Count Four, which alleges money laundering, is defective because it fails to allege sufficiently an essential element of the offense – that Mr. Ulbricht engaged in, or conspired to engage in, “financial transactions” – as Bitcoin, the alleged “payment system that served to facilitate the illegal commerce conducted on the site,” does not constitute either “funds” or a “monetary instrument, either of which is a necessary component of “financial transaction.”

Were Ulbricht and his attorney to win this motion, the report suggests he would still face criminal charges in Maryland relating to a separate federal indictment.

Recent IRS ruling plays key role

In his motion, Dratel made the case that money laundering is clearly limited to the use of certain money instruments, of which bitcoin is not named.

Further, he pointed to last week’s ruling by the Internal Revenue Service (IRS), which found the top tax body ruling that bitcoin should be treated as property and, not a currency, as added evidence that the charges listed against Ulbricht don’t fit his alleged crimes.

According to a Wired report, the charges listed by Dratel represent most of those filed against him in New York. The 30-year-old Ulbricht was indicted earlier this February, and eventually entered a plea of not guilty to the charges.

Silk Road case continues

The filing marks the latest chapter in the ongoing sage of Silk Road, which has spawned a variety of cases, including those by the site’s supposedly legitimate sellers.

Started in 2011 with the intent to become the anonymous Amazon, Silk Road quickly captured the public’s imagination as an illicit underground marketplace. Following the arrest of Ulbricht in connection with the case in October, the case itself quickly became the focal point of those who feared Silk Road would be used by the government to pass restrictive regulations on the new technology.

Despite these concerns, however, governments have increasingly warmed to the idea of digital currencies, with New York most recently opening applications for regulated bitcoin exchanges it expects to be in operation by the end of this year.

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Coinbase Denies Reports of Data Breach, Addresses Security Concerns
Pete Rizzo (@pete_rizzo_) | Published on April 1, 2014 at 20:27 BST | Coinbase, Companies, News, Technology

San Francisco-based bitcoin wallet provider Coinbase formally responded to community concerns relating to a design function of its “Request Money” service on 1st April amid reports that suggested this service could be misused by phishers and fraudsters.

The response was issued after a PasteBin entry surfaced suggesting that roughly 2,000 Coinbase customer names and emails were compromised as part of a “data breach” of the site, rumors that caused widespread speculation on reddit and social media.

Speaking to CoinDesk, the company clarified that though certain user personal information was posted online, the event was not a data breach, but rather an exploitation of a feature common to popular tech services. Malicious users, it noted, can use an email address to determine if someone has an account on other payment services such as PayPal, Square Cash and Venmo, a process called email enumeration.

Wrote the company in its official response:

“Though we believe this type of spam and user enumeration activity doesn’t represent a significant risk to Coinbase customers, we absolutely recognize that it can be an inconvenience and cause confusion.”

Coinbase’s “Request Money” feature allows users to request funds by entering an email address. If the recipient is a Coinbase user, the website generates a return email complete with the individual’s first and last name, provided they used their real name to register with the service.

Coinbase does not require its users to provide real names, and indicates in its privacy policy that it makes such information available.

However, at least one security official expressed concern that such information could be used by malicious parties to commit larger fraud.

Origin of the dispute

This functionality was brought to light to the bitcoin community by Australia-based security researcher Shubham Shah, who posted his frustrations on his blog. That post detailed a step by step process of how to conduct email enumeration using Coinbase, and lashed out against the company for not taking measures to address his concerns.

Coinbase reviewed the “design flaw” as submitted by Shah, but informed him that it would not be looking to implement a fix or issuing a reward for the finding. As such, he decided to publish the claim on his blog.

According to a timeline posted by Shah, the developer first contacted Coinbase on 28th February. The communication was part of a series of correspondences that ended on 31st March when Shah indicates Coinbase confirmed it had closed his bug report.

Speaking to CoinDesk, Shah indicated that as a security researcher, he felt the responsibility to bring the issue to the community so that it could be addressed. Further, he claimed no affiliation with the subsequent PasteBin posting of customer names and email addresses.

Coinbase’s response

Coinbase’s blog post explained that despite claims circulating online, the design feature was intentional, and meant to increase the usability of its service. Further, it stated that not implementing a limit on the number of emails that can be generated via its service serves a specific use case.

Said Coinbase:

“Allowing lists to be invoiced is core functionality of our service, and this functionality is intentionally built into our API.”

In a message dated 31st March, a Coinbase representative offered the company’s internal assessment to Shah via HackerOne, an online organisation of security experts that coordinates rewards for hackers who contribute to a safer Internet.

“We are not considering account existence bugs to be high enough severity for our scope. This behavior is mostly informational to an attacker and does not directly increase risk in any significant way. We may consider updating this behavior in the future but do not feel it warrants a reward.”

The representative elaborated that allowing lists to be invoiced was a key aspect of its service, and that it “would not be any more effective than more traditional phishing methods, which we spend a considerable amount of time preventing.”

Unlikely attacks

In its blog post, Coinbase indicated that only a very small amount of users – less than one-half of 1% – were named in the user data post today. In addition, it went on to describe why it believes such attacks are incredibly unlikely.

Said Coinbase: “This list of emails was likely sourced from other sites – probably Bitcoin related ones.”

The company said that malicious users would need to first acquire email addresses, which aren’t publicly available online, then send money to recipients who in turn would have to chose to send money to unknown users.

Shah indicated that the design flaw is important due to the nature of bitcoin’s design.

“You’re not dealing with a normal account. You’re dealing with an account that holds digital currency, which is irreversible. It’s a little more serious.”

Coinbase acknowledged this concern, though it said it believes it represents a low fraud risk, and is more threatening to users as a spam issue.

Coinbase indicated in its blog post that it is taking the issue of spamming seriously, noting that it employs rate limits on sensitive actions such as requesting money so that they aren’t widely abused.

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Seedcoin Gives BTC.SX 500 Bitcoins In Funding
Danny Bradbury (@dannybradbury) | Published on April 1, 2014 at 20:09 BST | Companies, News

Bitcoin derivatives trading site BTC.SX has been given 500 bitcoins in funding through seed funding outfit Seedcoin.

The site, which recently had to close temporarily after the demise of partner Mt Gox, is the sixth company to be funded in Seedcoin’s first round, called SF1, which was announced in December.

“Being funded by [SF1] puts us in a great position while we work to build the security, speed and transparency of our trading system,” Joe Lee, the founder of BTC.SX, told CoinDesk. “Being funded means we can proactively work with financial regulators to show them that bitcoin and its growing financial services industry is here to stay.”

BTC.SX’s funding represents a quarter of the entire SF1 fund, which hopes to fund seven companies in all.

Bitcoin payment processor Cryptopay received 100 bitcoins, and Hive, which makes a bitcoin wallet for OSX, received 150. CoinSimple, which allows merchants to receive payments via several different bitcoin payment processors, was given 200 bitcoins, as was zSim, a company still in stealth mode that is preparing some kind of SIM-based wallet.

Mexican bitcoin exchange MexBT was the recipient of the second-largest bitcoin funding package under SF1, receiving 250 bitcoins.

Seedcoin is also negotiating with the last of the seven companies that it chose for the SF1 round: GoCoin. This company provides payment processing services not just for bitcoin, but for Litecoin, too.

GoCoin, which recently received $1.5m in funding from a separate round led by Bitcoin Shop, also received $550,000 last November from a group of investors including BitAngels.

The deal with GoCoin is not yet closed, emphasizes Eddy Travia, co-founder of Seedcoin. Once that funding is complete, it won’t entirely use up all of the bitcoins in SF1. Some will be held back to meet further funding demands for those companies.

SF1 is funded through purchases of ‘units’ via Havelock Investments, an originally Canadian-owned company which is now located in Panama.

89% of the funds collected via Havelock will go into SF1 startups. Seedcoin collects an 11% management fee, and also pays a 5% listing fee, Travia said.

“Bitcoin is still in its infancy, and if you look at the products out there, we haven't even got the exchange infrastructure that we need.”

This latest funding shows the volatile nature of bitcoins. Had BTC.SX secured the 500 bitcoins in December, when the fund was launched, it would have collected the equivalent of $437,500, according to CoinDesk’s Bitcoin Price Index. At today’s price, they’re worth $241,000.

But that assumes that BTC.SX is going to cash out the bitcoins entirely, which seems unlikely, given that it’s a bitcoin-based derivatives house.

“The terms had been agreed only in BTC, not in USD so there is no change regarding our conditions and regarding BTC.SX,” said Travia. “Since it is a bitcoin only business they will most probably keep this in bitcoin as long as they can.”

Lee said that BTC.SX works to remain well-hedged against foreign exchange movements in the market. The risk will be hedged within its internal accounts and managed separately from client funds, he added.

BTC.SX, which reopened for trading on March 12, has processed around $44m in bitcoin-based trades, it said this week. The firm, started less than a year ago by Joe Lee, now has offices in Singapore, London, and New York.

Lee was a one-person operation when he started. Even though the company has grown quickly, there is still a lot to do, he said, arguing that it was difficult even to serve futures and options markets because the lack of an established infrastructure for trading.

“Bitcoin is still in its infancy, and if you look at the products out there, we haven’t even got the exchange infrastructure that we need,” he said.

“The announcement that New York is accepting applications is very exciting for us. That will bring legitimacy, and a lot more trading volume. That will bring us great exchange products. It’s a win-win situation.”

[MICRO]

Why Goldman Sachs Got it Wrong on Bitcoin
Ariel Deschapell | Published on April 1, 2014 at 17:18 BST | Analysis, Bitcoin protocol, News

“Bitcoin likely can’t work as a currency, but some sense that the ledger-based technology that underlies it could hold promise,” concludes a Goldman Sachs report titled “Top of Mind”.

Bitcoin has attracted major league attention in the finance world, and most seem to share the views expressed in the report. While increased research and interest from Wall Street is good for bitcoin overall, the report misses the mark with its conclusion and underscores several systematically flawed views of the digital currency and its future role in finance.

While credit should be given to Goldman Sachs for taking a more in-depth look at cryptocurrencies, its report showcases inaccurate commentary of bitcoin’s current and future hurdles, often reflecting common argumentative fallacies that have been rampant amongst analysts and pundits alike.

One-sided view

Bitcoin lies at the intersection of technology and economics, and the fallacious arguments against it span both these areas. This is really no surprise, as most economists and financial analyst don’t have extensive technological knowledge, and are prone to making errors in reasoning because of this.

Yet the technological significance of the Bitcoin protocol – in particular, its ability to transmit ownership between individuals without a third party – is hard for even the harshest critics to downplay.

Similarly, the accompanying high-speed and ultra-cheap transactions of this system are real achievements with measurable benefits.

To be fair, the GS report does conclude the block chain ledger system that underlies bitcoin indeed has real promise, not just in monetary transactions but in countless other fields. However, this is where most of the praise stops.

Wrote Dominic Wilson and Jose Usrua, two of the report’s authors:

“Bitcoin currently shows more promise in terms of its payments technology than as a stable store of value.”

They have a point, given the current state of bitcoin. While volatility may be rampant, transaction fees for merchants are much lower, and money movement is much cheaper and faster.

One could argue this makes it likely that bitcoin is destined take on a role more like that of Paypal, than to replace any entrenched currency. In fact, the report even goes on to illustrate the pure potential of the efficiency of these transactional advantages by estimating that the global economy could save more than $210bn annually if bitcoin became the default means of payment and remittances.

Problem solved

Yet despite this staggering number, in regard to bitcoin’s potential as a store of value, Jeffrey Currie, head of commodities research at Goldman Sachs, remarks:

“The replacement of an old commodity with a new commodity typically occurred precisely because the new commodity solved an economic problem that the old commodity could not. For example, coal replaced wood when fuel was needed for steam engines. So the question is: is there an economic problem with gold as a store of value that bitcoin solves? The short answer is no.”

Wood did not fail in itself as a store of energy, coal was simply much more efficient and suitable for growing and changing industrial demands. Similarly bitcoin – as we can clearly see from the Goldman Sachs’ own report – is vastly more efficient, and able to meet the demands of a global economy in a way that a patchwork of national fiat currencies cannot, let alone chunks of gold.

The latter two require trust in third parties – including national governments – as well as clunky traditional financial infrastructure that takes days to transfer funds between owners.

To borrow Curries’ analogy, if the transition from wood to coal is what allowed the industrial revolution to really take off, then the transition from national currencies to cryptocurrency is what will allow an explosion of global trade and development with little precedent.

Highs and lows

Yet detractors would rightly point out that there is still the lingering problem of volatility. A currency that suffers from frequent swings in value on a regular basis can’t, and indeed shouldn’t be adopted by the mass market as a means to move value around.

The average consumer can’t afford to gamble whether they will be able to afford basic necessities tomorrow on the value of a fluctuating currency.

This is the insurmountable problem with bitcoin cited by many economists and financial analysts, and is one of the reasons another of the report’s authors, Eric Posner, remarks:

“Twenty years from now, use of the bitcoin – or other similar, perhaps improved networks – could very well be part of the process where you send money from one place to another, but an unobservable part of the process. In other words, firms that transfer money may find it in their interest to use this technology to transfer money, but it is not going to look that different to ordinary consumers. I think that is the most likely way that this plays out.”

For Posner and many others, the solution is as simple as stripping the ‘technology’ that allows bitcoin to be so frictionless and implementing it in the current financial infrastructure. UBS has recently made similar statements as well.

What they fail to grasp, however, is that Bitcoin the protocol and bitcoin the currency are inseparable. Bitcoins are units that exist only in the block chain, and aren’t tied down to any existing financial infrastructure. It is because bitcoin is separate from the traditional ways of moving money that it is so frictionless.

Cryptocurrencies aren’t going to simply improve the current financial system, they threaten to uproot it completely.

Adoption is key

The Bitcoin protocol can’t function without its own independent unit or share, this is why you can’t use the same technology to move fiat around, and also why volatility isn’t a long term problem.

Merchants are already flocking to bitcoin in exponential fashion due to its low 1% transaction costs. The savings are a no brainer. Meanwhile consumers are adopting it for everything from lowering travel expenses by eliminating the need for expensive and cumbersome currency exchanges, to greater economic and financial freedom.

While the trend is clear, “inevitability is not a strategy” points out Adam Hanft in a recent CoinDesk article, and there are things that can be done to further spur consumer adoption of bitcoin.

As the transactional usage of bitcoin continues to increase, however, taking advantage of the payment system side that Goldman Sachs has identified, the price will undoubtedly continue to stabilize. As this process continues, merchants will feel comfortable keeping some bitcoin instead of converting it immediately to fiat.

This reddit post illustrates how one business is already doing this, and paying its first invoice with bitcoin too. Once this starts happening en masse, and bitcoin begins flowing steadily around the global economy without touching exchanges, the digital currency will truly start to become a stable and independent store of value.

That’s when things will start getting interesting. When this tipping point is reached, there is no reason bitcoin shouldn’t be considered a fully fledged currency – one that is far more efficient and attractive than current fiat monies to boot.

Borrowing from bitcoin

Now can a government theoretically create its own currency using the open-source code of bitcoin? In other words, ‘adapt’ the technology of bitcoin as the authors of the Goldman Sachs report expect is likely? Of course, but then just like any other altcoin it would have to compete in the marketplace.

In fact Eric Posner stipulated that:

“Probably the most important reason why [bitcoin] would not be a good substitute is that we actually do want the government to control the money supply.”

This, of course, is fundamental to the closed nature and centralized decision making of central banks like the Federal Reserve, and the constant annual devaluation of currencies to ‘stimulate’ the economy and endlessly fund expanding government debt.

What Posner doesn’t seem to grasp is that these ‘selling points’, if you can call them that, are irrelevant to the average individual who just wants to save costs and move money around more efficiently. Individuals want a currency for its ability to stimulate trade and store wealth, not so central authorities can test out their monetary theories on an economy.

Maintaining a monopoly

Even if this wasn’t the case, the very argument that annual inflation can stimulate the economy is nonsense. And when the conversion and exchange costs are removed from the Goldman Sachs estimates, global savings from bitcoin increase from $210bn to $326bn annually. If that isn’t an economic stimulus, then what is?

A new coin in the fiercely open and competitive cryptocurrency market based on the centralized and inflationary design of current national currencies would, simply put, be slaughtered. It would lose every time to decentralized coins with a stable and eventually static money supply when it comes to consumer choice.

With a ready and superior alternative like bitcoin available, assuming it can sustain a stable value and widespread merchant acceptance, in the long term there is ultimately no reason to keep using fiat currencies.

The monetary policies that have been all the rage in academia for decades cannot be implemented without a total monopoly of money by the governments. Can governments outlaw cryptocurrency to try and maintain its monopoly on the money supply, and thus control over monetary policy? Not likely.

That nonetheless brings us to an important question. If the only thing keeping fiat currency and monetary policy functioning is forceful use, then which is the real ponzi scheme here again?

Ariel Deschapell is a freelance opinion and news writer for CoinDesk: his opinions do not necessarily reflect those of CoinDesk.

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ZipZap CEO: Argentina’s Volatility Makes Bitcoin Look Stable
Jon Southurst (@southtopia) | Published on April 1, 2014 at 16:47 BST | Analysis, Companies, Investors, News, Regulation

CoinDesk spoke to Alan Safahi, CEO of cash-to-bitcoins service ZipZap, about its big entry into the Latin American market, bitcoin as a ‘leapfrog technology’ in the world’s more volatile economies, and whether the company’s recent issues with payment processor PayPoint would have any impact in future.

Safahi

Alan Safahi has just come back from San Francisco’s CoinSummit where he says he spent far too much time fending off questions about whether his company would continue operations, after recent media articles.

“Rumors of our death were exaggerated,” he laughs, paraphrasing Mark Twain. “I was surprised at the power of the press.”

On the contrary, ZipZap is looking to expand in many new areas, while maintaining existing ones. Last month’s issue was simply one of a payment processor who expected a slow trickle of bitcoin-related business, but instead got a tsunami – too much of a good thing, if you will.

ZipZap is still working with PayPoint to address the processor’s concerns about bitcoin’s exact legal status in the UK, while at the same time diversifying its options both commercially and geographically.

Into Brazil

ZipZap already operates in five countries, and has just quietly slipped into a sixth and major one: Brazil. Having run first a closed, and then open, beta there for a few weeks, the service went live last week, with a Portuguese language site inviting locals to try it out.

The company has also worked as a payment option supporting exchange partners in the country for about two years, including the now-defunct BitInstant.

All without doing much marketing to promote it – yet.

ZipZap decided to move out of the background and promote its services under its own name, doing its own KYC (know your customer) procedures and allowing consumers to buy bitcoin directly. Exchanges often just aren’t in the business of new customer acquisition, Safahi indicates.

“We talked to exchanges and a lot of them really didn’t want to go after Latin America,” he said. “Everybody’s focused on Europe and Asia.”

“We have a very aggressive plan to educate and acquire new customers. We thought Brazil would be a good market for that, it’s a huge powerhouse in Latin America,” he added.

Commercial street in São Paulo
Commercial street in São Paulo
“Brazil has a bitcoin-friendly environment, with banking and so forth,” Safahi continued. “And we think there’s a lot of good potential use cases with remittances for Latin America that Brazil could help us get into.”

As is often the case with bitcoin, much of the promise lies in weaknesses with current financial and economic structures: instability, poverty, and lack of access to banking services – including credit cards, even for large sections of the middle class.

“I see a lot more potential in Latin America,” he said. “Eighty-five per cent in some countries are unbanked. In these unbanked economies, people will just jump over the existing payment options, like Visa and MasterCard, and just go to the next generation: digital currency.”

Said Safahi:

“It’s just like in Kenya and other places where they don’t have landline phones. But they have a lot of mobile phones; it’s easier for them to just leapfrog one technology, go to the next one. So I think that’s what’s going to happen in Latin America.”

What volatility?

There’s no point talking about the risks of bitcoin’s volatility to the people of Latin America, as most of them have experienced far worse with their own national currencies.

“We see a lot of pent-up demand for bitcoin in Argentina.” said Safahi. “I was there a couple of months ago – people in the streets come up to you and try to convert your dollars into bitcoin. They say ‘cambio, cambio’; they know how to do currency conversion with bitcoin.”

“Taxi drivers there know about bitcoin,” he added. “I’ve never seen a country where people are so in tune with financial services as they are in Argentina.”

Then there are countries like Venezuela and Nicaragua, with their closed economies and strict financial controls that do nothing to encourage real commerce or small businesses.

“Those are the markets where bitcoin volatility actually looks really good!” said Safahi. ”At the conference, people kept asking ‘What can we do to manage the volatility of bitcoin?’ and I said, ‘just take bitcoin to markets where volatility doesn’t look bad’.”

He added:

“There are probably about 60-70% of countries in the world you could go to right now, where bitcoin actually looks stable.”

First-world problems

The problem with developed countries is that there often doesn’t seem to be any urgent need for a new payment system. The average consumer doesn’t understand the economic case for sound, non-government controlled money and local fiat currencies have been stable enough to provide a sense of security.

It’s difficult to get consumers in the developed world to switch to bitcoin, Safahi said, because they’re not particularly inconvenienced now. People may complain sometimes, but they’re generally satisfied with credit cards, both in-store and online.

Even merchants, who may gripe about chargeback fraud and processing fees, seem more comfortable in the current system and aren’t rushing en masse to adopt or encourage bitcoin use. Few offer discounts for digital currency, treating it almost as a favor to enthusiasts or a gimmick to attract a bit more business and attention.

Safahi said:

“Libertarians, die-hard fans, will flock to a store that accepts bitcoin. But that novelty wears off. So what are you going to do, two months later, when another competitor comes in?”

Remittances and micropayments

Safahi sees remittances and micropayments as being far more significant bitcoin use cases to consider than regular e-commerce in developed countries.

“While everyone here is into e-commerce and they get all excited about Overstock.com,” he said, “we’re looking at building railways that can get rid of Moneygram and Western Union.”

Explained Safahi:

“Globally there’s $540bn in remittances, and $70bn in fees. If we could get rid of that, and just do it through bitcoin, [...] then we’d add about $70bn in cash to those countries.”

Even though affordable remittances is one of the more obvious applications for digital currencies, and one that could help humanity, it too is riddled with regulatory pitfalls that have prevented several efforts so far, thanks to money laundering and terrorism financing concerns.

Then there is regular e-commerce on a smaller, yet international, scale. Bitcoin allows small amounts of money to be sent anywhere at almost no cost, which could be a boon for anyone in the developing world with something to sell – whether it’s a manufactured product, creative work or service that can be arranged or delivered online. Even a few more dollars here and there could lift a lot of people out of poverty.

ZipZap’s role

For payments like those above to work, especially remittances, there needs to be reliable on and off ramps at each end. ZipZap aims to be the facilitator for this, working not just with bitcoin, but also Ripple and other digital currencies.

“ZipZap is currently focused only on the on-ramp,” said Safahi, ”but in the next few months we have plans to offer cash-out options, in 90-plus countries.”

money

There’s also a need for education. Money-changers and taxi drivers on the streets of Buenos Aires might love bitcoin, but there’s still a lot of curious people who need to be guided gently into what sometimes looks like a daunting new system.

“When I got into the Internet in the early ’90s,” Safahi said, ”there was a saying that everyone needs a brother-in-law in the Internet business, someone you could go to, to ask all those kinds of beginner questions.”

“Now everyone needs a brother-in-law in the bitcoin business, he continued. “We want to be that person, to educate and teach them. So we’re not going after high-frequency traders, we’re going after noobs, first-time buyers, making it really easy for them to buy their first $15-$20 worth of bitcoin.”

Added Safahi:

“At the [CoinSummit] conference, Andreas Antonopoulos told me he bought his first bitcoins through ZipZap [...] Imagine how many more Andreases we could be cultivating if we were bringing more people into the ecosystem.”

Familiar systems

ZipZap has tapped into an existing payment option that’s very popular in Brazil known as Boleto Bancário or just Boleto – a payment ticket system allowing customers to print receipts and pay with cash at over 3000 convenient outlets like post offices, banks, even some stores. You can also transfer funds online from a bank account.

“Familiarity breeds trust, so if we tap into a system they’re already used to, it’s much easier to gain trust,” Safahi said.

“Brazil’s just our first stop in Latin America, in the next few weeks we’re adding about eight more countries including Peru, Chile, Colombia, Mexico, and others,” he went on. “Our goal is to really go deep and go heavy into Latin America.

“Our goal is to build a network and encourage people to use it for remittances. Even if we don’t go after the remittance market directly, we want other people to build solutions for it on top of our railway.”

Rest of the world

ZipZap is also active in other regions, and is talking to people in places like India and Southeast Asia, to name a few. Safahi says he doesn’t subscribe to the notion that you should find one physical location and focus on it. Bitcoin’s ever-changing regulatory environment makes it unwise for a company to put all its resources in one place.

“That’s what you have to do to build this kind of thing,” said Safahi. “The corridors have to be built on both sides and conditions can turn on a dime. You have to be ready to do business in multiple locations.”

Funding and locations

ZipZap is funded primarily by Blumberg Capital and TriplePoint Ventures. It’s undergoing a seed extension round to facilitate growth in these new markets – not just Brazil, but the UK and even the US. It then hopes to go for Series A funding after a few more months.

This means the new international focus isn’t going to divert ZipZap’s attention away from the UK. On the contrary, it plans to announce a deal with a new payment processor in the coming week and is maintaining its relationship with PayPoint.

On top of that, it’s already formed a new entity in nearby e-commerce and gambling haven, the Isle of Man.

“We’re not down,” said Safahi. “It’s going to take a lot more than that to get us out of the UK. And Isle of Man is really interesting. They’re very friendly with bitcoin.”

The company looked at other small jurisdictions, from Gibraltar to Singapore, but settled on the Isle of Man due to its “progressive” approach to technology and banking, as well as its proximity to the UK and Ireland.

“We’re doubling down on the UK. We’re not going anywhere.”

[MICRO]

Bitcoin User Files White House Petition to Amend Latest IRS Notice
Pete Rizzo (@pete_rizzo_) | Published on April 1, 2014 at 22:23 BST | News, Regulation, US & Canada

A petition to amend Internal Revenue Service (IRS) Notice 2014-2, the new guidance released on 25th March that announced digital currencies would be treated as property for tax purposes, has been filed on WhiteHouse.gov.

Managed by the presiding presidential administration, the official website of the White House allows for the filing of public petitions on all manner of subjects, from whether Election Day should be a designated holiday to whether Alaska should secede from the US and join Russia.

Petitions that cross a certain threshold of signatures then generally garner a White House response.

Filed on 28th March, the new petition argues that the IRS’s recent ruling on digital currencies is “overly burdensome,” and that by imposing capital gains on all transactions, the policy will hurt innovation in the sector. The positioning is not unlike the one voiced by major industry investors when defending against the prospect of new regulation earlier this year.

Reads the petition:

“This treatment of VC is overly burdensome as it will create onerous record-keeping issues and unnecessary costs that will stifle the development and advancement of this important technology.”

To date, the IRS ruling has garnered varying responses. Bitcoin Foundation director Jon Matonis has said that the classification affirms bitcoin’s status as digital gold, though others allege that the IRS notice will adversely affect many aspects of bitcoin ownership and use.

More details

Perhaps the biggest impact the ruling will have is on bitcoin’s role in payments, as each transaction will require capital gains reporting.

While even bitcoin’s detractors view its underlying technology as perhaps its biggest advantage, the guidance seems to discourage its use as a payment system, a fact that the petition acknowledges.

Reads the petition:

“Under this interpretation, when Bitcoin is spent, the owner will have the tenuous responsibility of calculating their capital gains or losses, as well as the Seller of the goods or services.”

Community response

The petition gained significant attention on Reddit this weekend, garnering nearly 200 comments from bitcoin users who greeted the initiative with varying amounts of enthusiasm. Many voiced uncertainty that the petition would be ultimately effective, while others took issue with what they considered the poor wording and limited argument of the petition itself. The petition was still circulating on social media as of 1st April.

Still, others like SecondMarket and Bitcoin Investment Trust CEO Barry Silbert suggest this ruling was the best possible outcome for the bitcoin community.

Speaking to CoinDesk, he acknowledged the ruling represents a short-term burden for the industry, but he says innovation will help bitcoin users abide by the new rules.

“It clearly creates a new record-keeping requirement which in the near term is going to be overly burdensome, but I’m highly confident that by tax time a year from now, there will be plenty of automated solutions that will eliminate any headaches of managing this process.”

To date, the petition has received only 403 signatures. Its goal is to obtain 100,000 signatures by 27th April.

IRS asks for comment

Though the filing is a noteworthy sign of community concern, it is unclear how useful it will be given that the US Treasury Department and the IRS have asked the public for comments on the measure. Though, the petition could theoretically come to the attention of the IRS should it reach a sizable amount signatures.

The IRS would not comment on whether such a petition would or would not impact its decision, but stated that it considers information from a variety of sources when soliciting feedback for notices that have yet to become final rules.

Bitcoin users who are interested in providing feedback to the IRS may be better served by sending feedback via standard mail or by email to the government tax body. All entries will be posted for public inspection in their entirety.

For more information on the recent IRS ruling and its implications for the industry, read our full report here.

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Central Bank of Colombia Says ‘Bitcoin is Not a Currency’
Pete Rizzo (@pete_rizzo_) | Published on April 1, 2014 at 22:57 BST | News, Regulation

On Tuesday, 1st April, Banco Central de Colombia, the central bank of the South American nation, issued new statements regarding bitcoin, confirming that the digital currency is not considered a currency or a means of legal tender in the country.

The news comes roughly one week after the Superintendencia Financiera de Colombia (SFC), the government body with jurisdiction over the Colombian financial system, issued a ruling that domestic banks would be barred from holding, investing in or brokering bitcoin transactions.

Said the central bank, according to reports:

“The bitcoin is not a currency in Colombia and, therefore, not a means of payment of unlimited legal tender with a discharge power. Then there is no obligation to receive it as a means of fulfilling the obligations.”

The central bank also reiterated the SFC’s 26th March finding that bitcoin does not meet the definition of a currency because it is not backed by a central bank.

Colombia’s bitcoin discussions continue

Colombia has been increasingly active on matters relating to digital currencies in recent weeks, following the 20th March rumors that the SFC would move to ban bitcoin transactions altogether.

This report later turned out to be exaggerated, as Colombia issued guidance similar to that originally posed by China and Mexico, barring its banks from interacting with the sector.

Speaking to CoinDesk, members of the local Colombian digital currency community were optimistic at the time that this represented a first step in relations between regulators and local enthusiasts.

Community reaction

Roman Parra, CEO and founder of Colombia-based bitcoin buying and selling service Bitcoin Suramérica, confirmed the statements were a continuation of past guidance. However, Parra found them particularly troubling given that they represent what he considers a lack of interest from the government in developing or building the local bitcoin ecosystem.

Still, he notes, the question of whether bitcoin is money in Colombia does have an impact on local business.

According to Parra, as in much of the world, it’s still unclear how bitcoin transactions completed in Colombia should be treated for tax purposes.

Explained Parra:

“We are trying to find out the best way to handle this legal topic. At the present time we are acting like a commerce company.”

Bitcoin in South America

Research from BitLegal suggests that only a few South American governments have spoken out about bitcoin and digital currencies. Its records show Colombia. Brazil and Argentina have all issued guidance to their local communities.

Further research from the US Law Library of Congress indicates Chile has also issued formal statements.

However, even countries that haven’t addressed digital currencies, such as Venezuela, have seen a recent rise in bitcoin enthusiasm, suggesting more countries in the region may need to follow suit.

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Judge Orders Mark Karpeles to Submit to Questioning in US
Jon Southurst (@southtopia) | Published on April 2, 2014 at 03:19 BST | Companies, Exchanges, Law, Mt. Gox, News

Mark Karpeles, the CEO of troubled Japan-based bitcoin exchange Mt. Gox, must travel to Dallas, Texas, this month to take part in his formal deposition, a form of sworn testimony that will lay the groundwork for his future defense.

Karpeles had previously suggested that the deposition take place in Taipei, Taiwan, though this motion was strongly opposed by lawyers representing US-based former exchange users.

Further, Karpeles will have compelling reason to make the trip, as the judge suggested that the journey will be necessary if he wants an extension of the company’s bankruptcy protection in the US.

A Reuters report today quoted US Bankruptcy Judge Stacey Jernigan as saying:

“If he avails himself of this court, my God, he is going to get himself over here.”

More details

Under Chapter 15 of US bankruptcy law, protection from creditors is not granted or extended automatically. However, Mt. Gox KK, the company’s Japanese entity was granted an initial stay by the courts earlier this March. The stay has thus far prevented lawsuits from threatening this part of the company’s assets and shielded it from fact-finding.

That stay was not granted to Mt. Gox Inc., its US entity, Tibanne KK or Mark Karpeles personally.

A hearing is scheduled for 20th May to decide whether Mt. Gox deserves to continue with such protection, and courts are likely to view the matter less favorably if they don’t have Mt. Gox management’s full cooperation.

Karpeles will have to appear at the offices of Baker & McKenzie, the firm representing Mt. Gox both in the US and Japan, in Dallas on 17th April, according to Jernigan’s order.

Mt. Gox’s Chapter 15 bankruptcy was filed in Dallas, though depositions are informal and generally take place outside of a court.

A reluctant witness

To date, Karpeles has shown a strong reluctance to appear personally in the US since his once-dominant bitcoin exchange imploded in February, though he did allegedly meet with lawyers in the US around the time of Mt. Gox’s initial bankruptcy filing.

Karpeles had offered to hold the deposition in Taiwan instead, suggesting US representatives unable to question him there could use a video link instead.

The bankruptcy hearings are separate to Mt. Gox’s other legal problems in the US, such as Illinois resident Gregory Greene’s class action suit. Mt. Gox also wants to delay any US action until after its bankruptcy proceedings in Japan are completed.

Further, these cases are joined by its as-yet-unresolved dispute with former partner Coinlab, which dates back to early last year.

Losing patience

There was a hint of frustration in Jernigan’s words, particularly when Baker & McKenzie attorney John Mitchell said Mt. Gox may replace Karpeles as its ‘foreign representative’ in US bankruptcy court. “He filed the case,” she replied.

Mt. Gox has been fulfilling its local legal obligations and doing most of its communicating in Japanese first recently, but its largest customer base by far was the US.

Karpeles, who was born in France and lives in Japan, speaks English as a second language and may be unsettled at the prospect of facing questioning from a US court, or even angry US customers in person. He is, however, probably also the only person with any idea of what truly happened to Mt. Gox’s finances.

According to previous reports from company employees, who were all on short-term contracts, no-one outside management had any access to the Gox’s records and attempts to ask Karpeles to prove the company’s reserves were rebuffed.

[MICRO]

Chinese Bitcoin Exchanges OKCoin, FXBTC Report New Deposit Freezes
Pete Rizzo (@pete_rizzo_) | Published on April 2, 2014 at 20:27 BST | Analysis, Asia, Exchanges, News, Prices, Regulation

Following on the heels of the news that China-based bitcoin exchange BTC38 would suspend fiat-to-digital currency trading, rival China-based exchanges OKCoin and FXBTC have received official notices from financial partners notifying them that certain accounts will be terminated.

The new announcements are the latest indication that China’s central bank, the People’s Bank of China (PBOC), may be following through on its decision to more actively enforce prior rulings related to how domestic financial service providers can interact with the bitcoin exchanges.

For example, while OKCoin was contacted by its third-party processor, FXBTC has been contacted by commercial banking providers.

China previously banned third-party payment services from dealing with bitcoin exchanges this past December. However, its domestic bitcoin exchanges had found a workaround for this issue by accepting payment into corporate accounts.

A new report from The Financial Times has suggested that the PBOC is now looking to close this loophole.

Notifications received

OKCoin revealed via its website that it had been contacted by one of its third-party payment processors, and that as a result, it will stop servicing deposits via prepaid card. Debit cards and yuan withdrawals, however, are not affected.

FXBTC’s situation at press time was perhaps more dire. It posted an emergency notification on its website that noted that it has received word from commercial banking partners who are looking to terminate certain accounts.

FXBTC indicated that it would stop debit card deposits as of 3rd April, and temporarily halt withdrawals after Sunday, 6th April. As of press time, however, it said its third-party processing channel – operated by Tencent’s TenPay – was still active.

Huobi reported that it had not received official notification that any of its accounts were affected.

Still no official notice

Together with the day’s earlier announcement from BTC38, the reports suggest that the PBOC may be pressuring the country’s commercial banks and payment companies to close bitcoin trading accounts.

Earlier reports had suggested that all accounts would need to be shut down by 15th April. However, the PBOC has yet to make an official announcement regarding any changes in policy.

This official notice may be unlikely, however, as BTC China CEO Bobby Lee has indicated that the PBOC is simply following a “stricter interpretation of the written rules” regarding bitcoin and digital currencies.

Community reaction and prices implications

Reaction to the news on reddit was still skeptical, with many indicating that the announcements don’t actually confirm that the PBOC will be looking to enforce the broad crackdown that has been suggested.

As of press time, the price of bitcoin on the CoinDesk USD Bitcoin Price Index (BPI) was down 8.41% on the news, having fallen $40 from the day’s opening total of $478.

Screen Shot 2014-04-02 at 2.33.34 PM

Prices in China were affected similarly, according to the CoinDesk CNY BPI, which at press time was down 7.25% from the day’s open of ¥2,861 at ¥2,653.74.

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Congressional Hearing Explores Costs, Benefits Of Small Business Bitcoin Use
Stan Higgins | Published on April 2, 2014 at 22:32 BST | Analysis, News, Regulation, US & Canada

The US House of Representatives committee on small business held a hearing on 2nd April to discuss the growing use of bitcoin by the country’s small business owners (SMBs), and the pros and cons that using this technology as a payment option offers the demographic.

Entitled “Bitcoin: Examining the Benefits and Risks for Small Business”, a panel of experts spoke about the benefits and costs of the use of bitcoin by SMBs while also touching on hot topics like Silk Road and the recent IRS decision on the tax treatment of digital currencies.

Committee Chairman Sam Graves noted in his opening remarks that a great deal of uncertainty remains for small businesses thinking about accepting bitcoin as a form of payment, but that the hearing was meant to increase information about the topic.

Explained Graves:

“We hope that by providing information about bitcoin, small businesses will be in a better position to know whether adopting bitcoin as a payment system might be a way for small businesses to gain more customers. This hearing will also inform [congress] Members as we consider implications of policies affecting the use of virtual currency.”

In addition, he cited the collapse of Japan-based bitcoin exchange Mt. Gox and the prevalence of digital black markets which accept bitcoin as barriers for widespread adoption.

Overall, Graves struck a cautious tone for the hearing that was echoed by its panel of experts.

Bitcoin’s benefits

Jerry Brito, a senior research fellow at the Mercatus Center at George Mason University, suggested that the use of bitcoins can help SMBs avoid certain types of payment fraud that can result in significant repercussions, including the loss of access to card networks. Further, he said that businesses can tap into potential new markets simply because they can accept transactions from regions that are not included in current global payment networks.

Still, Brito noted that volatility remains a key barrier to adoption, but that he believes the technical aspects of bitcoin do not lend themselves to the currency’s well-known price swings.

Said Brito:

“There is nothing inherent in bitcoin’s design that makes it naturally volatile. Its volatility is likely attributable to the fact that it is a new currency, still in the process of discovering its stable price. Additionally, as a nascent currency, it is very thinly traded and as a result a single large-enough trade can affect the exchange price substantially.”

Bitcoin’s risks

Capital markets and risk management expert Mark T. Williams of Boston University’s Finance Department pointed out that bitcoin’s position as a payment system – as well as its price – is determined largely by current users.

Should these parties decide to move away accepting virtual currency, “bitcoin [would] become worthless,” Williams said.

Williams also said that, compared to other risky investments worldwide, bitcoin poses a much bigger threat to SMBs who lack the capital or infrastructure to withstand potential losses.

“It could be argued that small businesses that blindly accept bitcoin are not actually in commerce but are in the high-risk speculative trading business.”

Williams, known for his often inflammatory critiques of bitcoin, went on to say that bitcoin is perhaps better used by Wall Street trading firms that have experienced staffs that can handle the associated risk.

IRS ruling

Later in the hearing, both Williams and Brito voiced support for the IRS decision to designate virtual currencies as a type of property for tax treatment.

Brito noted that the IRS looked at the characteristics of bitcoin and judged it as more of a commodity compared to a currency. Looking ahead, he suggested that Congress and federal regulators could create a special tax category for virtual currencies that takes into consideration the extraordinary aspects of bitcoin.

Adam White, director of business development and sales at Coinbase, and L. Michael Couvillion, associate professor of economics at Plymouth State University’s College of Business Administration, also addressed the committee.

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Bank of Montreal Open to Rekindling Partnerships with Bitcoin Businesses
Pete Rizzo (@pete_rizzo_) | Published on April 2, 2014 at 21:49 BST | News

The Bank of Montreal, one of Canada’s “Big Five” banks and the fourth-largest in the country, issued new statements on 1st April suggesting that it may be open to working with bitcoin businesses again, provided it receives regulatory clarity from the nation’s lawmakers.

The comments were made by CEO Bill Downe as part of an interview at Bank of Montreal’s annual general meeting in Toronto this week.

Speaking to his company, Downe said:

“If you wanted a Swiss franc transaction or a Japanese yen transaction or a U.S. dollar transaction, we can do that for you. If bitcoin [can be] a reliable medium of exchange, then at that point in the future, we would be able to [conduct business] with bitcoin.”

The comments are particularly noteworthy, however, given that Bank of Montreal abruptly cut ties with Vancouver-based bitcoin exchange Cointrader earlier this February.

This decision, according to Cointrader, was part of a larger move by Bank of Montreal to end relations with all of the bitcoin businesses it served. At the time, Bank of Montreal did not comment publicly as to whether it had plans to freeze all of its bitcoin customer accounts.

Past bitcoin relationships

While the news has been positioned as if Bank of Montreal is looking to perhaps enter the bitcoin market, talks with major Canadian bitcoin businesses reveal it already has a history of working in the sector, one that changed earlier this year amid increasingly harsh government rhetoric.

A spokesperson for Toronto-based bitcoin exchange Vault of Satoshi told CoinDesk that it is no longer working with Bank of Montreal, though it said the company was “nothing short of fantastic” while they were in business together.

Said the representative:

“While we were working with the Bank of Montreal, they changed their stance on Bitcoin related-business recently and decided to halt their operations in that field until there is further regulation; not much unlike our decision to temporarily withdraw our US operations.”

A representative from Cointrader indicated that the recent statements from Bank of Montreal’s CEO were consistent with responses it received from the banking provider.

“They wanted to wait for clarification on regulation. But, the problem is, how long does that take? It could take years.”

He added that he believes Bank of Montreal is no longer working with bitcoin businesses, but that at one point, it was the go-to bank for such services.

Regulation in Canada

Notably, the news follows a report last week from The Ottawa Citizen, which stated that the latest version of Canada’s 2014 Federal Budget Implementation Act included new directives regarding digital currencies.

The budget act, if passed would require “dealers of virtual currencies, such as Bitcoin, to report suspicious transactions, or those over $10,000, to a government watchdog”.

Canada has been rumoured to be working on regulating digital currencies, however, Finance Minister Jim Flaherty, the official who was perhaps most active publicly on this front, recently resigned on 18th March.

Promising signs

Despite the tough talk on the regulatory front, Canada’s digital currency community has seen some encouraging signs recently that may signal less aggressive regulation may be forthcoming.

For example, on 26th March, Vault of Satoshi received its full money services license.

Further, the local industry is showing it has been able to innovate even in the face of challenges.

Vault of Satoshi announced its coin-to-coin trading system on 2nd April, which allows users to trade altcoins directly without first converting to LTC or BTC, while PocketPOS launched a new merchant-friendly point-of-sale tool meant to increase merchant adoption of bitcoin.

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Online Payment Provider PayStand Exits Beta, Announces Bitcoin Support
Pete Rizzo (@pete_rizzo_) | Published on April 2, 2014 at 17:25 BST | News, Startups, US & Canada

California-based online payment processor PayStand has launched out of private beta to provide US-based websites and mobile applications another way to accept payments such e-checks, credit cards and bitcoin.

With the announcement, PayStand also revealed $1m in new investment as part of its initial seed-funding round.

Founded in 2009, PayStand aims to be a multi-payment gateway that eliminates merchant transaction fees, in part by supporting digital currency acceptance.

Said PayStand in its official announcement:

“PayStand is the first and only payments service to easily allow bitcoin and other digital [currencies] as well as more traditional payments all at the same time and eliminates merchant transaction fees with a unique ‘payments-as-a-service’ model.”

The Santa Cruz startup boasts an easy setup process and flexible commitments for merchants who want to test the waters with something new. The company notes its service “does not require any extra hosting accounts, payment processors, merchant accounts, programming [or] order management software”.

Notably, the news comes as more major payments tech startups are embracing bitcoin.

Within the last two weeks, web and mobile payments provider Stripe and mobile point-of-sale (mPOS) industry leader Square have both revealed new bitcoin initiatives.

Digital currency roots

Jeremy Almond, PayStand’s CEO, has indicated that the idea for his company grew out of his own investing and experiments with digital currencies.

However, although he was enthusiastic about the potential of bitcoin and its alternatives, he chose to incorporate additional services into PayStand, believing standalone solutions would not be widely adopted.

Even so, Almond is understanding of the big-picture implications of digital currencies, telling TechCrunch:

“We believe that the process of money movement is going through a massive evolution, and our goal is to support this broadly.”

How PayStand works

With PayStand, online merchants pay a monthly fee for the payment software, thereby avoiding transaction fees associated with its more traditional payment options. Merchants do not pay any added costs on bitcoin transactions.

Likewise, consumers enjoy a one-click payment process, meaning they don’t experience the added friction imposed by passwords and other security methods.

Unlike merchant processors such as BitPay or Coinbase, however, PayStand users who want to accept bitcoin need to first set up a bitcoin wallet address. Merchants can then have bitcoin deposited to their personal wallets or sent to an exchange to be converted into fiat currencies, reports say.

Perhaps most notably, the company states on its website that bitcoin acceptance may be part of further services in digital currency space, as it calls bitcoin just “the first digital currency in line for our eCash payment option”.

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Libra Promises Bitcoin Tax Service to Ease Compliance With IRS Guidance
Danny Bradbury (@dannybradbury) | Published on April 3, 2014 at 07:47 BST | News, US & Canada

Remember when we wondered whether someone would develop a service to help you keep track of the capital gains on bitcoins? Well, now it turns out that someone has – or, at least, wants to. Libra is a new venture that claims it can help you to keep the IRS happy.

Launched by Jake Benson, a former SAP HCM Consultant for Cap Gemini specialising in US and Canadian payroll, the service wants to enable individuals, small businesses and large enterprises alike to comply with the new IRS regulations.

The IRS notice, announced March 25th, carries significant implications for people using bitcoin, even if they are regular users, rather than investors.

Under the guidance, people spending bitcoin are liable to declare capital gains on any increase in value on those coins. That means if you purchased one bitcoin in early October at $100 and spent it today at $440, then you’d be realising a capital gain of $340.

To add insult to injury, because you hadn’t held onto those bitcoins for more than a year and a day, that capital gains tax would be short term, making it equivalent to ordinary income tax. Investor holding onto their coins for longer than that period, however, will pay the long-term rate of 15%.

‘Critical issue’

Of course, people don’t always spend one whole bitcoin at a time. Instead, they’ll acquire and spend portions of a bitcoin over time. That means that technically, they have to keep track of lots of bitcoins that gained different amounts of value over different time periods.

Members of the bitcoin community are unhappy enough about the guidance to have filed a petition about the new guidance.

“Arguably, this is one of the most critical issues surrounding digital currencies,” Benson told CoinDesk. He added:

“When I noticed several months ago there was no comprehensive solution to address taxes, I knew it was an opportunity. Tax software might not be the sexiest business in the industry, but it is the most essential right now.”

Benson, who graduated from the University of Texas with a business degree in 2011, wants to cut through the whole tangled mess. Libra will start by obtaining transaction history for an individual, which he says can be done through automatic and manual means.

Simple solution

Then, the service will calculate the cost basis on a per-transaction level, before distinguishing between transactions subject to short-term or long-term capital gains.

Benson explained:

“Then, we output the calculated totals, and direct the user to which box to fill in on which tax form – we may even provide automatic form output for ultimate convenience.”

He is hoping to do the whole thing in a minimum of four to five clicks for tax novices, and longer term, wants to integrate with other tax software, including the big consumer titles, but also enterprise ERP systems.

The service will be able to handle book keeping retrospectively, so that people can refile for previous tax years if their bitcoin transactions extend back that far.

Extension ‘advisable’

The problem for bitcoin users today is that the tax filing deadline for the IRS is next Tuesday, and LibreTax won’t be launching its service until the third quarter.

Theoretically, this means that bitcoin users would have to do a lot of their paperwork themselves in the next few days, if they wanted to stay within the law by following the tax guidance. But Benson has an alternative, he said:

“Libra for individuals will be ready in the September timeframe. That will be right in time for the extended tax deadline, so we advise everyone to file for an extension this year.”

Future plans

In the meantime, Benson will be working with an initial round of seed capital from CrossCoin Ventures; his being the first company to be accepted by the Ripple Labs-funded accelerator program.

In time, he expects Libra to become a broader tax reporting tool, as many different stores of value from fiat through to cryptocurrencies become digitized.

Explained Benson:

“Imagine being able to automatically populate your income, itemized deductions, business expenses, etc, straight from the ledger – no matter what kind of currency was used! I see a tremendous amount of potential here.”

The service is purely for tax purposes and doesn’t include its own wallet yet, Benson concluded – although it would be a logical next step, he added.

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Swedish Exchange Safello Aims to be ‘CoinBase for Europe’
Jona Kallgren (@Jonakallgren) | Published on April 3, 2014 at 08:00 BST | Companies, Exchanges, News

Swedish bitcoin exchange Safello is making the push to establish itself as Europe’s leading bitcoin exchange with direct payments now available from 86 European banks in 11 countries.

Safello is using the instant SOFORT payment system, meaning there will be no need to wait for an international bank transfer to be cleared into the company’s accounts.

“The only way many people were able to buy bitcoin before was via an international bank transfer. But now they can simply do an immediate payment,” Ludvig Öberg, Vice President of Product Development told CoinDesk.

“As soon as we get your money, whether it is euro, Swedish krona or pounds, we send you bitcoin. If you send us bitcoin we will send you fiat straight away.”

Safello hopes that the speed and ease of a SOFORT payment will open up the market around Europe and introduce bitcoin trading to new customers.

Strong backing

The move comes only two months after the company secured $600,000 in investment – much of it from major bitcoin players such as the Erik Voorhees of Coinapult, serial bitcoin investor Roger Ver and Nicolas Cary from Blockchain.info.

With such backing, in both finance and in expertise,Safello can be forgiven for talking big. Said Öberg:

“We are aiming to be the Coinbase for Europe.”

The Safello website will be available in nine local languages and the company hopes to set up local representatives to deal with customer service around Europe in the future.

Meeting a need

According to Öberg there has been a clear gap in the market for a pan-European exchange for some time, and Safello intends to fill that gap as soon as possible.

“Currently there is no easy bitcoin reseller that is available for everyone. Rather there are a lot of local players but no one is making it easy to buy and sell local for the whole of Europe,” he said.

Safello map

The 11 countries which will be available for direct payment via the SOFORT direct payment system are: Belgium, Poland, Spain, Hungary, the Netherlands, Sweden, Italy, Switzerland, Germany, France and Austria.

Safello already supports the Dutch payment system iDEAL, as well as SEPA (Single Euro Payments Area) payments, and will continue to support international wire transfers.

Opportunity amid crisis

It might seem like a strange time to make a major bitcoin push, since the cryptocurrency has been battered in the eyes of the general public following the much-publicized Mt. Gox bankruptcy.

According to Öberg, however, the Mt. Gox collapse has opened up opportunities for new exchanges like Safello, which transfers the bitcoin to the customers’ wallets without holding any of the BTC themselves.

Safello team ATM
The bitcoin ATM bought to market by Safello.
Safello was founded in Stockholm in August 2013 and quickly grew to become Sweden’s leading bitcoin exchange.

In October 2013, it expanded to trade in the Netherlands, the home country of CEO Frank Schuil, and in December 2013 it made news as it unveiled Sweden’s first bitcoin ATM.

Swedish entrepreneurs are already behind such Internet success stories as Spotify, Skype and SoundCloud. It remains to be seen if Safello can join this club of Scandinavian trailblazers.

For Öberg the European launch is just the first step. He says he believes Safello is marching towards a “global introduction”.

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South Korean Bitcoin Startup Coinplug Secures Further $400,000 Investment
Jon Southurst (@southtopia) | Published on April 3, 2014 at 10:11 BST | Bitcoin ATM, Companies, Investors, Merchants, News, Technology

South Korean bitcoin services startup Coinplug announced this week that it has secured another $400,000 in funding from venture capital firm DFJ (Draper Fisher Jurvetson) Partners’ Tim Draper and his affiliates.

Chol Hwan Kim from Key Initiatives Technical Entrepreneur also participated in the investment.

This funding is in addition to the $400,000 Coinplug has already received from Silicon Valley investor SilverBlue in November last year.

Bitcoin ATM, Gangnam style

As well as its bitcoin exchange, Coinplug also develops wallet and merchant payment software. Last month it even launched its own two-way bitcoin ATM in Gangnam, Seoul, in partnership with the largest ATM hardware manufacturer outside the US, Nautilus Hyosung.

Coinplug’s Richard Yun said the company would use the money to hire more engineers to expedite development of its bitcoin payment solutions. The company is also planning to release English versions of its software around the end of April.

Yun added:

“Also, the ATM is doing good. Many people are happy to visit, purchase and sell bitcoin. Because of our bitcoin ATM, people changed their bitcoin point of view, they can convert [digital currency] to fiat money instantly.”

He promised that Coinplug would reveal more about how much revenue the ATM was generating at a later date, and was interested in selling the technology to buyers overseas.

People in Korea were generally becoming more aware of bitcoin and curious about using it, he said, but some had been put off by negative reports in the media about high profile bitcoin company failures like Mt. Gox. The overall mood towards bitcoin in the country “may be neutral”, he explained.

Aiming at gaming

As for Coinplug’s future directions, Yun said that Korea’s reputation as a mobile and online gaming haven represented a huge potential market for bitcoin.

The company is targeting this market, including massive multiplayer online role-playing games (MMORPGs) and K-Pop and K-Drama online payment solutions, as well as general social and e-commerce.

Furthermore, the company is developing a secure and user-friendly point of sale (POS) system for both commercial (integrated into the current system) and personal use, which would be aimed at customers both in Korea and overseas