As the Bitcoin Price Rises to New 2015 Highs, Investors Seek to Explain Recent Gains

Bitcoin Magazine
As the Bitcoin Price Rises to New 2015 Highs, Investors Seek to Explain Recent Gains

Only a day after writing that bitcoin had reached new highs in the $360s, the currency slammed through the $400s up to $425 before investors took profits, sending the price dropping back to $385. The gap between the Chinese and American exchanges widened to $23.

The last time the price of bitcoin was above $400 was back in November 2014.

Amidst the conversation about the price rising, eclipsing previous 52-week highs, is a desire to justify the price appreciation. According to Jack Liu of OKCoin, one of the drivers has been a desire for “mainland [China] speculators to move to other assets after the stock market fallout.”

However, another possibility is that some of the Bitcoin demand has been driven by a large MMM Ponzi scheme, according to several Chinese exchanges.

On October 15th, BTCC tweeted out a warning that there might be certain investments being offered to individuals that were not entirely legitimate.

1/ We’ve had reports of dubious “investments” involving #bitcoin. These may be ponzi schemes designed to steal your bitcoins.

— BTCC (@YourBTCC) October 14, 2015

Bitcoin Magazine reached out to the three primary Chinese exchanges—Huobi, OKCoin, and BTCC—for comment regarding this warning. Huobi provided the following statement:

“We believe that most of the investors hold a positive attitude towards the future development of bitcoin industry. However, money is neutral. Capital flow is the reflection of the market movement. We can’t deny that MMM to a certain extent pushed the recent spike of bitcoin price. The new investment model of MMM attracted a lot of investors, however it is unsustainable,” said Astrid Tao, Operation & International Marketing Manager at Huobi.

Tao went on to say that, “From the viewpoint of an exchange platform, it’s hard to tell the purpose and reason why they invest in bitcoin. But we’ll do our best to lead these new investors to rediscover bitcoin and the industry, and to guide them to participate in trading in a right way.”

MMM was an organization that ran the world’s largest Ponzi scheme in the 1990s. The founder, Sergei Mavrodi, is believed to have defrauded anywhere from 5 to 40 million people in the amount of $40 billion.

The Mail & Guardian reported on a MMM scheme taking place in South Africa utilizing bitcoin as the means of transferring value. However, those that have participated don’t view it as an investment, but rather, a donation.

“I don’t know exactly how it works, but I am not making an investment, “ Kgomotso (not his real name) told Mail & Guardian. “I am just donating money to somebody, and then somebody will donate to me. People talk ‘investment’, but this is us helping each other.”

In essence, a user who signed up to the MMM today would purchase bitcoin to give to members who signed up yesterday. All along, the user who signed up today would hope that users would sign up tomorrow to give them bitcoin.

Bitcoin Magazine has reached out to BTCC and OKCoin for comment on the MMM Ponzi scheme and will update this piece as more information is available.

Jacob Donnelly is a full-time product manager and freelance journalist covering stocks, business and bitcoin. He runs a weekly digital currency and blockchain newsletter called Crypto Brief.

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Coinbase CEO Brian Armstrong: BIP 101 is the Best Proposal We’ve Seen So Far

Brian Armstrong, CEO of record-funded Bitcoin wallet service and exchange Coinbase, plans a code update to allow for bigger blocks in the second week of December, and has indicated he prefers BIP (Bitcoin Improvement Proposal) 101. This makes Coinbase the latest Bitcoin industry heavyweight to endorse the proposal as adopted by alternative Bitcoin implementation Bitcoin XT, although the company is still open to other solutions.

Armstrong recently sent out a series of tweets in support of a block-size increase, in which he stated the intention to upgrade his company’s code by December. It was not clear, however, whether these tweets indicated support for BIP 101, the block-increase proposal that is programmed to increase the maximum block size eightfold to 8MB, doubling each other year until it reaches 8GB. While BIP 101 is endorsed by several leading companies in the Bitcoin space, other proposals have gathered significant support, too.

Speaking to Bitcoin Magazine, Armstrong confirmed that Coinbase plans to upgrade its code to allow for bigger blocks in December of this year. And while the preferred solution is not set in stone, Coinbase currently favors BIP 101.

“We are open to evaluating all proposals which increase the block size. But we do plan to upgrade around the second week of December, so this will require working solutions in code by then. The only one I’m aware of which currently has working code is BIP 101,” Armstrong said.

Moreover, Armstrong indicated that he’d like the Bitcoin industry to switch to Bitcoin XT, the alternative Bitcoin implementation run by Mike Hearn and Gavin Andresen that implemented BIP 101 in August of this year.

“In my view, Bitcoin XT is the best option I’ve seen so far. Not just because it has working code, but also because it has a simple implementation that is easy to understand, the block-size increases seem about right to me, and I have confidence in the people behind the project. My preference at this point would be to have Gavin step up as the final decision-maker on Bitcoin XT, and have the industry move to that solution with help from Mike Hearn, Jeff Garzik and others that wish to do so.”

The CEO believes an upgrade is urgently needed in order for the Bitcoin network to handle a sudden increase of Bitcoin usage. As such, Armstrong emphasized that Coinbase will not wait for consensus to form among the Bitcoin development community.

“We will upgrade regardless of whether Bitcoin Core is updated,” Armstrong said. “Capacity planning is something you should try to get ahead of. Growth can be unpredictable, and I want to remove all blockers to Bitcoin’s success. I’ve been disappointed to see how slow Bitcoin Core has moved on this issue, and we’re open to switching forks.”

In an open letter published in September, a selection of prominent Bitcoin developers urged the Bitcoin community to take the time to evaluate proposals that have been put forward and agree on the best solutions via the consensus-building process. In particular, many of these developers argue that a switch to bigger blocks represents a big, perhaps even existential security risk.

Armstrong told Bitcoin Magazine that he is aware of the potential risks of increasing the block-size limit, but said he believes these are being overstated.

“When people offer opinions on things like this, it’s important to consider their qualifications. In my case, I’ve implemented a Bitcoin node from scratch. I created the first version of the one Coinbase uses in production today, and I’ve helped us scale this bitcoin node from 0 to 2.7 million customers. So I’ve learned quite a lot about scaling a Bitcoin node during that time.” Armstrong explained. “It is a difficult judgment call, but I believe it is low enough risk, and the upside is considerable enough to make it worth it.”

Other leading Bitcoin companies published an open letter in August in which they vowed to upgrade their code to increase the maximum block size. The letter expressed support for BIP 101, although three of its signers have since indicated that alternative block increase proposals will be considered as well.

Photo TechCrunch / Flickr (CC)

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Top 4 Reasons Banks Should be Excited About Blockchain

This is a guest post by Senthil Radhakrishnan, the Vice President and Head of Capital Market Solutions Group at Virtusa. Senthil has 16+ years’ experience focused in capital markets technology with top tier Investment banks such as UBS, JPMC, Barclays, and others.

Blockchain (the technology that powers Bitcoin) is a magic box – a mix of innovations and the smart use of available solutions make it revolutionary. It’s not often that a technology paradigm has so many great ideas packaged into a small capsule. There is little wonder why all the top banks and investors are backing it with more than $750 million in funding.

Why all the hype around blockchain? Let’s take a look at some of the blockchain’s most extraordinary features.

Self-regulating platform

It’s not often that one comes across a system that can regulate itself with little or no human intervention. In any industry like finance, the central bank and a regulatory body (such as the SEC) lay down rules and provide governance. The blockchain eliminates the need for a corporation or government entity to regulate the operations of the system.

Blockchain has a provide proof-of-work concept, where peer computer nodes approve every transaction. The system has built-in checks and balances to ensure a set of colluding computers can’t game the system. All these checks and monitoring are done by computers. There are alternatives to proof-of-work, including other consensus models, but the central idea of peer-to-peer clients or nodes managing the system, remains. What’s more, the blockchain brings in an element of transparency, which reduces fraud as it’s visible to a large global community to monitor or govern it – “crowd sourced regulation.” Imagine the savings and efficiency this concept could usher in.

Legally sound and binding

The actors (users) and their actions (sending money or assets to somebody else) are recorded on the blockchain. Any disagreement between two counterparties can be traced and proved in a court of law. This is possible because all transactions have a public/private key cryptography aspect and the transactions, once added to the blockchain, are immutable. Any record, once added to the blockchain, is tamper-proof. The current holder of the asset or digital currency in the blockchain will have his or her public key in the block. The transaction then needs to be signed by the private key of the previous owner of the asset. The blockchain also allows alternative approval mechanisms, such as requiring two persons to sign-off on a transaction. In a system not backed by a corporate or government, a legally binding mechanism dramatically improves the trust factor.

Built-in business continuity

A global platform on which critical financial transactions take place cannot afford to shut down. The blockchain, being a peer-to-peer network, with many distributed nodes and supporting computer servers, is highly reliable. Every participating node has a copy of the entire blockchain ledger. This makes the whole network fault-tolerant because a couple of nodes failing will not hinder the operation of the rest of the network. This gives it 24/7 availability without using any complex technologies like a disaster recovery center or database redundancy.

Evolving model with no baggage

There are rules and criteria that exist to help determine who can approve transactions and what checks need to be made before the transaction is allowed to be added to the blockchain. The blockchain can fork into newer versions based on the changing environment and business demands. In tune with the overall Bitcoin philosophy, such changes will have to be adopted by all the users and would have to be equally beneficial. In addition, these enhancements don’t affect the transactions that already have occurred and been confirmed on the blockchain. This adds the extra element of robustness and flexibility.

Several comparisons have been made between the Internet and the blockchain in areas including potential growth and business prospects. Both systems have similar traits. The Internet has little or no central governance (except for a few guidelines to determine URL naming conventions and domain registration), it has redundancy and is fault-tolerant. The Internet also has evolved over many years, from basic text to rich graphics, videos and animations without affecting existing systems and content.

The blockchain has proved its capability and usefulness as demonstrated by the Bitcoin network. Lao Tzu a famous Chinese philosopher once said, “Do the difficult things while they are easy and do the great things while they are small. A journey of a thousand miles must begin with a single step.” This could be the tenet for all the early adopters of the blockchain.

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Bitcoin Finally Gets an Approved Unicode Character Point

As obvious an oversight as it could be, attempting to type the bitcoin symbol via text, email, or on webpages is not the easiest thing. However, after a successful vote at the latest Unicode meeting, users will be able to easily type the character.

The #Bitcoin sign is accepted by Unicode. My second addition to Unicode, probably more useful than the group mark. https://t.co/ZOoBGGMmX3

— Ken Shirriff (@kenshirriff) November 3, 2015

“The Bitcoin symbol is clearly popular enough that it should be in Unicode,” said Ken Shirriff, the author of the proposal, in an interview with Bitcoin Magazine. “Getting the Bitcoin symbol into the Unicode standard was clearly the right thing for Unicode and the right thing for the Bitcoin community.”

Shirriff, who showed how one could mine for bitcoin with pencil and paper or with a 55 year old mainframe, felt that it was a huge oversight to not have the symbol part of Unicode. Since he had experience getting another symbol approved by Unicode, “I figured I needed to make this happen.”

In his proposal, he wrote, “There is substantial demand for [Bitcoin Symbol] to be added to Unicode, the user community supports adding the sign to Unicode and its addition would fill a significant gap in Unicode’s currency symbols. This proposal has the support of the Bitcoin Foundation as well as other Bitcoin organizations, companies and developers.”

This wasn’t his first time getting a new symbol added to Unicode. “I have been helping restore an IBM mainframe from the 1960s and it uses a strange character set (BCDIC). When I tried to write about the computer, I discovered that one symbol (the group mark symbol) was missing from Unicode. I figured I’d try to get that character added to Unicode, so I followed the steps that the power symbol people suggested, wrote up a proposal, and got the group mark symbol added to Unicode.”

Shirriff explained that part of the process was showing the symbol used in “running text. “People on reddit.com/r/bitcoin and bitcointalk.org were very helpful and gave me a ton of examples, everything from web pages to research papers,” he said. Originally, the Bitcoin Foundation was pushing to get the symbol added to Unicode, but after a year, there had been little progress. Shirriff submitted the proposal at the beginning of the month and gained acceptance last night.

“The Unicode 9.0 standard will come out in June, so the Bitcoin symbol should be in that version,” Shirriff said, though he cautioned that font support could take longer. Between the next bitcoin halving and this symbol, it seems like Summer of 2016 should be a very exciting time.

Jacob Donnelly is a full-time product manager and freelance journalist covering stocks, business and bitcoin. He runs a weekly digital currency and blockchain newsletter called Crypto Brief.

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U.S. Marshals Will Hold the Final Auction of the Silk Road Bitcoin This Week

Over the past year, the U.S. Marshals Service (USMS ) has auctioned off a large part of the bitcoin that had been confiscated as a result of the Silk Road investigation. The USMS will hold the final auction for 44,341 bitcoin seized as a result of the criminal conviction and civil forfeiture against Ross Ulbricht. At today’s market price, the bitcoin are worth about $15 million.

During the course of the investigation, the USMS seized more than 144,000 BTC from Ross Ulbricht, the creator of the Silk Road marketplace. At the moment of seizure, the bitcoin were worth about $122 million. In addition to these funds, the USMS also confiscated a total of 29,000 BTC from various Silk Road-related wallets.

Based on the latest statement released by the USMS, the auction will be carried out during a six-hour period, starting at 8 a.m. and ending at 2 p.m. Eastern on November 5. Once the auction is started, bids will be accepted by email from bidders who have pre-registered by completing all of the registration documents. The registration period runs from October 19 to today, November 2.

To be considered valid applicants for this auction, interested bidders should complete the papers regardless of whether they participated in the last auction held by the USMS. Also, the auction is open only to U.S.citizens, so foreign investors won’t have a way of participating by themselves; the only viable way of getting some of the bitcoin is through a third party or syndicate.

The last auction was held in March, and was deemed a success, with a total of 14 bidders purchasing more than 50,000 BTC. However, it did spark some controversy, as a secretive bitcoin firm named Cumberland Mining managed to win the majority of the bitcoin.

Ulbricht, 31, was found guilty on all charges relating to his connection with the Silk Road market, which was the world’s most popular online drug store, functioning on the deep web. He was sentenced to life in prison on May 29.

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