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For The Record  

FTR #770 Bit[coin]burg, Part 3: Fool’s Gold

Dave Emory’s entire life­time of work is avail­able on a flash dri­ve that can be obtained here. (The flash dri­ve includes the anti-fas­cist books avail­able on this site.)

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Intro­duc­tion: This pro­gram con­tin­ues our explo­ration and analy­sis of the online cryp­tocur­ren­cy bit­coin. (We have pre­vi­ous­ly explored this in FTR #‘s 760 and 764. In addi­tion, we rec­om­mend a pen­e­trat­ing essay by “Pter­rafractyl” on the bit­coin phe­nom­e­non, upon which we have drawn in this broad­cast.)

In recent years, much atten­tion has been devot­ed to the increas­ing eco­nom­ic con­cen­tra­tion and result­ing social inequal­i­ty in this coun­try. The 1% ver­sus every­body else is a com­mon ele­ment of aware­ness and dis­cus­sion.

Orig­i­nal­ly envi­sioned as a way around the short­com­ings and pit­falls of the con­tem­po­rary eco­nom­ic and fis­cal land­scape, bit­coin is prov­ing to be a very bad “cyber­pen­ny,” indeed.

In addi­tion to the numer­ous, almost endem­ic scams and gam­bits to which this unreg­u­lat­ed cur­ren­cy is sub­ject, bit­coin is already turn­ing out to lend itself to exact­ly the kind of con­cen­tra­tion of own­er­ship that is char­ac­ter­is­tic of the main­stream econ­o­my decried by bit­coin­ers.

As is the case with the “tape paint­ing” and oth­er scams that char­ac­ter­ize bit­coin, the already pro­nounced con­cen­tra­tion of own­er­ship of this “fis­cal panacea” are built in to the very tech­no­log­i­cal land­scape and nature of bit­coin.

Increas­ing­ly, var­i­ous groups of “min­ers” are dom­i­nat­ing the bit­coin land­scape. Not sur­pris­ing­ly, the largest accu­mu­la­tion of bit­coins appears to belong to the myth­i­cal “Satoshi Nakamo­to, who is cred­it­ed with devel­op­ing the cryp­tocur­ren­cy.

If bit­coin were to achieve the accep­tance hoped for by its advo­cates, the enor­mous car­bon foot­print required to “mine” the cur­ren­cy would make it a threat to the glob­al envi­ron­ment.

The pro­gram also notes the increas­ing degree of over­lap between the milieu of bit­coin and that of Edward Snow­den and our inves­ti­ga­tion into his activ­i­ties.

Cen­tral to the analy­sis is the com­par­i­son of bit­coin to gold–presented as neg­a­tive by the bril­liant econ­o­mist Paul Krug­man and a pos­i­tive by Julian Assange, Edward Snow­den and Ron Paul, as well as the bit­coin­ers.

Pro­gram High­lights Include: Exam­i­na­tion of an hypoth­e­sis that the myth­i­cal “Satoshi Nakamoto”–creator of bitcoin–is, in fact, a Euro­pean-based con­sor­tium (con­sis­tent with our hypoth­e­sis that the cre­ator is a group of indi­vid­u­als work­ing for Lan­tiq); the increas­ing con­cen­tra­tion of bit­coins in two syn­di­cates; the prospect that Ghash.io–the largest of the bit­coin min­ing syndicates–is grow­ing so large that it threat­ens the very oper­at­ing premise of bit­coin; the prob­a­bil­i­ty that high­er trans­ac­tion fees will under­mine the very premise of bit­coin; sim­i­lar­i­ties between bit­coin and the gold stan­dard; review of Eddie the Friend­ly Spook’s advo­ca­cy of a return to the gold stan­dard (a “bar­bar­ic rel­ic” accord­ing to John May­nard Keynes); Ron Paul’s opin­ion that bit­coin could threat­en the dol­lar; the Euro­pean Cen­tral Bank’s view that bit­coin is the expres­sion of the Aus­tri­an School of Eco­nom­ics (favored by Ron Paul and Snow­den); the arrest of a promi­nent bit­coin pro­mot­er for mon­ey laun­der­ing in the Silk Road case; review of appar­ent Silk Road devel­op­er Ross Ulbricht’s affin­i­ty for Ron Paul, bit­coins and the Aus­tri­an School; the pos­si­bil­i­ty that NSA sur­veil­lance might be involved in the Silk Road case; Julian Assange’s fond­ness for bit­coin and state­ment that he and bit­coin’s cre­ators share com­mon ground; Asange’s fop­nd­ness for gold as a medi­um of exchange; Hans Her­mann-Hoppe dis­ci­ple R. Cody Wilson’s “Dark Wal­let” scheme (which would alleged­ly make it impos­si­ble to trace bit­coin oper­a­tions); review of Max Planck Insti­tute attempts at mak­ing Inter­net com­mu­ni­ca­tions immune to sur­veil­lance; the Max Planck Insti­tute’s asso­ci­a­tion with the Under­ground Reich.

1. In FTR #760, we advanced the hypoth­e­sis that the actu­al orig­i­na­tor of bit­coin may well be three employ­ees of Lan­tiq, a spin­off of Siemens/Infi­neon AG and Bain Cap­i­tal off­shoot Gold­en Gate Cap­i­tal. A recent post in Inter­na­tion­al Busi­ness Times opines that “Satoshi Nakamo­to” is actu­al­ly a Euro­pean-based cell, pos­si­bly from the finan­cial sec­tor.

 “Bit­coin Inven­tor Satoshi Nakamo­to is Anony­mous-style Cell from Europe” by Vasude­van Srid­ha­ran; Inter­na­tional Busi­ness Times; 12/16/2013.

As the mys­tery sur­round­ing the iden­tity of Satoshi Nakamo­to, the cre­ator of the dig­i­tal cur­rency Bit­coin, con­tin­ues to grow, it is believed that the ‘inven­tor’ could infact be the cre­ation of a com­puter col­lec­tive, IBTimes UK under­stands.

Josh Zer­lan, the Chief Oper­at­ing Offi­cer of But­ter­fly Labs and a per­son famil­iar with the Bit­coin net­work, has said it is high­ly like­ly that Nakamo­to could be a group of peo­ple work­ing the finan­cial sec­tor.

Speak­ing to IBTimes UK on the side­lines of a Glob­al Bit­coin Con­fer­ence in Ban­ga­lore, India, Zer­lan said: “One of the pre­vail­ing the­o­ries, I think has cred­i­bil­ity, is that it was some group of peo­ple from finan­cial sec­tor that cre­ated this. They released it and stepped back and let it go. So, Satoshi Nakamo­to is a group of peo­ple, I think, is a rea­son­able pos­si­bil­i­ty.”

When quizzed where the group of peo­ple might be based, Zer­lan indi­cated they could prob­a­bly be from the Euro­pean con­ti­nent.

How­ever, Zer­lan from But­ter­fly Labs, which is involved in sup­ply­ing hard­ware for min­ing Bit­coins, con­ceded: “Nobody knows who he real­ly is. The name ‘Satoshi Nakamo­to’ is more like John Smith in Eng­lish. So, it’s kind of a gener­ic name.”

He added that the recent spec­u­la­tion that Nakamo­to could be the Japan­ese blog­ger and pro­gram­mer Nick Szabo does not seem plau­si­ble, con­sid­er­ing the style of writ­ing. . . .

2. The myth­i­cal “Nakamo­to” owns the largest aggre­ga­tion of bit­coins.

“Who Owns the World’s Biggest Bit­coin Wal­let? The FBI” By Robert McMil­lan; Wired; 12/18/2013.

. . . This hon­or is thought to belong to bitcoin’s shad­owy inven­tor Satoshi Nakamo­to, who is esti­mated to have mined 1 mil­lion bit­coins in the currency’s ear­ly days. His stash is spread across many wal­lets. But it does put the fed­eral agency ahead of the Cameron and Tyler Win­klevoss, who in July said that they’d cor­nered about 1 per­cent of all bit­coins (there are 12 mil­lion bit­coins in cir­cu­la­tion).

In the fun house world of bit­coin track­ing, it’s hard to say any­thing for cer­tain. But it is safe to say that there are new play­ers in the Bit­coin world — although not as many peo­ple are buy­ing bit­coins as one might guess from all of the media atten­tion.

Satoshi stores his wealth in a large num­ber of bit­coin address­es, most of them hold­ing just 50 bit­coins. It’s a bit of a logis­ti­cal night­mare, but most savvy Bit­coin investors spread out their bit­coins across mul­ti­ple wal­lets. That way if they lose the key to one of them or get hacked, all is not lost. . . .

3.  “Pter­rafractyl” high­lights an impor­tant con­sid­er­a­tion for us: Here’s an inter­est­ing fact about the con­cen­tra­tion of pow­er in the bit­coin min­ing mar­ket and the risk of “self­ish min­ing” (which we spoke about in FTR #760.):

If you go here you can find a charge of the “hashrate dis­tri­b­u­tion” that shows the rel­a­tive amounts of the total hash­es (hash­es are cal­cu­lated as part of the min­ing process). Notice how two guilds, BTC Guild and GHash.IO, con­trol well over 50% of of the total min­ing pro­cess­ing pow­er. Sit­u­a­tions like this are a huge poten­tial prob­lem for how bit­coin is sup­posed to work. But, in a way, this is a sym­bol of bitcoin’s poten­tial pop­ulism in that a guild con­sists of THOUSANDS of users all work­ing togeth­er. So at least when the BTC Guild and GHash.IO take over the min­ing mar­ket the pro­ceeds would be going to a large num­ber of peo­ple and not just some hand­ful of super-min­ers. Except it may not be quite that clean because, as of April of this year, the top 10 users in the BTC Guild account­ed for half of the entire guild’s pro­cess­ing pow­er and would there­fore get about half of BTC Guild’s the pro­ceeds and it’s unclear why a sit­u­a­tion like that that wouldn’t still be the case today.

“Get­ting Start­ed with Bit­coin Min­ing”; The Bit­coin Begin­ner Blog; 4/4/2013.

. . . . BTC Guild is the largest min­ing guild, both in terms of the num­ber of Blocks found and the sheer amount of pro­cess­ing pow­er it can bring to bear. Since the start of this year, it’s found near­ly one third of all Blocks added to the Block Chain.

It’s worth noth­ing that there’s a dis­tinct “upper class” to BTC Guild. The top 10 users account­ing for almost half of the pool’s entire pro­cess­ing pow­er (which means they get almost half of all pay­outs).

For pay­outs, you can choose Pay-per-Share (PPS) or Pay-per-Last-N-Shares (PPLNS). Which one you choose changes whether or not trans­ac­tion fees are includ­ed in the pay­out, and what the pools’ fee per­cent­age is. . . .

4a. In addi­tion to the BTC Guild, anoth­er “min­ing con­sor­tium” (Ghash.io) is get­ting so big that its activ­i­ties are per­ceived as threat­en­ing the via­bil­i­ty of bit­coin itself.

“Cryp­tor­ag­narok: The Exis­ten­tial Threat to Bit­coin Its Boost­ers Said Was Impos­si­ble Is Now at Hand” by Christo­pher Mims; Quartz; 1/9/2014.

A dooms­day sce­nario that has long been dis­missed by bitcoin’s biggest boost­ers is now a clear and present dan­gerAt 3am ET this morn­ing, a sin­gle bit­coin min­ing col­lec­tive known as Ghash.io reached 45% of the com­put­ing pow­er of all glob­al bit­coin min­ers, just six points short of the 51% that would be required to break bit­coin by arbi­trar­ily manip­u­lat­ing the record of future trans­ac­tions upon which it rests. The result could be, at min­i­mum, “dou­ble spend­ing” of exist­ing bit­coins, which would ren­der the cur­rency effec­tively unus­able.

To put this in con­text: Imag­ine that tomor­row, a sin­gle cor­po­rate enti­ty gained the abil­ity to clone all of its dol­lars, and then imme­di­ately went on an asset buy­ing spree. To say that it would under­mine trust in the US dol­lar would be an under­state­ment. That’s what could hap­pen to bit­coin.

Update: Ghash.io has issued a press release on the poten­tial for it to launch an attack on bit­coin. The min­ing pool says it is tak­ing steps to make sure that Ghash.io nev­er reach­es 51% of the world’s bit­coin min­ing capac­ity, “as it will do seri­ous dam­age to the Bit­coin com­mu­nity, of which we are part of.” Ghash.io also said that they will tem­porar­ily stop accept­ing new inde­pen­dent bit­coin min­ers in their pool, and will allow exist­ing mem­bers of Ghash.io to mine bit­coins through oth­er pools.

Update 2: Bit­coin mag­a­zine has weighed in, assert­ing that the suc­cess of Ghash.io is indica­tive of a larg­er prob­lem in bit­coin: near­ly unprece­dented cen­tral­iza­tion of the min­ing upon which the currency’s secu­rity depends.

Update 3: Bit­coin entre­pre­neur Hen­ry Brade weighs in on Ghash.io’s pro­posed solu­tion, and finds it want­ing. Quartz’s Ritchie King weighs in: No, bit­coin isn’t about to be tak­en over by a mas­sive car­tel.

Pop­u­lar dis­cus­sion boards devot­ed to bit­coin are freak­ing out about this pos­si­bil­ity, and every post on the home­page of, for exam­ple, the por­tion of Red­dit devot­ed to bit­coin is cur­rently devot­ed to the dan­ger­ous rise of Ghash.io . . . .

4b. “Pter­rafractyl” notes anoth­er fac­tor that may very well pro­mote con­cen­tra­tion of bit­coin own­er­ship: “The CEO of But­ter­fly Labs makes an impor­tant point: As the rewards for bit­coin min­ing drop off to zero (by ~2040), the trans­ac­tion fees are going to be the only thing financ­ing bit­coin min­ing. And at that point, “min­ers will grav­i­tate towards trans­ac­tions with high­er fees attached to them, which will be processed before those with small­er rewards”. How that ten­sion between cheap trans­ac­tions and the prof­it-max­i­miz­ing desire of cor­po­rate min­ers gets resolved is a pret­ty big ‘unknown’ for a trans­ac­tion plat­form that’s mak­ing low-trans­ac­tion fees a key sell­ing point. Espe­cially when the sys­tem is also set up to incen­tivize the cre­ation of min­ing car­tels that could col­lude to ensure high wait times for low­er fees. The much-feared “51% attack” isn’t the only threat posed by a bit­coin oli­gop­oly.”

Note that 4–yes 4–bitcoin min­ing con­sor­tia con­trol 75 per­cent of the bit­coin mar­ket!

“The Future of Bit­coin: Cor­po­rate Mines and Net­work Peer­ing?” by Rich Miller; Data Cen­ter Knowl­ege; 1/24/2014.

What’s the end game of the Bit­coin min­ing arms race? Min­ers are build­ing ever-more pow­er­ful hard­ware and larg­er data cen­ters, try­ing to stay a step ahead of their rivals and keep pace with “the dif­fi­culty” – algo­rithm changes that make it pro­gres­sively hard­er to earn new bit­coins.

Some Bit­coin watch­ers believe the net­work will ulti­mately shift from min­ing for new coins to a mod­el based on trans­ac­tion fees, which could accel­er­ate a shift of Bit­coin hard­ware into data cen­ters and the cre­ation of peer­ing net­works to man­age fees, just as cur­rent peer­ing agree­ments seek to reduce net­work tran­sit costs.

The long-term out­look for Bit­coin is impor­tant for the data cen­ter indus­try, where some leas­es can run from three to 10 years. The emer­gence of Bit­coin has seen the cryp­tocur­rency soar in val­ue, accom­pa­nied by rapid advances in the hard­ware required to suc­cess­fully cap­ture new coins. The Bit­coin pro­to­col is designed so that these rewards will become hard­er to earn and will shrink over time. That means that the eco­nom­ics and busi­ness mod­els of bit­coin could shift over the life of a data cen­ter lease.

Fees and the Future


Over the past two years, gain­ing block rewards has become pro­gres­sively more dif­fi­cult, forc­ing min­ers to upgrade their hard­ware from CPUs to GPUs and then FPGAs (Field Pro­gram­ma­ble Gate Arrays) and final­ly spe­cial­ized ASICs (Appli­ca­tion Spe­cific Inte­grated Cir­cuits) opti­mized for bit­coin data-crunch­ing. As the hard­ware has become more expen­sive, many enthu­si­asts have been priced out of the min­ing mar­ket.

Prince­ton Uni­ver­sity com­puter sci­ence researchers Ed Fel­ten, Joshua Kroll and Ian Dav­ey have stud­ied the bit­coin reward sys­tem and fore­see a shift ahead.

“At present, the min­ing reward seems to be large enough, but under the cur­rent rules of Bit­coin the reward for min­ing will fall expo­nen­tially with time,” the Prince­ton team wrote in a recent paper on Bit­coin eco­nom­ics“Trans­ac­tion fees, which are vol­un­tary under the cur­rent rules, can­not make up the dif­fer­ence. The only way to pre­serve the system’s health will be to change the rules, most like­ly by either main­tain­ing min­ing rewards at a high­er lev­el than orig­i­nally envi­sioned, or mak­ing trans­ac­tion fees manda­tory. The choice is like­ly to dri­ve polit­i­cal dis­putes with­in the Bit­coin com­mu­ni­ty.”

Researchers from Microsoft and Cor­nell have also explored this sce­narioand out­lined refine­ments that would be need­ed to make incen­tives work in a shift to trans­ac­tion fees.

The bit­coin com­mu­nity is “debat­ing that (shift),” said Emmanuel Obio­dun, founder and CEO of Cloud­hash­ing, which leas­es com­put­ing pow­er to cus­tomers. “It’s becom­ing more expen­sive to mine coins. But trans­ac­tion fees are very low right now, and have very small prof­it mar­gins. For now, there’s still a lot of upside in bit­coin min­ing.”

One Vision of a Fee-Based Future

The future of min­ing was a hot top­ic at the Inside Bit­coins con­fer­ence in Las Vegas in Decem­ber, where Josh Zer­lan, Chief Oper­at­ing Offi­cer of But­ter­fly Labs, gave a pre­sen­ta­tion on the future role of trans­ac­tion fees.

“In the future, there will not be much incen­tive to mine (for block rewards),” said Zer­lan. As rewards become hard­er to achieve and the growth of bit­coin leads to more trans­ac­tions, Zer­lan says that fees will need to increase to ensure that min­ers con­tinue to sup­port the net­work. As this hap­pens, min­ers will grav­i­tate towards trans­ac­tions with high­er fees attached to them, which will be processed before those with small­er rewards.

If bit­coin gains wide accep­tance as a pay­ment plat­form or even as a cur­rency, the growth of fees will present sev­eral chal­lenges, Zer­lan said.

“If you’re a large com­pany, you have a prob­lem (with pay­ing trans­ac­tion fees),” he said. “The solu­tion is to main­tain a large min­ing farm in your data cen­ter to process your own trans­ac­tions for free, and your cus­tomers’ trans­ac­tions for free. You can also earn extra income to pro­cess­ing oth­ers trans­ac­tions.”


Dis­trib­uted vs. Cen­tral­ized

As we not­ed yes­ter­day, a shift to pro­fes­sional data cen­ters and cloud com­put­ing plat­forms would make the bit­coin net­work more effi­cient. But there’s also a built-in cul­tural chal­lenge: much of the bit­coin com­mu­nity remains wary of efforts to cen­tral­ize the net­work.

Ear­lier this month bit­coin­ers raised alarms when Chi­nese min­ing pool GHash.io was gain­ing 45 per­cent of new coins – approach­ing the lev­el where a sin­gle par­tic­i­pant could under­mine the net­work by con­trol­ling a major­ity of its pow­er (known as a “51 per­cent attack”).

The grow­ing pow­er of min­ing pools – con­sor­tiums orga­nized to com­bine the min­ing pow­er of indi­vid­u­als – has been a con­cern for some time. This week the four largest min­ing pools (GHash.io, BTC Guild, Eligius and Slush) held a com­bined mar­ket share of 75 per­cent of the network’s pow­er, as mea­sured by com­put­ing hashrate.

“We’ve already cen­tral­ized the min­ing sys­tem,” said Zer­lan. “There are already large pools to con­trol a large per­cent­age of the min­ing. Cen­tral­iza­tion of min­ing will be a good thing.”

Zer­land believes the Bit­coin com­mu­nity can adapt to the trade­offs of a more cen­tral­ized infra­struc­ture. “It cre­ates a more desir­able tar­get, but I think that’s some­thing we have to man­age,” he said.

5. Because bit­coin min­ing requires the long-term run­ning of super com­put­ers, which in turn, require the use of mas­sive amounts of elec­tric­i­ty. As a result the car­bon foot­print of seri­ous min­ing is alarm­ing and, if per­pet­u­at­ed over a peri­od of time, will exac­er­bate the “green­house effect.”

“Bit­coin Has a Dark Side: Its Car­bon Foot­print” by Michael Car­ney; Pan­do­Daily; 12/16/2013.

Bit­coin may be mak­ing a few peo­ple wealthy, but it’s killing us all. The cryp­to-cur­ren­cy that’s caught the world by storm has a dark side: its car­bon foot­print.

At today’s val­ue of rough­ly $1,000 per bit­coin, the elec­tric­ity con­sumed by the bit­coin min­ing ecosys­tem has an esti­mated car­bon foot­print – or total green­house gas emis­sions – of 8.25 mega­tonnes (8,250,000 tonnes) of CO2 per year, accord­ing to research by Bitcarbon.orgThat’s 0.03 per­cent of the world’s total green­house gas out­put, or equiv­a­lent to that of the nation of Cyprus. If bitcoin’s val­ue reach­es $100,000, that impact will reach 3 per­cent of the world’s total, or that of Ger­many. At $1 mil­lion – which seems far­ci­cal but which may not be out of the realm of pos­si­bil­ity giv­en the arti­fi­cially lim­ited bit­coin sup­ply – this impact ris­es to 8.25 giga­tonnes, or 30 per­cent of today’s glob­al out­put, and equiv­a­lent to that of Chi­na and Japan com­bined.

Bit­coins aren’t mined from the earth’s crust like most phys­i­cal com­modi­ties – although at least that leaves tan­gi­ble evi­dence of its envi­ron­men­tal impact. Rather, they are “mined” by com­put­ers solv­ing a set of com­pli­cated com­pu­ta­tional prob­lems. These prob­lems are designed to get more dif­fi­cult over time, until the year 2140 when the 21 mil­lionth (and final) bit­coin is mined. Ear­ly in bitcoin’s exis­tence, it was fea­si­ble to run a suc­cess­ful min­ing oper­a­tion with a stan­dard PC. Now the task requires cus­tom min­ing rigs that can run orders of mag­ni­tude more process­es per sec­ond. . . .

6. Paul Krug­man notes that bit­coin min­ing and the gold standard–termed by John May­nard Keynes “a bar­bar­ic relic”–have sim­i­lar char­ac­ter­is­tics.

Edward Snow­den is an advo­cate of return­ing to the gold stan­dard, some­thing that would dev­as­tate the glob­al econ­o­my.

We are see­ing an increas­ing degree of con­cur­rence between the milieu of Edward Snow­den. Like gold bugs, Snow­den polit­i­cal idol Ron Paul, the Lud­wig von Mis­es Insti­tute and Snow­den him­self, the bit­coin advo­cates exist in the per­pet­u­al fear of hyper­in­fla­tion, a real­i­ty that has failed to mate­ri­al­ize and is his­tor­i­cal­ly rare.

“Bits and Bar­barism” by Paul Krug­man; The New York Times; 12/22/2013.

. . . . The sec­ond mon­ey pit is a lot stranger: the Bit­coin mine in Reyk­janes­baer, Ice­land. Bit­coin is a dig­i­tal cur­ren­cy that has val­ue because ... well, it’s hard to say exact­ly why, but for the time being at least peo­ple are will­ing to buy it because they believe oth­er peo­ple will be will­ing to buy it. It is, by design, a kind of vir­tu­al gold. And like gold, it can be mined: you can cre­ate new bit­coins, but only by solv­ing very com­plex math­e­mat­i­cal prob­lems that require both a lot of com­put­ing pow­er and a lot of elec­tric­i­ty to run the com­put­ers.

Hence the loca­tion in Ice­land, which has cheap elec­tric­i­ty from hydropow­er and an abun­dance of cold air to cool those furi­ous­ly churn­ing machines. Even so, a lot of real resources are being used to cre­ate vir­tu­al objects with no clear use.

The third mon­ey pit is hypo­thet­i­cal. Back in 1936 the econ­o­mist John May­nard Keynes argued that increased gov­ern­ment spend­ing was need­ed to restore full employ­ment. But then, as now, there was strong polit­i­cal resis­tance to any such pro­pos­al. So Keynes whim­si­cal­ly sug­gest­ed an alter­na­tive: have the gov­ern­ment bury bot­tles full of cash in dis­used coal mines, and let the pri­vate sec­tor spend its own mon­ey to dig the cash back up. It would be bet­ter, he agreed, to have the gov­ern­ment build roads, ports and oth­er use­ful things — but even per­fect­ly use­less spend­ing would give the econ­o­my a much-need­ed boost.

Clever stuff — but Keynes wasn’t fin­ished. He went on to point out that the real-life activ­i­ty of gold min­ing was a lot like his thought exper­i­ment. Gold min­ers were, after all, going to great lengths to dig cash out of the ground, even though unlim­it­ed amounts of cash could be cre­at­ed at essen­tial­ly no cost with the print­ing press. And no soon­er was gold dug up than much of it was buried again, in places like the gold vault of the Fed­er­al Reserve Bank of New York, where hun­dreds of thou­sands of gold bars sit, doing noth­ing in par­tic­u­lar.

Keynes would, I think, have been sar­don­ical­ly amused to learn how lit­tle has changed in the past three gen­er­a­tions. Pub­lic spend­ing to fight unem­ploy­ment is still anath­e­ma; min­ers are still spoil­ing the land­scape to add to idle hoards of gold. (Keynes dubbed the gold stan­dard a “bar­barous rel­ic.”) Bit­coin just adds to the joke. Gold, after all, has at least some real uses, e.g., to fill cav­i­ties; but now we’re burn­ing up resources to cre­ate “vir­tu­al gold” that con­sists of noth­ing but strings of dig­its.

I sus­pect, how­ev­er, that Adam Smith would have been dis­mayed.

Smith is often treat­ed as a con­ser­v­a­tive patron saint, and he did indeed make the orig­i­nal case for free mar­kets. It’s less often men­tioned, how­ev­er, that he also argued strong­ly for bank reg­u­la­tion — and that he offered a clas­sic paean to the virtues of paper cur­ren­cy. Mon­ey, he under­stood, was a way to facil­i­tate com­merce, not a source of nation­al pros­per­i­ty — and paper mon­ey, he argued, allowed com­merce to pro­ceed with­out tying up much of a nation’s wealth in a “dead stock” of sil­ver and gold.

So why are we tear­ing up the high­lands of Papua New Guinea to add to our dead stock of gold and, even more bizarrely, run­ning pow­er­ful com­put­ers 24/7 to add to a dead stock of dig­its?

Talk to gold bugs and they’ll tell you that paper mon­ey comes from gov­ern­ments, which can’t be trust­ed not to debase their cur­ren­cies. The odd thing, how­ev­er, is that for all the talk of cur­ren­cy debase­ment, such debase­ment is get­ting very hard to find. It’s not just that after years of dire warn­ings about run­away infla­tion, infla­tion in advanced coun­tries is clear­ly too low, not too high. Even if you take a glob­al per­spec­tive, episodes of real­ly high infla­tion have become rare. Still, hyper­in­fla­tion hype springs eter­nal.

Bit­coin seems to derive its appeal from more or less the same sources, plus the added sense that it’s high-tech and algo­rith­mic, so it must be the wave of the future.

But don’t let the fan­cy trap­pings fool you: What’s real­ly hap­pen­ing is a deter­mined march to the days when mon­ey meant stuff you could jin­gle in your purse. In trop­ics and tun­dra alike, we are for some rea­son dig­ging our way back to the 17th cen­tu­ry.

7. We learn that the Euro­pean Cen­tral Bank views bit­coin as root­ed fun­da­men­tally in the Lud­wig von Mises/Friedrich von Hayek the­o­ret­i­cal con­struct.

“ECB: ‘Roots Of Bit­coin Can Be Found In The Aus­trian School Of Eco­nom­ics’” by Jon Mato­nis; Forbes; 11/3/2012.

The ECB (Euro­pean Cen­tral Bank) has pro­duced the first offi­cial cen­tral bank study of the decen­tral­ized cryp­to­graphic mon­ey known as bit­coin, Vir­tual Cur­rency Schemes. Ignor­ing for a moment the ECB’s con­de­scend­ing and deroga­tory use of the vir­tual cur­rency phrase and scheme phrase, the study pro­duced at least one land­mark achieve­ment.

In claim­ing that “The the­o­ret­i­cal roots of Bit­coin can be found in the Aus­trian school of eco­nom­ics,” the ECB for­ever linked Bit­coin to the proud eco­nomic her­itage of Menger, Mis­es, and Hayek as well as to Aus­trian busi­ness cycle the­ory. This recog­ni­tion is also a direct tes­ta­ment to the mon­e­tary the­ory work of Friedrich von Hayek who inspired many with his 1976 land­mark pub­li­ca­tion of Dena­tion­al­i­sa­tion of Mon­ey.

Bit­coin ful­ly embod­ies the spir­it of dena­tion­al­ized mon­ey as it seeks no author­ity for its con­tin­ued exis­tence and it rec­og­nizes no polit­i­cal bor­ders for its cir­cu­la­tion. Indeed accord­ing to the report, pro­po­nents see Bit­coin as “a good start­ing point to end the monop­oly cen­tral banks have in the issuance of mon­ey” and “inspired by the for­mer gold stan­dard.”

Econ­o­mists from the 19th and mid-20th cen­turies can be for­given for not antic­i­pat­ing an inter­con­nected dig­i­tal realm like the Inter­net with its p2p dis­trib­uted archi­tec­ture, but mod­ern econ­o­mists can­not be. From their own con­clu­sions (on page 48) which inac­cu­rately lump Bit­coin togeth­er with Lin­den Dol­lars, here is what the mod­ern-day econ­o­mists at the ECB are still not get­ting:

1. ECB con­cludes that if mon­ey cre­ation remains at a low lev­el, bit­coin does not pose a risk to price sta­bil­ity. This is incor­rect on two lev­els. One, the cre­ation of new bit­coin is capped at 21 mil­lion with eight cur­rent dec­i­mal places so it grows through adop­tion and usage rather than mon­e­tary expan­sion. And two, as with gold, sil­ver, and oth­er com­modi­ties hav­ing a mon­e­tary com­po­nent, price sta­bil­ity is a func­tion of the mar­ket not cen­tral plan­ners;

2. ECB con­cludes that bit­coin can­not jeop­ar­dize finan­cial sta­bil­ity due to its low vol­ume and lim­ited con­nec­tion with the real econ­omy. Con­versely, bit­coin will tend to increase finan­cial sta­bil­ity and over­all sound­ness. Bitcoin’s con­nec­tion with the real econ­omy is only a con­cern for the reg­u­lated and taxed econ­omy, where­as bit­coin inde­pen­dently may thrive in the $10 tril­lion shad­ow or “orig­i­nal” econ­omy. Besides, with its repeat­ed mar­ket inter­ven­tions, no one has done more to jeop­ar­dize finan­cial sta­bil­ity than the ECB itself;

3. ECB con­cludes that bit­coin is cur­rently not reg­u­lated and super­vised by any pub­lic author­ity. It would be more accu­rate to say that State-spon­sored reg­u­la­tion is large­ly irrel­e­vant because of the inher­ent design prop­er­ties of a peer-to-peer dis­trib­uted com­put­ing sys­tem. But hap­pily, this is still a con­clu­sion that I can agree with and rec­om­mend that it remains the case;

4. ECB con­cludes that bit­coin could rep­re­sent a chal­lenge for pub­lic author­i­ties, giv­en the legal uncer­tainty and poten­tial for per­form­ing ille­gal activ­i­ties. While pub­lic author­i­ties will cer­tainly be chal­lenged by the intro­duc­tion of a mon­e­tary unit that can­not be manip­u­lated for polit­i­cal pur­poses, bit­coin in some cas­es does have the abil­ity to pro­vide track­ing capa­bil­ity that far exceeds that of nation­al cash or mon­ey sub­sti­tutes. What author­i­ties will find most trou­bling though, with bit­coin, is that mon­ey flows between indi­vid­u­als and busi­nesses will no longer be exploitable for pur­poses of unlim­ited iden­tity track­ing and uncon­sti­tu­tional ‘fish­ing expe­di­tions’

8. Ron Paul’s enthu­si­as­tic views on bit­coin:

“Ron Paul: Bit­coin Could Destroy the Dol­lar” by Jose Pagliery; CNN­Money; 12/4/2013.

Imag­ine a world in which you can buy any­thing in secret. No banks. No fees. No wor­ries infla­tion will make today’s mon­ey worth less tomor­row.

The dig­i­tal cur­rency Bit­coin promis­es all these things. And while it’s far from achiev­ing any of them — its val­ue is unsta­ble and it’s rarely used — some have high hopes.

“There will be alter­na­tives to the dol­lar, and this might be one of them,” said for­mer U.S. con­gress­man Ron Paul. If peo­ple start using bit­coins en masse, “it’ll go down in his­tory as the destroy­er of the dol­lar,” Paul added.

It’s unlike­ly that Bit­coin would replace the dol­lar or oth­er gov­ern­ment-con­trolled cur­ren­cies. But it could serve as a kind of uni­ver­sal alter­na­tive cur­rency that is accept­ed every­where around the globe. Con­cerned about the dollar’s infla­tion? Just move your cash to bit­coins and use them to pay your bills instead. Tired of hefty cred­it card fees? Bit­coin allows trans­ac­tions that bypass banks. . . .

9. Julian Assange is a big advo­cate of bit­coin. The Wik­iLeaks milieu is inex­tri­ca­bly linked with the Snow­den oper­a­tion.

“Wik­iLeaks’ Julian Assange Schools Google’s Eric Schmidt on Bit­coin” by Michael del Castil­lo; Upstart Busi­ness Jour­nal; 4/19/2013.

In June of 2011 the founder of Wik­iLeaks, Julian Assange, was holed up in Nor­folk, Eng­land, await­ing word on his pos­si­ble extra­di­tion to Swe­den for rape charges, which he denies. While there he took a rather inter­est­ing house guest, Google Chair­man Eric Schmidt, who inter­viewed Assange on tape for his forth­com­ing book The New Dig­i­tal Age, due to be pub­lished, April 23.

Wik­iLeaks today pub­lished the “major­i­ty” of a “ver­ba­tim” tran­script of the five-hour-long con­ver­sa­tion, includ­ing the first time Schmidt ever heard of Bit­coin, and an ensu­ing les­son from Assange that we would have loved to have seen for our­selves.

Inci­den­tal­ly the “cypher­punks” Assange said are at the gen­e­sis of Bit­coin, are a group he him­self is often asso­ci­at­ed with, and also hap­pens to be the name of his book.

The actu­al ori­gin of Bit­coin is still quite a mys­tery, with its mys­te­ri­ous inven­tor, Satoshi Nakamo­to, still unknown, though the New York­er claims to know the per­son­’s iden­ti­ty. . . .
. . . . Assange:

OK, Bit­coin is some­thing that evolved out of the cypher­punks a cou­ple of years ago, and it is an alter­na­tive... it is a state­less cur­ren­cy.

And very impor­tant, actu­al­ly. It has a few prob­lems. But its inno­va­tions exceed its prob­lems. Now there has been inno­va­tions along these lines in many dif­fer­ent paths of dig­i­tal cur­ren­cies, anony­mous, untrace­able etc. Peo­ple have been exper­i­ment­ing with over the past 20 years. The Bit­coin actu­al­ly has the bal­ance and incen­tives right, and that is why it is start­ing to take off. The dif­fer­ent com­bi­na­tion of these things. No cen­tral nodes. It is all point to point. One does not need to trust any cen­tral mint. If we look at tra­di­tion­al cur­ren­cies such as gold, we can see that they have sort of inter­est­ing prop­er­ties that make them valu­able as a medi­um of exchange. Gold is divis­i­ble, it is easy to chop up, actu­al­ly out of all met­als it is the eas­i­est to chop up into fine seg­ments. You can test rel­a­tive­ly eas­i­ly whether it is true or whether it is fake. You can take chopped up seg­ments and you can put them back togeth­er by melt­ing the gold. So that is what makes it a good medi­um of exchange and it is also a good medi­um of val­ue store, because you can take it and put it in the ground and it is not going to decay like apples or steaks. . . . .

10a. One of the most promi­nent “bit­coin­ers” has been charged with mon­ey laun­der­ing in con­nec­tion with the Silk Road con­spir­a­cy. Char­lie Shrem’s Bit­coin Foun­da­tion received back­ing from the Winkelvoss twins, who also helped start Face­book.

“Promi­nent Bit­coin Entre­pre­neur Charged with Mon­ey Laun­der­ing” by Emi­ly Flit­ter; Reuters; 1/27/2014. 

The vice chair­man of the Bit­coin Foun­da­tion, a trade group pro­mot­ing the adop­tion of the dig­i­tal cur­ren­cy, has been charged by U.S. pros­e­cu­tors with con­spir­ing to com­mit mon­ey laun­der­ing by help­ing to fun­nel cash to illic­it online drugs bazaar Silk Road.

Char­lie Shrem, who had finan­cial back­ing from the Win­klevoss twins and is well known as one of the bit­coin’s biggest glob­al pro­mot­ers, was arrest­ed on Sun­day at John. F. Kennedy Inter­na­tion­al Air­port in New York, the U.S. Attor­ney’s Office in Man­hat­tan said on Mon­day.

Shrem, who was also charged with oper­at­ing an unli­censed mon­ey trans­mit­ting busi­ness, appeared in U.S. Dis­trict Court in Man­hat­tan on Mon­day and was released on $1 mil­lion bond. . . .

10b. Ron Paul/Ludwig von Mis­es devo­tee Ross Ulbricht is the appar­ent king­pin of the Silk Road net­work. His brand of lib­er­tar­i­an­ism would sub­ject peo­ple to some very “unlib­er­at­ing” things, such as get­ting their bank accounts hacked.

In anoth­er appar­ent dove­tail­ing of the Snowden/bitcoin sto­ries, it has been the­o­rized that NSA may have been involved in the take­down of Ulbricht. One won­ders if “team Snow­den” may help to obtain the free­dom of Cit­i­zen Ulbricht.

“Eagle Scout. Ide­al­ist. Drug Traf­fick­er? by David Segal; The New York Times; 1/19/2013.

. . . . What few friends real­ized is where his philo­soph­i­cal quest had brought him. At Penn State, he was becom­ing a ded­i­cat­ed lib­er­tar­i­an. He joined the school’s Lib­er­tar­i­an Club and wore a Ron Paul for Pres­i­dent shirt to class­es. Mr. Ulbricht was quot­ed in the school’s news­pa­per, The Dai­ly Col­le­gian, say­ing of Mr. Paul, “there’s a lot to learn from him and his mes­sage of what it means to be a U.S. cit­i­zen and what it means to be a free indi­vid­ual.”

. . . . By the time Mr. Ulbricht left Penn State, his views had tak­en on a vehe­ment­ly anti-tax tone. A friend in Austin said Mr. Ulbricht’s pol­i­tics at the time were more “hard core” than his own. . . .

. . . . Ross Ulbricht and Dread Pirate Roberts have oth­er sim­i­lar­i­ties, includ­ing a fond­ness for the Lud­wig von Mis­es Insti­tute, part of the Aus­tri­an School of Eco­nom­ics, which was cel­e­brat­ed by Mr. Ulbricht on his Google+ page and by D.P.R. in Silk Road pep talks. . . .

. . . . What is unclear is how the feds knew where the servers were. Pre­sum­ably, they were rent­ed in some far­away cor­ners of the globe — Ice­land, Latvia and Roma­nia are like­ly, accord­ing to experts who have stud­ied the I.P. address­es. But the offi­cial vague­ness has pro­voked spec­u­la­tion in aca­d­e­m­ic cir­cles and among secu­ri­ty spe­cial­ists. Was the Nation­al Secu­ri­ty Agency involved? Did this process involve break­ing laws, or vio­lat­ing con­sti­tu­tion­al rights?

That issue will be at the heart of Ross Ulbricht’s defense strat­e­gy, says Joshua L. Dra­tel, his lawyer, whose clients include a Guan­tá­namo detainee.“It’s called the fruit-of-the-poi­so­nous-tree doc­trine,” Mr. Dra­tel explained. “If you think of the acqui­si­tions of evi­dence as a chain, if you find one bad link, every­thing on the oth­er side of that link is sup­press­ible.” . . . .

. . . . A “ser­vices” sec­tion with 159 offer­ings includ­ed a tuto­r­i­al on hack­ing auto­mat­ed teller machines. More than 800 list­ings offered “dig­i­tal goods,” such as hacked Net­flix accounts, and 169 list­ings in “forg­eries,” includ­ing driver’s licens­es and car insur­ance records.

Any­one with min­i­mal com­put­er lit­er­a­cy could access this super­store of crim­i­nal mis­chief. Users need­ed only to install soft­ware for Tor, a net­work that hides I.P. address­es and bun­dles com­mu­ni­ca­tions in lay­ers of encryp­tion. . . .

11. In 764, we high­light­ed R. Cody Wil­son, a bit­coin advo­cate who explic­it­ly endors­es the anti-demo­c­ra­t­ic phi­los­o­phy of Lud­wig von Mis­es dis­ci­ple Hans Her­mann-Hoppe. (Hoppe, like Palan­tir CEO Alex Karp, has been heav­i­ly influ­enced by men­tor Juer­gen Haber­mas.)

R. Cody Wil­son is work­ing on some­thing called “Dark Wal­let,” which will the­o­ret­i­cal­ly enable the cir­cum­vent­ing of mon­i­tor­ing of bit­coin trans­ac­tions. Ulti­mate­ly, this will fur­ther the inter­ests of intel­li­gence ser­vices, ter­ror­ist milieux and male­fac­tors of any kind.

In past pro­grams, we have vis­it­ed with the bril­liant Lucy Komis­ar, who has done work on off­shore. Dark Wal­let, in par­tic­u­lar, and bit­coin in gen­er­al, is viewed by its pro­po­nents as a kind of “vir­tu­al off­shoring.”

“Dark Wal­let Aims To Be The Anarchist’s Bit­coin App Of Choice” by Andy Green­berg; Forbes; 10/31/2013.

Bit­coin may be the world’s first decen­tral­ized, state­less dig­i­tal cur­rency. But in the eyes of at least one group of anar­chists, the Bit­coin com­mu­nity has been get­ting a lit­tle too cozy with the estab­lish­ment. And they want to bring the cryp­tocur­rency back to its anti-reg­u­la­to­ry roots.

On Thurs­day a group of lib­er­tar­ian Bit­coin devel­op­ers call­ing them­selves Unsys­tem launched a crowd­fund­ing cam­paign to raise mon­ey to code a new Bit­coin “wal­let” they’re call­ing Dark Wal­let. Like any Bit­coin wal­let, Dark Wal­let will store a user’s Bit­coins and inter­act with the Bit­coin net­work, allow­ing the own­er to spend and receive the cur­rency. But unlike oth­er wal­lets, Dark Wal­let is designed specif­i­cally to pre­serve and even enhance the prop­er­ties of Bit­coin that make it a poten­tially anony­mous, tough-to-trace coin of the Inter­net under­ground.

“If Bit­coin rep­re­sents any­thing to us, it’s the abil­ity to for­bid the gov­ern­ment,” says Cody Wil­son, Dark Wallet’s project man­ager. (If Wilson’s name sounds famil­iar, he’s also the cre­ator of the world’s first ful­ly 3D-print­able gun, anoth­er project designed to show how tech­nol­ogy can under­mine gov­ern­ment reg­u­la­tion.)“Dark­Wal­let is your way of lock­ing out the State, flip­ping the chan­nel to one beyond obser­va­tion.”


Bit­coin has already served as a pow­er­ful tool for the so-called “dark web”– the law­less, anonymi­ty-enabled cor­ners of the Inter­net allud­ed to in some parts of Wilson’s video. Bitcoin’s most recent moment in the spot­light came with the shut­down of the Silk Road, the Bit­coin-based anony­mous online mar­ket­place for ille­gal drugs that gen­er­ated hun­dreds of mil­lions of dol­lars worth of sales in its 2.5 years online; The FBI seized anoth­er $28.5 mil­lion in stored bit­coins believed to belong to the site’s now-arrest­ed alleged own­er 29-year-old Ross Ulbricht just last week.

Bit­coin enabled the Silk Road by act­ing as a trust­wor­thy form of pay­ment that didn’t require any real names. Though all Bit­coin trans­ac­tions are pub­licly vis­i­ble with­in the Bit­coin net­work, they’re only linked to pseu­do­nyms, and users can anonymize the coins fur­ther by send­ing them through a Bit­coin laun­dry that mix­es up users’ bit­coins with those of oth­er users to make them hard­er to trace; Silk Road auto­mat­i­cally mixed the coins of all its users.

But Dark Wal­let would go fur­ther towards mak­ing Bit­coin a tru­ly untrace­able form of dig­i­tal cash. The wal­let cre­ators plan to include a fea­ture called “trust­less mix­ing” accord­ing to Amir Taa­ki, one of Unsystem’s founders and a long­time Bit­coin devel­oper. Rather than hand a user’s bit­coins off to a typ­i­cal Bit­coin laun­dry ser­vice that must be trust­ed to send back anoth­er more anony­mous bit­coin, trust­less mix­ing bun­dles togeth­er a col­lec­tion of Bit­coin trans­ac­tions and simul­ta­ne­ously sends them to new Bit­coin address­es that are also con­trolled by the same users; Since no one watch­ing the trans­ac­tions can see whose coins went where, the tech­nique eras­es any own­er­ship-iden­ti­fy­ing traces on the coins, while also avoid­ing the prob­lem of trust­ing a third-par­ty ser­vice to suf­fi­ciently mix the coins and not to sim­ply steal them.

The soft­ware, which is intend­ed to be a brows­er plug-in for Chrome and Fire­fox, would auto­mat­i­cally coor­di­nate the process with oth­er users over the anonymi­ty ser­vice Tor or sim­i­lar ser­vices to fur­ther hide users’ iden­ti­ties. The process could even be reduced to an anonymiz­ing “tog­gle switch” that would enable users to laun­der their coins on com­mand, says Taa­ki. “You buy the bit­coins in a nor­mal exchange, switch this on, and it slow­ly anonymizes them for you in the back­ground,” he says.

Dark Wal­let would also aim to solve anoth­er poten­tial pri­vacy prob­lem with Bit­coin that aris­es from wal­let soft­ware “announc­ing” trans­ac­tions to the Bit­coin net­work from a tell-tale IP address. By broad­cast­ing the mes­sages from a proxy address or over the Tor net­work, Taa­ki says that Dark Wal­let could pre­vent any­one from track­ing a user based on those trans­ac­tion announce­ments.

Wil­son and Taa­ki see Dark Wal­let in part as an answer to Bitcoin’s increas­ing adop­tion by users and devel­op­ers with more main­stream, gov­ern­ment-friend­ly views. In the video above and in their write­up of Dark Wal­let on Unsystem’s web­site, they direct­ly attack the Bit­coin Foun­da­tion, a non-prof­it group that has sought to engage with gov­ern­ments and use lob­by­ing tac­tics to com­pro­mise on poten­tial reg­u­la­tion of Bit­coin. “Many promi­nent Bit­coin devel­op­ers are active­ly in col­lu­sion with mem­bers of law enforce­ment and seek­ing approval from gov­ern­ment leg­is­la­tors,” reads one por­tion of the Dark Wal­let text. “We believe this is not in Bit­coin user’s self inter­est, and instead serves wealthy busi­ness inter­ests that make up the self-titled Bit­coin Foun­da­tion.” . . . . 

12. Bit­coin users have relied on the TOR net­work, to a con­sid­er­able extent. Because TOR is not as secure as advertsed, some have avoid­ed using it. Now the Max Planck Insti­tute is research­ing the devel­op­ment of a more secure oper­a­tion, that might per­mit dras­tic pro­lif­er­a­tion of the types of ills that appear inher­ent in the bit­coin con­cept.

“Anonymi­ty Net­work Tor Needs a Tune-Up to Pro­tect Users from Sur­veil­lance” by Toni Simonite; MIT Tech­nol­ogy Review; 10/25/2013.

. . . . This month’s reports, based on doc­u­ments leaked by Edward Snow­den, didn’t say whether the NSA was doing so. But a 2012 pre­sen­ta­tion marked as based on mate­r­ial from 2007, released by the Guardian, and a 2006 NSA research report on Tor, released by the Wash­ing­ton Postdid men­tion such tech­niques.

Stevens Le Blond, a researcher at the Max Planck Insti­tute for Soft­ware Sys­tems in Kaiser­slautern, Ger­many, guess­es that by now the NSA and equiv­a­lent agen­cies like­ly could use traf­fic cor­re­la­tion should they want to.“Since 2006, the aca­d­e­mic com­mu­nity has done much work on traf­fic analy­sis and has devel­oped attacks that are much more sophis­ti­cated than the ones described in this report.” Le Blond calls the poten­tial for attacks like those detailed by John­son “a big issue.”

Le Blond is work­ing on the design of an alter­na­tive anonymi­ty net­work called Aqua, designed to pro­tect against traf­fic cor­re­la­tion. Traf­fic enter­ing and exit­ing an Aqua net­work is made to be indis­tin­guish­able through a mix­ture of care­ful tim­ing, and blend­ing in some fake traf­fic. How­ever, Aqua’s design is yet to be imple­mented in usable soft­ware and can so far only pro­tect file shar­ing rather than all types of Inter­net usage. . . . .

13. We have dis­cussed the Max Planck insti­tute in past posts and pro­grams. (It was orig­i­nally called the Kaiser Wil­helm Insti­tute and was fund­ed by the Rock­e­feller Foun­da­tion, in con­sid­er­able mea­sure.) A major epi­cen­ter of Nazi sci­ence, it was the aca­d­e­mic foun­da­tion for Josef Mengele’s ghast­ly Auschwitz exper­i­ments on twins.

In the 1950 Madrid cir­cu­lar let­ter craft­ed by the Nazi gov­ern­ment in exile, we find rein­forc­ing argu­ment that the Max Planck Insti­tute remained an epi­cen­ter for sci­en­tific and tech­no­log­i­cal devel­op­ment for the Under­ground Reich. The entire text of the Madrid cir­cu­lar is avail­able on pp. 209–232 of Ger­many Plots with the Krem­lin.

We note that Juer­gen Haber­mas, men­tor to both Hans Her­mann-Hoppe and Palan­tir CEO Alex Karp was head of the Max Planck Insti­tute for 12 years. We seri­ous­ly doubt that any “anti-fas­cist” would be allowed to head such an insti­tu­tion.

Ger­many Plots with the Krem­lin by T.H. Tetens; Hen­ry Schu­man [HC]; 1953; p. 231.

. . . . Though we are pow­er­less at present, we have nonethe­less nev­er per­mit­ted our­selves to be dis­armed spir­i­tu­ally and sci­en­tif­i­cally. Ger­man schol­ars are work­ing unremit­tingly in Ger­many as well as abroad on great sci­en­tific plans for the future. Favor­able cir­cum­stances enabled us to keep alive the great research orga­ni­za­tion of the Kaiser Wil­helm Insti­tute through a change of name. First-class sci­en­tists are work­ing in the fields of inter­plan­e­tary nav­i­ga­tion (“Raum­schiff fahrt”), chem­istry and on cos­mic rays. Our sci­en­tists, unham­pered in their work, have suf­fi­cient time and are plan­ning day and night for Germany’s future. It is the Ger­man spir­it (“Geist”) that cre­ates mod­ern weapons and that will bring sur­pris­ing changes in the present rela­tion­ship of forces. . . .




15 comments for “FTR #770 Bit[coin]burg, Part 3: Fool’s Gold”

  1. side 1 & 2 are the same (side 2)

    Posted by TC | February 2, 2014, 5:27 am
  2. @TC,John, Tom–

    OK, the error is fixed. Both sides 1 and 2 of 770 are good to go.

    Thanks! (Haste Maketh Waste!)



    Posted by Dave Emory | February 2, 2014, 11:31 am
  3. There’s a ‘civ­il war’ of sorts tak­ing place with­in the bit­coin com­mu­ni­ty between the Wall Street-friend­ly folks that want to turn it into a reg­u­lat­ed, ful­ly-legal enti­ty vs the cryp­to-anar­chists and Lib­er­tar­i­ans that form the base of the bit­coin and want bit­coin to lib­er­ate human­i­ty from the tyran­ny of cen­tral bank­ing and fiat cur­ren­cy. Its the suits vs the kooks! So some­thing worth watch­ing once the smoke clears is what hap­pens to the con­cen­trat­ed bit­coin hold­ings of all those big, ear­ly investors that hold a huge % of the total bit­coins that will ever exists, many of whom are pre­sum­ably hard­core philo­soph­i­cal back­ers of the Lib­er­tar­i­an eco­nom­ics. If the suits end up win­ning and bit­coin turns its back on des­tiny could that be the event that final­ly encour­ages some sell­offs by the con­cen­trat­ed core of qua­si-anony­mous bit­coin barons:

    Busi­ness Insid­er
    The Emerg­ing Bit­coin Civ­il War
    Rob Wile

    Jan. 29, 2014, 5:32 PM

    A civ­il war is emerg­ing between Bit­coin’s ear­li­est and most lib­er­tar­i­an adopters, and a more com­mer­cial wing seek­ing to embrace reg­u­la­tion as a means of legit­imiz­ing Bit­coin busi­ness­es.

    The divide came into focus this week with two key events events. One was a hear­ing on Bit­coin reg­u­la­tion by the New York Depart­ment Of Finan­cial Ser­vices. The oth­er was the arrest of BitIn­stant CEO Char­lie Shrem on mon­ey laun­der­ing charges.

    Until the moment of his arrest, Shrem, 24 had been some­thing of a dar­ling in the Bit­coin ven­ture cap­i­tal com­mu­ni­ty — the Win­klevoss broth­ers were one of BitIn­stan­t’s ear­li­est investors, and Shrem was sched­uled to co-head­line a Bit­coin con­fer­ence in Mia­mi this past week­end.

    But on the first day of hear­ings about the future of Bit­coin reg­u­la­tion con­vened this week by the New York Depart­ment of Finan­cial Ser­vices, a pan­el of VCs were quick to dis­avow Shrem as an exam­ple of a more imma­ture wing of Bit­coin. The Win­klevoss twins said they were grat­i­fied the Depart­ment was dis­cussing ways to help legit­imize Bit­coin com­merce. Their Bit­coin ETF is await­ing reg­u­la­to­ry approval from the SEC.

    The divi­sion is not just about sheer dol­lar size. Appear­ing at the Tues­day hear­ing, Fred Wil­son — whose Union Square Ven­tures spear­head­ed a $5 mil­lion invest­ment round in Bit­coin wal­let firm Coin­base warned against any­thing but the light­est-touch reg­u­la­tions. He com­pared the dan­gers Bit­coin star­tups would face to what hap­pened to ear­ly-stage music stream­ing plat­forms, which were inun­dat­ed with law­suits from record labels. Should Bit­coin star­tups be sub­ject to sim­i­lar legal scruti­ny from finan­cial reg­u­la­tors, he said, they would be snuffed out before they even had a chance to bloom.

    Wilson’s views were coun­tered by no oth­er than Fred Ehrsam, Coin­base’s co-founder. He told DFS reg­u­la­tors Wednes­day, “Although I love Fred Wil­son, there’s prob­a­bly some min­i­mal require­ments and pro­ce­dures that should be put in place if you’re facil­i­tat­ing that kind of exchange.”

    Per­haps it is not sur­pris­ing that this ultra-lib­er­tar­i­an fac­tion was not rep­re­sent­ed at this week’s hear­ings.

    But it could be seen at the NYC Bit­coin Cen­ter on Broad Street in Man­hat­tan — where a fol­low-up cock­tail par­ty was held Tues­day to dis­cuss “fall­out” from the first day’s hear­ing — and online, where this fac­tion railed from afar against reg­u­la­tors.


    These indi­vid­u­als may seem extreme, but, until recent­ly, they rep­re­sent­ed the core of Bit­coin evan­ge­lism.

    But their influ­ence seems to be fad­ing. Bar­ry Sil­bert’s Bit­coin Invest­ment Trust is now worth 10s of mil­lions of dol­lars. In an email Wednes­day, he said he agreed the cryp­to-anar­chists who dom­i­nat­ed the dig­i­tal cur­ren­cies ear­li­est incar­na­tions were get­ting left behind.

    “There are cer­tain­ly a hand­ful of folks that are hard­core lib­er­tar­i­ans (some anar­chists) that believe that bit­coin should be com­plete­ly unreg­u­lat­ed, but I believe they are in the minor­i­ty and, as a per­cent­age of bit­coin believ­ers, is shrink­ing very quick­ly. I respect their view­point, but unfor­tu­nate­ly, don’t see how there vision is viable in today’s soci­ety.”

    On Wednes­day, New York Dis­trict Attor­ney Cyrus Vance Jr. said the great­est con­cern about dig­i­tal cur­ren­cies among law enforce­ment was anonymi­ty. In a Bit­coin trans­ac­tion, all trans­ac­tions are essen­tial­ly con­duct­ed between e‑addresses that lack any kind of user iden­ti­fi­ca­tion.

    “The dif­fi­cul­ty, when crim­i­nal activ­i­ty is involved, is for inves­ti­ga­tors to iden­ti­ty how the mon­ey is moved where and for what pur­pose.,” he said.

    But tin­ker­ing with Bit­coin’s anonymi­ty would seem to strike at the heart of anoth­er one of Bit­coin’s core ele­ments — as seen in the fol­low­ing Tweet:


    But Jere­my Allaire, founder and CEO of Cir­cle, a com­pa­ny that devel­ops dig­i­tal cur­ren­cy prod­ucts, showed lit­tle con­cern that reg­u­la­tors could start scrap­ing away at Bit­coin’s anonymi­ty ele­ment. Asked Tues­day on the pan­el whether new reg­u­la­tions affect­ing Bit­coin’s anonymi­ty would under­mine the pop­u­lar­i­ty of the cur­ren­cy, Allaire replied, “That depends on your def­i­n­i­tion of the essence of Bit­coin.”

    As Bit­coin con­tin­ues to emerge, this fight over Bit­coin’s essence, and how much of a role gov­ern­ment should play, will only get more intense.

    Don’t for­get, in the cryp­tocur­ren­cy civ­il war, you don’t have to choose between the suits and the kooks. You can, and should, choose the under­dog:

    Busi­ness Insid­er
    Doge­coin Just Solved A Prob­lem That Bit­coin Is Going To Face
    Rob Wile

    Feb. 4, 2014, 4:58 PM

    The price of Doge­coin, the world’s third most trad­ed cyrp­tocur­ren­cy, is down 9% this after­noon.

    And that’s a great thing.

    Because the update from Doge­coin’s cre­ators caus­ing the tem­po­rary price drop will ulti­mate­ly ensure its longevi­ty going for­ward.

    In a mes­sage on Github this week­end, Syd­ney-based co-cre­ator Jack­son Palmer announced the amount of Doge­coin would not be fixed, mean­ing it’s pos­si­ble for an infi­nite amount of Doge­coin to be cre­at­ed. (This was first spot­ted by Ars Tech­ni­ca’s Cyrus Favri­ar). Every new “block” of Doge­coin that gets mined will yield 10,000 units of the cur­ren­cy.

    “This will help main­tain min­ing and sta­bi­lize the num­ber of coins in cir­cu­la­tion (con­sid­er­ing lost wal­lets and var­i­ous oth­er ways coins may be destroyed) at 100 bil­lion,” Palmer wrote.

    This is close to how a nor­mal fiat cur­ren­cy like the U.S. dol­lar works. Like the green­back, Doge­coin will now bet­ter be able to respond to increas­ing demand, as well as poten­tial dam­ages like those out­lined by Palmer. It also gives incen­tives for min­ers to keep oper­at­ing, thus help­ing keep the net­work more secure — as in Bit­coin, “min­ing” Doge­coin also serves to con­firm the trans­ac­tions tak­ing place on the dig­i­tal cur­ren­cy’s mas­ter exchange ledger.

    These all hap­pen to be prob­lems Bit­coin cur­rent­ly faces. Bit­coin has a ear­ly adop­tion and min­er-arms-race regime. Those who got in ear­li­est, or can mine the most, enjoy lop­sided con­trol over the Bit­coin mar­ket. We’ve dis­cussed this else­where. The result is that they are cross­ing their fin­gers that Bit­coin adop­tion will become wide­spread, thus help­ing dri­ve up val­ue. It’s hard to tell what’s dri­ving what, but the price has set­tled at $800 for a cou­ple months now. That’s a lot to pay for a sin­gle Bit­coin for some­one just enter­ing the mar­ket.


    Sec­ond­ly, Bit­coin is already approach­ing the point where mega-min­ers will have to begin charg­ing fees to con­tin­ue min­ing. As we dis­cussed above, min­ing helps keep the net­work secure, so the cost of secu­ri­ty is going to increase. By cre­at­ing a steady rate of infla­tion, Doge­coin can keep secu­ri­ty cheap.

    As GitHub user Chk­wok writes, the new deci­sion will allow Doge­coin to reach a much wider audi­ence:

    The ones mak­ing the most noise in the pro-defla­tion camp aren’t the ones we want to serve, if we’re to become the Inter­net’s cur­ren­cy, we’ll have to reach the main­stream users which don’t care about hoard­ing mas­sive amounts of Ð for prof­it, the max 5% loss of val­ue per year caused by infla­tion in the worst case or bro­ken promis­es on a Bit­cointalk thread. They care about hav­ing a cur­ren­cy where micro­pay­ments are prop­er­ly imple­ment­ed (with­out the insane fees and min­i­mums Pay­Pal & friends want) and tip­ping is effort­less.”

    Doge­coin wins the cryp­tocur­ren­cy bat­tles one supe­ri­or meme at a time so it’ll be extra inter­est­ing to see what dump­ing defla­tion in the hope of cut­ting down long-term trans­ac­tion fees does do Doge­coin’s meme-mag­ic. Either way, it’s a long war.

    Posted by Pterrafractyl | February 5, 2014, 2:39 pm
  4. As the MtGox deba­cle is demon­strat­ing, dan­ger­ous mis­takes can be rather cost­ly. But as the arti­cle below points out, tech­ni­cal mis­takes like the MtGox bug are rel­a­tive­ly easy to fix. There are big­ger bugs in bit­coin and they aren’t sim­ply cod­ing errors

    Finan­cial Times
    Feb­ru­ary 10, 2014 5:40 pm
    A dan­ger­ous mis­take lies at Bitcoin’s intel­lec­tu­al core

    By Mark Williams
    We need the flex­i­ble and time­ly pol­i­cy that cryp­tocur­ren­cies rule out, says Mark Williams

    This week­end Rus­sia became the lat­est coun­try to crack down on Bit­coin. Chi­na has already banned its cit­i­zens from buy­ing the “cryp­tocur­ren­cy”, which func­tions like cash in that it can be trans­ferred anony­mous­ly from one per­son to anoth­er with­out the involve­ment of a cen­tral clear­ing house. West­ern reg­u­la­tors are also watch­ing ner­vous­ly.


    Real though these con­cerns are, they miss the far more seri­ous threat from the eco­nom­ic ideas behind Bit­coin. An indi­vid­ual or group using the pseu­do­nym Satoshi Nakamo­to first described the work­ings of the vir­tu­al cur­ren­cy in 2008. The fol­low­ing year they released the first ver­sion of the soft­ware that issues Bit­coins and keeps track of when they are spent. By then, many had come to doubt whether dol­lars, euros and oth­er gov­ern­ment-issued cur­ren­cies would hold their worth – and whether ortho­dox mon­e­tary insti­tu­tions were the best way to pro­mote pros­per­i­ty. Bit­coin has gained a fol­low­ing part­ly because it seems to show us how we can do with­out mon­ey issued by the state. Cur­ren­cy could be nation­less.

    Keep­ing mon­ey sta­ble and trust­wor­thy has tra­di­tion­al­ly been a func­tion of nation­al gov­ern­ments. By con­trol­ling the mon­ey sup­ply and tar­get­ing inter­est rates, the author­i­ties try to pro­mote job cre­ation and eco­nom­ic growth, while pre­vent­ing run­away infla­tion that would cause the sys­tem of mar­ket exchange to break down. Cal­i­brat­ing mon­e­tary pol­i­cy to the needs of the econ­o­my is an enor­mous under­tak­ing. Cen­tral banks such as the US Fed­er­al Reserve employ hun­dreds of peo­ple to analyse eco­nom­ic data, chart the best path for mon­e­tary pol­i­cy and explain their deci­sions to the pub­lic.

    Bit­coin is designed to take these jobs away from cen­tral bankers and give it to a sim­ple algo­rithm instead. Since an autonomous com­put­er sys­tem can­not react to com­plex data such as the unem­ploy­ment rate or the lev­el of out­put, Bit­coin uses a fixed for­mu­la to con­trol the cur­ren­cy sup­ply. New tokens will be mint­ed at a pre­de­ter­mined rate until a ceil­ing is reached some time around 2140, after which sup­ply of the cur­ren­cy will stop grow­ing.

    Nakamoto’s writ­ings seem to indi­cate that the moti­va­tion, at least in part, was the lib­er­tar­i­an ide­al of putting mon­ey cre­ation beyond the reach of med­dling cen­tral bankers. But this is a mis­take. It ignores the ebbs and flow of eco­nom­ic cycles – a reck­less approach that is the equiv­a­lent of a doc­tor giv­ing peni­cillin to every patient with­out first check­ing whether they are suf­fer­ing from infec­tion, depres­sion or mania.

    Some new­er com­peti­tors to Bit­coin try to cor­rect this, allow­ing the sup­ply of the cur­ren­cy to grow indef­i­nite­ly in an attempt to gen­er­ate low but pos­i­tive infla­tion. Oth­ers incor­po­rate penal­ties for hoard­ing, which are intend­ed to ensure that the tokens cir­cu­late more freely. While these are a marked improve­ment over Bit­coin, they all share the same flaw. The state of the econ­o­my does not depend sole­ly on the pace of mon­ey cre­ation but also on pat­terns of human behav­iour that are too com­plex to cap­ture in a sim­ple rule.

    That is why we need cen­tral bankers who can adjust mon­e­tary pol­i­cy to pro­mote pros­per­i­ty when peo­ple behave in unex­pect­ed ways. True, the experts in charge of mon­e­tary pol­i­cy in the years before 2008 failed to pre­vent the finan­cial cri­sis. But their deci­sive action in its after­math is wide­ly cred­it­ed with pre­vent­ing a depres­sion. With­out a mas­sive expan­sion in the mon­ey sup­ply, many coun­tries may now be deal­ing with seri­ous defla­tion. Yet it is pre­cise­ly this kind of flex­i­ble and time­ly pol­i­cy reac­tion that cryp­tocur­ren­cies aim to rule out.


    If you check out the com­ments to this arti­cle there’s fun lit­tle his­to­ry les­son in the com­ment writ­ten by David D. Fried­man, the cryp­to-anar­cho-cap­i­tal­ist son of famous unper­son Mil­ton Fried­man and father of Seast­ead­er-in-chief Patri Fried­man. The com­ment is a reminder that the orga­nized far-right and asso­ci­at­ed think­tanks have been pin­ing for pri­vate cur­ren­cies for quite a while:

    David D. Fried­man | Feb­ru­ary 10 7:09pm | Perma­link
    There are at least two assump­tions implic­it in this arti­cle, both dubi­ous. The first is that we know enough to use con­trol over mon­e­tary pol­i­cy to smooth out busi­ness cycles, the sec­ond that gov­ern­ment mon­ey issuers have the cor­rect incen­tives to run a bet­ter mon­e­tary pol­i­cy than pri­vate issuers.

    As some evi­dence against the first, it’s worth not­ing that of the three big depres­sions in U.S. his­to­ry, two occurred as the result of gov­ern­ment involve­ment (the col­lapse of the Sec­ond Bank of the Unit­ed States, gov­ern­ment cre­at­ed, in the 1830’s, the per­verse mon­e­tary pol­i­cy of the Fed­er­al Reserve in the 1930’s), one from exter­nal caus­es (the long depres­sion at the end of the 19th cen­tu­ry due to the ris­ing val­ue of gold). Where is the evi­dence that gov­ern­ment “sta­bi­liza­tion” pol­i­cy has actu­al­ly sta­bi­lized? The most recent case is the cur­rent long reces­sion, “man­aged” by both activist fis­cal and mon­e­tary policy–with very bad results. One can always claim it would have been worse with­out that pol­i­cy, but inso­far as what hap­pened is evi­dence, it’s evi­dence against. Where is the evi­dence for?

    One char­ac­ter­is­tic of a good mon­ey is that its val­ue is rea­son­ably sta­ble and pre­dictable. So far as I know, all his­tor­i­cal hyper­in­fla­tions have occurred with gov­ern­ment mon­ey, which casts some doubt on the author’s claim that pre­vent­ing run­away infla­tions is the job of governments—it is gov­ern­ments that cause run­away infla­tions. That isn’t ter­ri­bly sur­pris­ing if you think about the incentives—a monop­oly issuer can, for a while, fund expen­di­ture with­out tax­a­tion via the print­ing press. A pri­vate issuer in a com­pet­i­tive mar­ket, on the oth­er hand, has good rea­son to main­tain the val­ue of his mon­ey if he wants any­one to use it. And pri­vate­ly issued mon­ey is not some new idea—it exist­ed in Scot­land for 150 years, and has exist­ed else­where.

    For a more detailed dis­cus­sion of the argu­ment in favor of pri­vate com­pet­ing cur­ren­cies over state monop­oly cur­ren­cies, see an old piece of mine, writ­ten long before Bit­coin:


    The cato piece about com­pet­ing pri­vate cur­ren­cies that David Fried­man linked to was writ­ten in 1982. And sure enough, it’s only 32 years lat­er and we’re almost liv­ing in cryp­tocur­ren­cy nir­vana! Let’s hope his oth­er paleo-lib­er­tar­i­an futur­ist pre­dic­tions are just as accu­rate.

    Posted by Pterrafractyl | February 11, 2014, 11:43 am
  5. And the hits keep com­ing! Bit­coin is now suf­fer­ing a mas­sive denial-of-ser­vice attack, but with a twist: Some­one’s bot­net is apply­ing the same “trans­ac­tion mal­leabil­i­ty” tech­nique that brought down MtGox, but instead of just hit­ting MtGox this bot net­work is mal­form­ing all sorts of bit­coin trans­ac­tions simul­ta­ne­ous­ly! As a con­se­quence, we’re learn­ing that it was­n’t just MtGox that need­ed to update their soft­ware:

    Bit­coin Exchanges Under ‘Mas­sive and Con­cert­ed Attack’
    Emi­ly Spaven (@emilyspaven) | Pub­lished on Feb­ru­ary 11, 2014 at 17:50 GMT | Bit­stamp, Exchanges, News

    A “mas­sive and con­cert­ed attack” has been launched by a bot sys­tem on numer­ous bit­coin exchanges, Andreas Antonopou­los has revealed.

    This has lead to pop­u­lar exchange Bit­stamp putting a tem­po­rary halt on all bit­coin with­drawals, and BTC‑e announc­ing pos­si­ble delays on trans­ac­tion cred­it­ing.

    Antonopou­los, who is the chief secu­ri­ty offi­cer of Blockchain.info, said a DDoS attack is tak­ing Bitcoin’s trans­ac­tion mal­leabil­i­ty prob­lem and apply­ing it to many trans­ac­tions in the net­work, simul­ta­ne­ous­ly.

    “So as trans­ac­tions are being cre­at­ed, malformed/parallel trans­ac­tions are also being cre­at­ed so as to cre­ate a fog of con­fu­sion over the entire net­work, which then affects almost every sin­gle imple­men­ta­tion out there,” he added.

    Antonopou­los went on to say that Blockchain.info’s imple­men­ta­tion is not affect­ed, but some exchanges have been affect­ed – their inter­nal account­ing sys­tems are grad­u­al­ly going out of sync with the net­work.

    He empha­sised that this isn’t affect­ing with­drawals, because most exchanges are not pro­cess­ing them auto­mat­i­cal­ly.

    Mt. Gox is the exchange that has suf­fered the most over the past few days, due to a num­ber of fac­tors, said Antonopou­los. One prob­lem is that it was using a cus­tom client (not the core Bit­coin soft­ware), on top of that there is the DDoS attack, plus it was using an auto­mat­ed sys­tem to approve with­drawals.

    “This is not hap­pen­ing to oth­er exchanges because they’re not stu­pid enough to issue with­drawals with­out check­ing them out first,” he explained.

    Antonopou­los said we will see a few exchanges sus­pend with­drawals tem­porar­i­ly while they re-work their account­ing sys­tems to ensure they are not con­fused by the attack.

    “It’s impor­tant to note no funds have been lost. With­drawals have been halt­ed to pre­vent funds from being lost or to pre­vent the bal­ances from going out of sync,” he stressed.

    Indus­try action

    An indus­try-wide coor­di­nat­ed response has been put into action, with exchanges and core devel­op­ers col­lab­o­rat­ing active­ly to attack the prob­lem from mul­ti­ple angles.

    Var­i­ous oth­er groups with­in the ecosys­tem, includ­ing the big min­ing pools, are work­ing to stop the issue from prop­a­gat­ing across the net­work.


    Bit­coin devel­op­er Jeff Garzik said the core bit­coin block chain con­sen­sus mech­a­nism and pay­ment sys­tem are con­tin­u­ing to work as before, and are not direct­ly impact­ed by trans­ac­tion mal­leabil­i­ty.

    He added: “Web wal­lets and oth­er ser­vices that build ser­vices on top of bit­coin are report­ing prob­lems sim­i­lar to MtGox, and are tak­ing safe­ty mea­sures to ensure no fund loss, dur­ing this net­work dis­rup­tion.

    “Yesterday’s state­ment must be revised: we will like­ly issue an update fix­ing two edge cas­es exposed by this attack.”

    Bit­stamp has issued a state­ment explain­ing that it has tem­porar­i­ly halt­ed BTC with­drawals. It begins:

    Bitstamp’s exchange soft­ware is extreme­ly cau­tious con­cern­ing Bit­coin trans­ac­tions. Cur­rent­ly it has sus­pend­ed pro­cess­ing Bit­coin with­drawals due to incon­sis­tent results report­ed by our bit­coind wal­let, caused by a denial-of-ser­vice attack using trans­ac­tion mal­leabil­i­ty to tem­porar­i­ly dis­rupt bal­ance check­ing. As such, Bit­coin with­draw­al pro­cess­ing will be sus­pend­ed tem­porar­i­ly until a soft­ware fix is issued.

    The state­ment goes on to reveal that no funds have been lost, nor are any at risk.


    Don’t pan­ic

    Antonopou­los was keen to stress that, although this is a seri­ous attack, it doesn’t spell the end of bit­coin. He believes the DDoS attack will be “thwart­ed” and exchanges will be run­ning as usu­al by Fri­day.

    “I expect things will go back to nor­mal and the hon­ey bad­ger of mon­ey can con­tin­ue show­ing its resilience,” he said.

    “The death of bit­coin has been pre­ma­ture­ly announced so many times already that the obvi­ous con­clu­sion is that bit­coin is far more resilient than its crit­ics would like to think. I am con­fi­dent that in a few days, those who pre­dict­ed the death of bit­coin will once again be proven wrong,” Antonopou­los con­clud­ed.

    So it does­n’t look like this lat­est attack is going to result in the actu­al loss of bit­coins like what took place on MtGox (because MtGox had an auto­mat­ed sys­tem that got tricked). But it does look like a num­ber of bit­coin exchanges are going to be ren­dered unus­able until they get this fixed, includ­ing major exchanges like Bit­stamp. And who knows how many oth­er kinds of bit­coin-relat­ed soft­ware will have to be updat­ed too.

    The exchange oper­a­tors are prob­a­bly cor­rect, how­ev­er, that a fix should­n’t be too hard to imple­ment over time and that this does­n’t spell the doom of bit­coin. It’s just been a real­ly real­ly bad cou­ple of weeks. But this lat­est denial of ser­vice attack sure is omi­nous com­ing just a day after the MtGox remind­ed the world that this vul­ner­a­bil­i­ty exists because it’s a reminder that bit­coin’s vul­ner­a­bil­i­ties aren’t lim­it­ed to the the the­o­ret­i­cal vul­ner­a­bil­i­ties inher­ent in its dis­trib­uted archi­tec­ture (like the 51% attack or self­ish-min­ers attack). There’s also the vul­ner­a­bil­i­ties that might ran­dom­ly arise sim­ply through improp­er imple­men­ta­tion of soft­ware that’s run­ning on top of the bit­coin soft­ware.

    MtGox’s prob­lems, and now Bit­stam­p’s prob­lems, arose pri­mar­i­ly due to flaws in their soft­ware and pro­to­cols. And the same could be true for any oth­er exchange in the future or any oth­er bit­coin app. You can defend against the­o­ret­i­cal vul­ner­a­bil­i­ties but try­ing to iden­ti­fy and cor­rect ran­dom bugs in future ver­sion of bit­coin-relat­ed soft­ware or just plain old human error isn’t real­ly pos­si­ble. This is why the irre­versibil­i­ty of bit­coin trans­ac­tions could become a grow­ing prob­lem.

    So today’s attack is like­ly just anoth­er tem­po­rary annoy­ance for the bit­coin indus­try, but just imag­ine, in the future, if mul­ti­ple pop­u­lar bit­coin exchanges get hit by some­thing caus­ing bogus trans­ac­tions but on a much larg­er scale. There’s no clear way to reverse an event like that so could some­thing like that kill bit­coin? Pret­ty please?

    Posted by Pterrafractyl | February 11, 2014, 7:58 pm
  6. http://venturebeat.com/2014/02/12/new-jersey-slaps-mit-bitcoin-hackers-with-subpoena-and-theyre-fighting-back/view-all/

    New Jer­sey slaps MIT Bit­coin hack­ers with sub­poe­na — and they’re fight­ing back
    Feb­ru­ary 12, 2014 10:02 AM
    Eric Blat­tberg

    The MIT stu­dents behind Bit­coin min­ing pro­gram Tid­bit won the “most inno­v­a­tive” award at a recent hackathon.

    But they will soon face a rul­ing from anoth­er kind of judge: one employed by the state of New Jer­sey.

    In ear­ly Decem­ber, a few weeks after the hackathon, the New Jer­sey divi­sion of con­sumer affairs issued a sub­poe­na to 19-year-old Tid­bit devel­op­er Jere­my Rubin. The sub­poe­na demand­ed he turn over every­thing relat­ed to Tid­bit: all ver­sions of the source code, all Bit­coin wal­lets asso­ci­at­ed with Tid­bit, all agree­ments and com­mu­ni­ca­tions with third par­ties, the name and IP address­es of every­one who mined Bit­coins using Tid­bit, and so on. It explic­it­ly asked for “all doc­u­ments and cor­re­spon­dence con­cern­ing all breach­es of secu­ri­ty and / or unau­tho­rized access to com­put­ers” by Tid­bit.

    (Dis­clo­sure: I’ve known Rubin for sev­er­al years through mutu­al con­nec­tions, though we’ve nev­er main­tained reg­u­lar con­tact.)

    The stu­dent hack­ers bill Tid­bit as an alter­na­tive to dis­play adver­tis­ing: With Tid­bit, web­sites could let their vis­i­tors help them mine Bit­coins instead of serv­ing up ads. While there are oth­er remote min­ing solu­tions, Tid­bit is the first project that seeks to replace adver­tis­ing rev­enue with Bit­coin min­ing.

    New Jer­sey hasn’t accused Rubin or Tid­bit of a crime, but the lan­guage in the sub­poe­na reads much like the state’s com­put­er fraud act, which car­ries some stiff penal­ties.

    Last year, New Jer­sey alleged that E‑Sports Enter­tain­ment (ESEA), a com­pet­i­tive gam­ing com­pa­ny based in New York, embed­ded mali­cious code in its anti-cheat­ing soft­ware. The soft­ware report­ed­ly enabled ESEA to mon­i­tor 14,000 sub­scribers’ com­put­ers and also hijacked their com­put­ing pow­er to mine Bit­coins worth around $3,750. Fol­low­ing New Jersey’s inves­ti­ga­tion, the com­pa­ny agreed to a $1 mil­lion set­tle­ment to avoid a pro­longed legal bat­tle.

    Sev­er­al of the for­mal writ­ten requests posed to Rubin sug­gest the state believes Tid­bit may sim­i­lar­ly vio­late con­sumers’ rights.
    A proof of con­cept

    As for the infor­ma­tion New Jer­sey is demand­ing from the team, it isn’t going to get the bulk of it, because most of it doesn’t exist.

    A bit about Bit­coin

    Bit­coin is a dig­i­tal “cryp­tocur­ren­cy” that exists out­side cen­tral finan­cial insti­tu­tions. Every Bit­coin trans­ac­tion is auto­mat­i­cal­ly tran­scribed on the “block chain,” a shared pub­lic ledger sup­port­ed by a world­wide net­work of Bit­coin min­ers. In exchange for their com­pu­ta­tion­al pow­er, min­ers some­times earn blocks of Bit­coin, although those chances grow slim­mer as the net­work of Bit­coin min­ers grows.

    Tid­bit remains a proof of con­cept: No one has ever used the pro­gram to mine Bit­coins or any oth­er vir­tu­al cur­ren­cy.

    Although 98 per­cent of Tidbit’s infra­struc­ture is in place, it isn’t ready for pro­duc­tion use, accord­ing to the devel­op­ers. They inten­tion­al­ly left out the final inter­ac­tion (with Bit­coin pool­ing ser­vice P2Pool) while they worked on a set of terms and con­di­tions. That’s why they were so sur­prised when New Jer­sey came knock­ing.

    “We were served right before finals,” Rubin told Ven­ture­Beat. “I think what was hard­est is that I, and per­haps most MIT stu­dents, just want to build, make, and tin­ker towards a bet­ter future.”

    Faced with a daunt­ing legal chal­lenge, a stressed Rubin sought help from the Elec­tron­ic Fron­tier Foun­da­tion (EFF). The tech­nol­o­gy law non­prof­it read­i­ly agreed to assist Rubin and his peers.

    “These are col­lege kids, and they’ve got this thing hang­ing over their heads,” Han­ni Fakhoury, an EFF staff attor­ney rep­re­sent­ing Tid­bit, told Ven­ture­Beat in an inter­view. “Dur­ing the mid­dle of their finals, they had to take time off to deal with the sub­poe­na.”

    After nego­ti­at­ing a few exten­sions, Rubin’s lawyers filed an offi­cial com­plaint in late Jan­u­ary. To quash the “uncon­sti­tu­tion­al” sub­poe­na, Tid­bit is tak­ing New Jer­sey to court.
    Bit­coin min­ing through the brows­er
    Tid­bit instruc­tions

    Tid­bit instruc­tions

    Rubin and three class­mates ini­tial­ly devel­oped Tid­bit in 48 hours for Node Knock­out 2013, a Node.js pro­gram­ming com­pe­ti­tion held Novem­ber 11 to 13. With a snip­pet of embed­ded code, Tid­bit could enable web­sites to tap into vis­i­tors’ com­put­ers and bor­row CPU cycles to mine Bit­coin. In exchange, the sites would remove dis­play adver­tis­ing for those who opt-in.

    “We’re hop­ing that Tid­bit can com­plete­ly replace ad rev­enue,” wrote Tid­bit devel­op­er Oliv­er Song on the Node Knock­out site late last year.

    Tid­bit uses the Stra­tum pro­to­col, which would enable web­sites to get paid based on total work con­tributed to the min­ing pool rather than total Bit­coins mined. But in its cur­rent form, Tid­bit still isn’t very eco­nom­i­cal: If peo­ple ran Tid­bit for a full day, they might each gen­er­ate around a cent in rev­enue for a web­site, but their per­son­al elec­tric­i­ty costs would be much high­er.

    To improve Tidbit’s per­for­mance, Song said the team want­ed to inte­grate WebGL and run com­pu­ta­tions on the graph­ics pro­cess­ing unit (GPU). He also pro­posed sup­port for cryp­tocur­ren­cies that are eas­i­er to mine, like Lite­coin. An ear­ly Decem­ber email sent to the Tid­bit mail­ing list (and obtained by Ven­ture­Beat) con­firmed Lite­coin sup­port as a key goal for the beta release, which the team had planned for ear­ly Feb­ru­ary.

    New Jer­sey com­pli­cat­ed those plans.

    Tid­bit vs. New Jer­sey
    Rubin v. New Jer­sey

    With help from the EFF, Tid­bit has moved to quash the sub­poe­na in New Jer­sey state court. Tidbit’s rep­re­sen­ta­tives argue the state has no per­son­al juris­dic­tion over Rubin because he’s not a New Jer­sey res­i­dent, and Tid­bit has no direct involve­ment in New Jer­sey — the source code isn’t stored there, and it’s not tar­get­ing New Jer­sey con­sumers in any way. New Jer­sey has no right to reg­u­late out-of-state Inter­net activ­i­ty, said EFF staff attor­ney Han­ni Fakhoury.

    “This is one of those rare cir­cum­stances where the com­mon sense expla­na­tion also match­es the legal argu­ment,” he told us.

    Not sur­pris­ing­ly, New Jer­sey dis­agrees.

    “The state feels con­fi­dent that its issuance of a sub­poe­na in this mat­ter will be found to be entire­ly legit­i­mate, for rea­sons that will be detailed in its forth­com­ing oppo­si­tion to Tidbit’s motion to quash,” Neal Buc­ci­no, a spokesper­son for the New Jer­sey divi­sion of con­sumer affairs, told Ven­ture­Beat. He declined to com­ment fur­ther, cit­ing the ongo­ing nature of the inves­ti­ga­tion.

    If the court upholds the sub­poe­na, Rubin’s lawyers have request­ed he receive pro­tec­tion under the fifth amend­ment, which states the no one should be com­pelled to be a wit­ness against him­self in a crim­i­nal case.

    “He should be giv­en immu­ni­ty from crim­i­nal pros­e­cu­tion because the state is basi­cal­ly ask­ing him to incrim­i­nate him­self,” said Fakhoury.

    The court is expect­ed to set a hear­ing for late Feb­ru­ary where the judge will make a deter­mi­na­tion. In the mean­time, Rubin and his peers are try­ing to focus on their stud­ies.

    “Deal­ing with this sub­poe­na has put an undue amount of stress on me and my col­leagues,” Rubin told us. “To have our progress be hin­dered by such a sub­poe­na def­i­nite­ly hurt our team morale.”

    Rubin declined to com­ment on whether they intend to move for­ward with Tid­bit. Fakhoury seems to think they’re inter­est­ed in form­ing a start­up, how­ev­er.

    “I would imag­ine that they’d want to make this some­thing more for­mal­ized,” he said. “After all, they won an award at the hackathon for a rea­son. But every­thing is going to basi­cal­ly be on hold until the sub­poe­na is dealt with.”

    Fakhoury feels con­fi­dent that Tid­bit has “pre­sent­ed the best argu­ment,” but not­ed that it’s impos­si­ble to pre­dict a judge’s deter­mi­na­tion. “Any lawyer who will give you his chances is a bad lawyer,” he said.
    Phish­ing for evi­dence

    Even if the sub­poe­na is dis­missed, the Tid­bit case rep­re­sents a wor­ry­ing dis­par­i­ty between the tech com­mu­ni­ty and gov­ern­ment reg­u­la­tors. With its inves­ti­ga­tion, New Jer­sey is try­ing to pro­tect its pop­u­lace, but Tid­bit nev­er even launched a func­tion­al prod­uct.

    The court should — and like­ly will — declare this sub­poe­na uncon­sti­tu­tion­al and unen­force­able, as Rubin’s lawyers have request­ed. But that won’t erase the time and resources it cost Rubin and his class­mates, who should have been work­ing toward that beta release, not bat­tling a state reg­u­la­tor.

    The sub­poe­na and accom­pa­ny­ing inter­roga­to­ries issued to Rubin demon­strate that the peo­ple work­ing for New Jersey’s divi­sion of con­sumer affairs have made lit­tle effort to under­stand what Tidbit’s soft­ware actu­al­ly does. With their broad demands, they’ve placed the bur­den of the inves­ti­ga­tion on some col­lege stu­dents — and they’ve done so before the stu­dents’ soft­ware is even ful­ly func­tion­al.

    Let’s hope the New Jer­sey court is smarter than the con­sumer affairs divi­sion.

    Posted by Vanfield | February 13, 2014, 9:42 am
  7. Awwwwwwww...Silk Road 2.0 just got hit with the same “trans­ac­tion mal­leabil­i­ty” attack that took down MtGox and Bit­stamp, los­ing all the coins in escrow. Or at least that’s what’s being claimed. Oth­ers aren’t so sure. Either way, Silk Road 2.0 just got loot­ed

    Drug site Silk Road wiped out by Bit­coin glitch
    By Jose Pagliery @Jose_Pagliery Feb­ru­ary 14, 2014: 11:16 AM ET

    NEW YORK (CNN­Money)
    The revived online black mar­ket Silk Road says hack­ers took advan­tage of an ongo­ing Bit­coin glitch to steal $2.7 mil­lion from its cus­tomers.

    The under­ground web­site’s anony­mous admin­is­tra­tor told users Thurs­day evening that attack­ers had made off with all of the funds it held in escrow. Silk Road serves as a mid­dle­man between buy­ers and sell­ers, tem­porar­i­ly hold­ing on to funds in its own accounts dur­ing a deal. Buy­ers put their mon­ey into Silk Road­’s accounts, and sell­ers with­draw it.

    At the time of the attack, here were about 4,440 bit­coins in Silk Road­’s escrow account, accord­ing to com­put­er secu­ri­ty researcher Nicholas Weaver.

    The news has shak­en con­fi­dence in Bit­coin. Prices dropped sharply overnight, though they’ve since bounced back to about $660.

    Silk Road can only be accessed on the deep Web using Tor, a spe­cial pro­gram that hides your phys­i­cal loca­tion. The FBI shut down Silk Road and arrest­ed its alleged founder in Octo­ber, but short­ly there­after, tech-savvy out­laws start­ed Silk Road 2.0 in its place.

    It is pri­mar­i­ly used to buy and sell drugs. Bit­coins are the only kind of cur­ren­cy accept­ed on the site, because they are trad­ed elec­tron­i­cal­ly and are dif­fi­cult to trace to indi­vid­u­als. But Bit­coin accounts also lack pro­tec­tions that most bank accounts have, includ­ing gov­ern­ment-backed insur­ance.

    That means the bit­coins stolen from the Silk Road users are gone for­ev­er.

    The new site’s admin­is­tra­tor, a face­less per­sona known only as Def­con, post­ed a nerve-rack­ing mes­sage Thurs­day night that began with, “I am sweat­ing as I write this.”

    He said hack­ers took advan­tage of the same flaw in Bit­coin that knocked major exchanges Bit­stamp and Mt.Gox offline over the past two weeks. That glitch allowed Silk Road hack­ers to repeat­ed­ly with­draw bit­coins from the site’s accounts until they were emp­ty.

    In detail­ing the alleged hack, Def­con list­ed the online iden­ti­ties of the three sup­posed attack­ers and shared records of the trans­ac­tions. And in an exam­ple of the kind of dark, dan­ger­ous world of ille­gal drug trade, Def­con called on the pub­lic to “stop at noth­ing to bring this per­son to your own def­i­n­i­tion of jus­tice.”

    “I failed you as a leader and am com­plete­ly dev­as­tat­ed by today’s dis­cov­er­ies,” Def­con wrote, adding that the web­site should have fol­lowed the approach of oth­er major Bit­coin exchanges and halt­ed with­drawals due to the Bit­coin sys­tem flaw. Silk Road has since tem­porar­i­ly shut down.

    Many have accused the site’s admin­is­tra­tors of fak­ing the hack and steal­ing the mon­ey them­selves. But in a world where drugs are out­right ille­gal — and there’s lit­tle to no reg­u­la­tion of Bit­coin trans­ac­tions — it’s dif­fi­cult to prove any­thing.

    It’s just his kind of bad news that smears Bit­coin’s cred­i­bil­i­ty and keeps the cur­ren­cy from going main­stream.


    Posted by Pterrafractyl | February 14, 2014, 9:11 am
  8. Bit­coin: so bad even the real world looks good in com­par­i­son:

    The Wash­ing­ton Post
    For­get the 1 per­cent. In the Bit­coin world, half the wealth belongs to the 0.1 per­cent.

    By Bri­an Fung
    March 3 at 11:28 am

    The fall of Mt. Gox has a lot of peo­ple say­ing Bit­coin is dead. Yes, the Tokyo-based exchange may be gone, but the vir­tu­al cur­ren­cy has much more than a sin­gle exchange (which was­n’t even the largest at the time that it col­lapsed). There’s still a great deal of room for Bit­coin to grow, par­tic­u­lar­ly in the West: Mt. Gox’s col­lapse has­n’t done much to tem­per curios­i­ty among reg­u­la­tors and entre­pre­neurs.


    Of course, the draw­back to con­sol­i­da­tion is that those ben­e­fits will be con­cen­trat­ed in the hands of a rel­a­tive few. That dynam­ic is already play­ing out among indi­vid­ual hold­ers of Bit­coin, with a grow­ing gulf between the Bit­coin-rich and the Bit­coin-poor. Accord­ing to Ris­to Pietilä, a Finnnish entre­pre­neur, the over­whelm­ing share of Bit­coin wealth is held in just a few dozen wal­lets. Half of all bit­coins belong to around 927 “indi­vid­u­als.” If those fig­ures are right, then half of the world’s 12 mil­lion or so bit­coins is held by a tenth of a per­cent of all accounts. That’s a stun­ning state­ment of inequal­i­ty, since in the real world 46 per­cent of the world’s wealth belongs to 1 per­cent of the glob­al pop­u­la­tion. The Bit­coin world, then, is even less equal than the real world.


    One of the fun things about the col­lapse of MtGox is that we don’t real­ly know if the bit­coin world became more or less unequal because we don’t how many dif­fer­ent par­ties were exploit­ing the “trans­ac­tion mal­leabil­i­ty” bug. Was it just one per­son or a free for all? The 850,000 stolen bit­coins dwarf the 144,000 bit­coins the FBI seized from Silk Road and are a pret­ty sub­stan­tial chunk of the ~12 mil­lion bit­coins in cir­cu­la­tion so far. Might we have a new bit­coin prince of thieves some­where out there?

    Posted by Pterrafractyl | March 4, 2014, 8:36 am
  9. Wheels with­in klep­to­ma­ni­a­cal wheels:

    PC World
    Bit­coin-steal­ing mal­ware hid­den in Mt. Gox data dump, researcher says
    Lucian Con­stan­tin

    Mar 17, 2014 7:30 AM

    An archive con­tain­ing trans­ac­tion records from Mt. Gox that was released on the Inter­net last week by the hack­ers who com­pro­mised the blog of Mt. Gox CEO Mark Karpe­les also con­tains bit­coin-steal­ing mal­ware for Win­dows and Mac.

    Secu­ri­ty researchers from antivirus firm Kasper­sky Lab ana­lyzed the 620MB file called MtGox2014Leak.zip and con­clud­ed that in addi­tion to var­i­ous Mt. Gox-relat­ed doc­u­ments and data, it con­tains mali­cious bina­ry files.

    The files mas­quer­ade as Win­dows and Mac ver­sions of a cus­tom, back-office appli­ca­tion for access­ing the trans­ac­tion data­base of Mt. Gox, a large bit­coin exchange that filed for bank­rupt­cy in Japan in late Feb­ru­ary after claim­ing it had lost about 850,000 bit­coins to cyber thieves.

    How­ev­er, they are actu­al­ly mal­ware pro­grams designed to search and steal Bit­coin wal­let files from com­put­ers, Kasper­sky secu­ri­ty researcher Sergey Lozhkin said Fri­day in a blog post.

    Both the Win­dows and Mac bina­ries are writ­ten in Live­Code, a pro­gram­ming lan­guage for devel­op­ing cross-plat­form appli­ca­tions.

    When exe­cut­ed, they dis­play a graph­i­cal inter­face for what appears to be a Mt. Gox data­base access tool. How­ev­er, in the back­ground they launch a process—TibanneSocket.exe on Windows—that search­es for bitcoin.conf and wallet.dat files on the user’s com­put­er, accord­ing to Lozhkin. “The lat­ter is a crit­i­cal data file for a Bit­coin cryp­to-cur­ren­cy user: if it is kept unen­crypt­ed and is stolen, cyber­crim­i­nals will gain access to all bit­coins the user has in his pos­ses­sion for that spe­cif­ic account.”

    The mal­ware, which Kasper­sky has named Trojan.Win32.CoinStealer.i (the Win­dows ver­sion) and Trojan.OSX.Coinstealer.a (the Mac ver­sion), uploads the stolen Bit­coin wal­let files to a remote serv­er that used to be locat­ed in Bul­gar­ia, but is now offline.

    “It seems that the whole leak was invent­ed to infect com­put­ers with Bit­coin-steal­er mal­ware that takes advan­tage of people’s keen inter­est in the Mt. Gox top­ic,” Lozhkin said.

    “Mal­ware cre­ators often using social engi­neer­ing tricks and hot dis­cus­sion top­ics to spread mal­ware, and this is great exam­ple of an attack on a focused tar­get audi­ence,” he said.


    Posted by Pterrafractyl | March 17, 2014, 12:02 pm
  10. Here’s one more rea­son why Wall Street should be pret­ty excit­ed about get­ting into the bit­coin busi­ness: shared val­ues:

    Pan­do Dai­ly
    Lead­er­less: Bit­coin Foun­da­tion plagued by alle­ga­tions of self-deal­ing and embez­zle­ment

    By Michael Carn

    What’s the role of an indus­try trade group and how much author­i­ty should com­pa­nies place in the hands of these unof­fi­cial lead­ers?

    That’s the ques­tion much of the bit­coin com­mu­ni­ty is ask­ing at the moment as the Bit­coin Foun­da­tion, the industry’s unof­fi­cial cus­to­di­an and mouth­piece, faces alle­ga­tions of self-deal­ing and embez­zle­ment.

    Accord­ing to the Foundation’s own web­site, it exists to “stan­dard­ize, pro­tect, and pro­mote the use of Bit­coin cryp­to­graph­ic mon­ey for the ben­e­fit of users world­wide.” Sev­er­al hun­dred bit­coin com­pa­nies are mem­bers of the Foun­da­tion and have donat­ed heav­i­ly to fund its oper­a­tions. The orga­ni­za­tion is led by a board of promi­nent cryp­to-cur­ren­cy entre­pre­neurs, investors, jour­nal­ists, and aca­d­e­mics, chiefly its Chair­man, Coin­Lab founder Peter Vessenes who has been the sub­ject of the most skep­ti­cism and scruti­ny.

    The spot­light was first shone on the Foundation’s lead­er­ship by con­tro­ver­sial bit­coin blog­ger Ryan Selkis, aka the Two-Bit Idiot. On March 2nd, fol­low­ing the unrav­el­ing of Mt. Gox, Selkis wrote that Vessenes and Exec­u­tive Direc­tor Jon Mato­nis would be step­ping down pri­or to the con­clu­sion of their cur­rent terms, “[seem­ing­ly rec­og­niz­ing] the need for the Foun­da­tion to clean house in order to revi­tal­ize its image in the com­ing months.” Days lat­er, when forced to retract that pre­dic­tion, Selkis began an aggres­sive, and occa­sion­al­ly man­ic cam­paign call­ing for their imme­di­ate ouster due to a fail­ure of lead­er­ship.

    At his most livid, Selkis called the cur­rent board “ille­git­i­mate” and demand­ed senior lead­ers across the bit­coin ecosys­tem stage a coup or kill the Foun­da­tion alto­geth­er – a posi­tion from which he lat­er backed down, but not before writ­ing:

    Peter Vessenes and Jon Mato­nis are not scape­goats. They are not inno­cent bystanders. And they are not eth­i­cal­ly enti­tled to remain in their board seats through lat­er this year.

    Selkis then promised to reveal “damn­ing facts” if his demands were not met, includ­ing the those relat­ing to: the Foun­da­tion ignor­ing warn­ing signs of Mt. Gox’s fail­ure as ear­ly as April 2013; Foun­da­tion direc­tors exploit­ing their posi­tions to with­draw funds from a fail­ing Gox while the gen­er­al pub­lic was los­ing their shirts; and con­flicts of inter­est between director’s roles with­in the foun­da­tion and their per­son­al bit­coin busi­ness­es.

    After a sev­er­al days of self-described back­lash from the bit­coin com­mu­ni­ty, Selkis issued a con­ces­sion and nev­er pub­lished those damn­ing facts – despite main­tain­ing that his accu­sa­tions were “100% truth­ful.”

    Selkis’ light­ning-rod sta­tus can­not be denied and has made it easy for many to write off his claims as those of a man seek­ing atten­tion – he’s acknowl­edged on mul­ti­ple occa­sions plans to write a book about bitcoin’s recent scan­dals – and also hop­ing to enrich his own bit­coin insur­ance start­up through spread­ing fear. But it bears not­ing that for all his blus­ter, Selkis has also been the source of a num­ber of accu­rate and impact­ful break­ing news sto­ries, not the least of which was pub­lish­ing Mt. Gox’s Cri­sis Strat­e­gy doc­u­ments ahead of its even­tu­al bank­rupt­cy.

    Now, how­ev­er, it’s not just Selkis who’s beat­ing the drum for changes atop the Bit­coin Foun­da­tion. Blockchain.info CSO Andreas Antonopou­los, who’s is held as close to a deity as any­one with­in the bit­coin com­mu­ni­ty – a list on Red­dit once ranked him below Satoshi Nakamo­to but above Moth­er Tere­sa and Jesus – has also called for lead­er­ship change. Speak­ing on the Lets Talk Bit­coin pod­cast yes­ter­day, Antonopou­los called the Foun­da­tion “rot­ten from the top” and said that he wouldn’t be sur­prised to see it implode due to embez­zle­ment:

    They cer­tain­ly have received many funds. Where are those funds, who con­trols those funds, when were they last audit­ed, are they actu­al­ly sol­vent, or have all of those funds dis­ap­peared into a big black hole? Just remem­ber who was in the lead­er­ship until recent­ly, who is in lead­er­ship today, and what their track record with ethics has been.

    And, I would sug­gest that I would be not sur­prised at all if the foun­da­tion implodes in a giant embez­zle­ment prob­lem some­time down the line or funds get stolen – with­in quotes or not with­in quotes – some­thing like that. It’s bound to hap­pen because these things hap­pen not because of tech­ni­cal fail­ures, they don’t hap­pen because of bad actors, they hap­pen because of fail­ures of lead­er­ship. And the foun­da­tion is the very def­i­n­i­tion of a fail­ure of lead­er­ship.

    Those are incred­i­bly strong words and not the kind of accu­sa­tions to be tak­en light­ly. It bears not­ing that Antonopou­los didn’t sug­gest any direct knowl­edge of embez­zle­ment or crim­i­nal wrong­do­ing, nor did he pro­vide any evi­dence to that effect. He sim­ply said that he views it as inevitable due to the char­ac­ter and com­pe­tence of the Foundation’s lead­er­ship – lead­er­ship that until recent­ly includ­ed Mark Karpe­les, the CEO who led Mt. Gox into bank­rupt­cy, and Char­lie Shrem, the bit­coin entre­pre­neur recent­ly charged with mon­ey laun­der­ing, among oth­er offens­es. Antonopou­los’ state­ments are com­pli­cat­ed by the fact that he is a vol­un­teer mem­ber of a Bit­coin Foun­da­tion work­ing group, a fact that he acknowl­edges with­in the pod­cast.

    So where does this leave the Bit­coin Foun­da­tion, it’s cur­rent lead­er­ship, and the entire­ty of the bit­coin com­mu­ni­ty as it fights for cred­i­bil­i­ty and legit­i­ma­cy among reg­u­la­tors, investors, mer­chants, and every­day con­sumers?


    Posted by Pterrafractyl | March 28, 2014, 8:15 am
  11. Here we go again:

    Pan­do Dai­ly
    Crypto-”armageddon:” Researchers claim min­ing con­cen­tra­tion threat­ens to destroy bit­coin

    By Michael Car­ney
    On June 16, 2014

    Here we go again. For the umteenth time in recent mem­o­ry, the sanc­ti­ty of the bit­coin net­work is fac­ing an exis­ten­tial threat from a large and over­ly secre­tive orga­ni­za­tion. It’s not an exchange or wal­let ser­vice this time around that has the atten­tion of cryp­to-cur­ren­cy watch­ers, but rather a large min­ing pool, specif­i­cal­ly GHash.io, the self-described world’s “#1 Cryp­to & Bit­coin Min­ing Pool.”

    So why is the bit­coin world up in arms over GHash? On sev­er­al occa­sions last week, one last­ing a full 12 hours, the group, which is owned by cloud-min­ing ser­vice CEX.io, con­trolled more than 50 per­cent of the glob­al com­pu­ta­tion­al pow­er direct­ed at min­ing bit­coin.

    With such con­trol, GHash (or any group that finds itself in a sim­i­lar posi­tion) could manip­u­late the integri­ty of the bit­coin net­work by poten­tial­ly dou­ble-spend­ing coins, block­ing or revers­ing trans­ac­tions by com­pet­ing min­ers, extort­ing increased trans­ac­tion pro­cess­ing fees from the net­work, or wag­ing a dis­trib­uted denial of ser­vice (DDoS) attack against the entire bit­coin net­work – col­lec­tive­ly, a so-called “51 per­cent attack.” In oth­er words, it’s a major threat to bitcoin’s foun­da­tion­al dis­trib­uted, and there­fore trust­less, nature.

    Cor­nell researchers Ittay Eyal and Emin Gün Sir­er were the first to rec­og­nize the 51 per­cent event, call­ing it “armaged­don” in a Fri­day blog post, and describ­ing GHash as a “de fac­to monop­oly.” The pair, who have long been thought lead­ers on the con­cepts of 51 per­cent attacks and “self­ish min­ing,” write:

    GHash is in a posi­tion to exer­cise com­plete con­trol over which trans­ac­tions appear on the blockchain and which min­ers reap min­ing rewards. They could keep 100% of the min­ing prof­its to them­selves if they so chose. Bit­coin is cur­rent­ly an expen­sive dis­trib­uted data­base under the con­trol of a sin­gle enti­ty, albeit one that requires con­stant­ly burn­ing ener­gy to main­tain — worst of all worlds.

    It’s a his­tor­i­cal first for any enti­ty to cross the 50 per­cent thresh­old, although GHash has been close before, approach­ing 45 per­cent in Jan­u­ary of this year. At the time, GHash issued a press release, pub­licly com­mit­ting to nev­er reach­ing the feared 51 per­cent thresh­old (real­ly, any­thing greater than 50 per­cent). So much for that promise.

    To be clear, GHash doesn’t own 50 per­cent of the glob­al min­ing pow­er, it sim­ply “con­trols” it. This dis­tinc­tion is impor­tant, but does not nec­es­sar­i­ly elim­i­nate the threat the group pos­es. GHash has in the past claimed to own only half the hard­ware pro­vid­ing the hash­ing pow­er that it con­trols, with the rest con­tributed by third-par­ty min­ers that allo­cate min­ing pow­er to its pool. Nonethe­less, the bit­coin net­work has rea­son to be fear­ful of this con­cen­tra­tion of pow­er.

    Mak­ing mat­ters worse, no one knows who is behind GHash or CEX. The own­ers of the Nether­lands-based com­pa­ny (which lists a Lon­don mail­ing address) are noto­ri­ous­ly secre­tive, mean­ing that the bit­coin com­mu­ni­ty – which at this point rep­re­sents sev­er­al bil­lion dol­lars in wealth and untold future val­ue – are left trust­ing a shad­owy enti­ty not to behave bad­ly with its new­found pow­er.

    To be clear, GHash has not abused its pow­er yet. But if history’s taught us any­thing it’s that pow­er cor­rupts. Mak­ing mat­ters worse, the com­pa­ny was pre­vi­ous­ly accused of using its enor­mous size advan­tage to bul­ly a gam­bling site via dou­ble-spend­ing attacks.

    Eyal and Sir­er write:

    No one knows the ulti­mate aims of GHash. The peo­ple who join the GHash pool do so because GHash has zero fees — these peo­ple are essen­tial­ly opti­miz­ing for short term prof­its over the long term well-being of the cur­ren­cy. All of these are pre­cise­ly the points we cau­tioned about. So this is when we get to say “We told you so.”

    The pair go on to advo­cate a “hard fork” in the code­base under­ly­ing bit­coin, with the goal of accom­plish­ing three core fix­es: dis­in­cen­tiviz­ing min­ing pools, com­bat­ting self­ish min­ing, and mak­ing min­ing activ­i­ty more trans­par­ent. They con­clude, sar­cas­ti­cal­ly:

    Or we can car­ry on as if noth­ing of impor­tance hap­pened. GHash will be on their best behav­ior for the next few weeks, and Bit­coin will limp along. What will bring the actu­al demise of Bit­coin is the sub­ject of a future blog post, but this is by no means the end. Peo­ple can still use Bit­coin to buy drugs, trin­kets from Overstock.com, and maybe even grilled cheese from a food truck. There is an after­world. And for every­thing else, there is dirty fiat and Mas­ter­card.

    As Eyal and Sir­er point out, the poten­tial of 51 per­cent attacks has been known for some time. As a whole, the bit­coin com­mu­ni­ty lead­ers have been quick to write off the risks of such a sce­nario, offer­ing two com­mon jus­ti­fi­ca­tions. First, we’re told that the invest­ment required to cre­ate a min­ing pool would dis­in­cen­tivize a pool’s par­tic­i­pants from ever con­duct­ing such an attack. But, as the Cor­nel report explains:

    …[this] assumes a sta­t­ic world. Instead, the min­ing rigs have a fair­ly short use­ful life­time. If a min­er knows that they will be over­tak­en by the next gen­er­a­tion of hard­ware about to be unleashed by a com­pet­ing min­ing pool, it will have a def­i­nite time hori­zon for extract­ing every last bit of val­ue, and that plan may not have room in it for a voy­age to the moon.

    Sec­ond­ly, naysay­ers are quick to argue that the min­ing com­mu­ni­ty and bitcoin’s core devel­op­ers will eas­i­ly rec­og­nize such an attack and will there­fore pre­vent the bad actors from harm­ing the broad­er bit­coin net­work. At best, this seems like an ide­al­is­tic view of like­ly events. Even if such an attack were rec­og­nized and ulti­mate­ly inter­rupt­ed, the trust-erod­ing effects – both with­in the com­mu­ni­ty, but more so with­in main­stream con­sumers and media – would be stag­ger­ing. Assum­ing that no harm will come of even a brief 51 per­cent attack couldn’t be fur­ther from the truth.


    A GHash spokesper­son told Cryp­to­Coin­News:

    …we would nev­er do any­thing to harm the Bit­coin econ­o­my; we believe in it. We have invest­ed all our effort, time and mon­ey into the devel­op­ment of the Bit­coin econ­o­my. We agree that min­ing should be decen­tral­ized, but you can­not blame GHash.IO for being the #1 min­ing pool.

    Bit­coin was cre­at­ed specif­i­cal­ly to avoid the need to trust any cen­tral­ized author­i­ty, be it a fed­er­al gov­ern­ment, the Fed­er­al Reserve, the World Bank, or oth­er­wise. The fact that the cryp­to-cur­ren­cy com­mu­ni­ty is now con­fronting this sce­nario is a legit­i­mate threat to the entire exper­i­ment.

    The broad­er mar­ket seems to agree with this con­cern, push­ing the price of bit­coin down more than 16 per­cent in a few days, from a near-term high of $655 on Tues­day, June 10 to a low of $553 on Sun­day the 15th – cur­rent­ly, the Coin­desk Price Index sits at $589. This drop fol­lows a recent upswing in price fol­low­ing a pro­longed bear mar­ket that coin­cid­ed with the col­lapse of Mt. Gox. As of this moment, GHash con­trols rough­ly 35 per­cent of glob­al hash­ing pow­er while the next largest known group, Dis­cus Fish, con­trols 16 per­cent.

    GHash doesn’t need to con­duct a 51 per­cent attack for their hash­ing pow­er con­cen­tra­tion to be a major issue. The sim­ple fact that the bit­coin net­work must look over its shoul­der to won­der if (or when) such an attack will arrive is enough to desta­bi­lize the sys­tem.

    Posted by Pterrafractyl | June 16, 2014, 11:26 am
  12. “A staunch per­son who believes in the gold stan­dard says bit­coin is val­ue­less and ulti­mate­ly a Ponzi scheme, and peo­ple who didn’t dig gold but real­ly got bit­coin would say that this is ridicu­lous, it’s just a dumb metal...We don’t need to fight. We can coa­lesce.” That quote from the arti­cle below inad­ver­tent­ly cap­tures the essence of the sit­u­a­tion

    Gold Bugs Meet Bit­coin Believ­ers to Sup­plant the Dol­lar
    By Isaac Arns­dorf Jul 27, 2014 11:00 PM CT

    Call it bit­gold.

    It’s what you get when you com­bine bit­coin, one of the world’s newest would-be cur­ren­cies, and gold, one of the old­est. Add mis­trust of cen­tral­ized author­i­ty, a dash of rebel­lious­ness and a dol­lop of prof­it motive and you might have the Inde­pen­dence Coin, the first gold-backed cryp­to-mon­ey, unveiled this month at Free­dom­Fest, a lib­er­tar­i­an con­ven­tion in — where else? — Las Vegas.

    A staunch per­son who believes in the gold stan­dard says bit­coin is val­ue­less and ulti­mate­ly a Ponzi scheme, and peo­ple who didn’t dig gold but real­ly got bit­coin would say that this is ridicu­lous, it’s just a dumb met­al,” Anthem Hayek Blan­chard, chief exec­u­tive offi­cer of Anthem Vault Inc., the com­pa­ny behind the Inde­pen­dence Coin, said in an inter­view. “We don’t need to fight. We can coa­lesce.

    Posted by Pterrafractyl | July 28, 2014, 2:18 pm
  13. Inter­est­ing times for Bit­coin: The cryp­tocur­ren­cy plunged to $275 over the week­end before bounc­ing back over $300. And at one point a sell­er put in a sale order to 26,000 bit­coins, drop­ping the price from $317 to $300 in two sec­onds:

    Bit­coin Price Finds Hard Floor Fol­low­ing 26,000 BTC Sell Order

    Daniel Mark Har­ri­son (@HarrisonDanielM) | Pub­lished on Octo­ber 6, 2014 at 13:18 BST

    After buy­ers snapped up $7.8m worth of bit­coins that were sell­ing for $300 each on exchange Bit­stamp on Mon­day, bitcoin’s price appears to have found a hard floor in what has been a large­ly unpre­dictable trad­ing peri­od recent­ly.

    On Sun­day, bitcoin’s price dropped through the 18-month aver­age pur­chase price of $337.60, sig­nalling uncer­tain­ty to many traders in the mar­ket. Then, in the ear­ly hours of the Asian morn­ing on Mon­day, a sell order of 26,000 BTC at $300 that was placed on exchange Bit­stamp brought a tem­po­rary halt to the volatile price and nar­rowed bid-ask spreads between the four exchanges in CoinDesk’s Bit­coin Price Index (BPI).

    By the time of the Euro­pean morn­ing how­ev­er, buy­ers had snapped up the entire order and the BPI jumped up into the low-to-mid-$320s.

    “When the sell order for 26,000 BTC came onto Bit­stamp, the price dropped from $317 to $300 in two sec­onds. I’ve just bought back in now that block has been lift­ed,” said Adam O’Brien, CEO of BTC Solu­tions, a Cana­da-based provider of ATM exchanges and lever­aged trad­ing ser­vices for bit­coin.

    Investor tac­tics

    O’Brien said that Monday’s unprece­dent­ed BTC offer on Bit­stamp was most like­ly a sin­gle investor look­ing to arti­fi­cial­ly move the price low­er and buy back bit­coin lat­er at a reduced price, prob­a­bly in the ear­ly $200’s.

    Instead, buy­ers swarmed the offer. For mar­ket par­tic­i­pants, the recent volatil­i­ty has pre­sent­ed a wel­come oppor­tu­ni­ty to make big sums of mon­ey trad­ing bit­coin in large vol­umes, most­ly through the prac­tice of arbi­trage trad­ing or by tak­ing fees for pro­vid­ing trad­ing enhance­ments such as BTC Solu­tions’ lever­aged prod­uct offer­ing.

    With this offer­ing, and for a cost of 0.3% per day, buy­ers and sell­ers can obtain imme­di­ate exe­cu­tion on trades for as much as eight times their nom­i­nal invest­ment. In the one-week peri­od, as prices have fluc­tu­at­ed from a high of $384 to a low of $290.83 on the BPI while exchange vol­umes have cooled off, traders have posi­tioned them­selves in over-the-counter (OTC) mar­kets among var­i­ous region­al coun­ter­par­ties with dif­fer­ent sup­ply and demand pref­er­ences. This enables them to cap­ture the impacts of the see-saw­ing drop in bitcoin’s mar­ket cap­i­tal­i­sa­tion.


    Lever­aged-buy­ers to the res­cue? That’s how BTC Solu­tions CEO Adam O’Brien saw it (he might be biased) Still, it is some­what notable that we had a sin­gle sell­er tank the mar­ket, but only tem­porar­i­ly while buy­ers swarmed. Does that mean Bit­coin may have found its price floor? Per­haps. And it’s pos­si­ble that the big sell­er was also buy­ing on the dip too as O’Brien sug­gest­ed. Although, if you make infer­ences based on the “26,000 bit­coin” size of the sale, that big sell­er may not be in the mar­ket for more bit­coins:

    The FBI’s Plan For The Mil­lions Worth Of Bit­coins Seized From Silk Road
    10/04/2013 @ 3:16PM

    When the FBI arrest­ed alleged Silk Road boss Ross William Ulbricht and took his site down, they seized the site’s assets which were pri­mar­i­ly the cur­ren­cy of choice on the anony­mous online drug bazaar: Bit­coins. A whole lot of Bit­coins.

    In the crim­i­nal com­plaint against Ulbricht, the FBI said that the Silk Road had total sales of over 9.5 mil­lion Bit­coins, col­lect­ing a rev­enue of 600,000 of the dig­i­tal coin. (Giv­en the cur­rent price — $140/Bitcoin — that’s $1.2 bil­lion in sales and $80 mil­lion in com­mis­sions.)

    The FBI ini­tial­ly seized over 26,000 Bit­coins. I asked the FBI spokesper­son what the plan is for those cryp­to­coins. “We will down­load the Bit­coin and store them,” she said. “We will hold them until the judi­cial process is over.”

    Then what?

    “This is kind of new to us,” she said. “We will prob­a­bly just liq­ui­date them.”

    In oth­er words, the gov­ern­ment is hop­ing the price of Bit­coin stays high for the Bit-fire sale to come once Ulbricht’s tri­al is over. Good news for them: the price dropped about 11% when the Silk Road sack first hap­pened but has since recov­ered. After all, as the crim­i­nal com­plaint notes, “Bit­coins are not ille­gal in and of them­selves and have known legit­i­mate uses.”

    The spokesper­son says the approx­i­mate­ly 26,000 Bit­coins seized are just the ones that were held in Silk Road accounts. In oth­er words, it’s Silk Road users’ Bit­coin. The FBI has not been able to get to Ulbricht’s per­son­al Bit­coin yet. “That’s like anoth­er $80 mil­lion worth,” she said, explain­ing that it was held sep­a­rate­ly and is encrypt­ed. If that is indeed what he’s hold­ing, that’s close to 600,000 Bit­coin all togeth­er or about 5% of all Bit­coin cur­rent­ly in exis­tence. (Update 10–25: The FBI says it’s seized 144,000 Bit­coins, or about $28 mil­lion, that it believes belong to Ross Ulbricht.)

    Was the the FBI the secret sell­er of those 26,000 bit­coins it seized last year? Well, they auc­tioned off 30,000 bit­coins seized by Silk Road back in June (with Bit­coin enthu­si­ast Tim Drap­er buy­ing all of them) but there was a lot more where that came from giv­en the FBI’s 144,000 haul. So who knows, maybe it was FBI or some oth­er ran­dom sell­er that chose 26,000 just for fun (or maybe to psy­che out the mar­ket). Either way, the ongo­ing con­cen­tra­tion of bit­coin wealth com­bined with the emer­gence of bit­coin buy­ing on mar­gin means it should be very inter­est­ing to see where Bit­coin goes from here.

    Posted by Pterrafractyl | October 6, 2014, 11:09 am
  14. This isn’t exact­ly the best news for Bit­coin pop­ulists: KnCMin­er, one of the largest man­u­fac­tur­ers of spe­cial­ized bit­coin min­ing machines, is pulling out of the hard­ware sales busi­ness due, in part, to a drop off in buy­ers. Instead, KnCMin­er is going into full-time min­ing for itself. As the com­pa­ny co-founder says below, “We’re see­ing a com­plete change in the industry...It’s accel­er­at­ed out of the garage and the homes, to the small busi­ness­es, to the large data cen­ters, and now you’ve got to have a mega data cen­ter for it to be prof­itable”:

    Bit­coin Min­er Ditch­es Clients to Chase $2 Bil­lion Cod­ing Prize
    By Niclas Rolan­der Oct 21, 2014 5:00 PM CT

    A Swedish com­pa­ny that esti­mates its equip­ment is behind about 25 per­cent of the bit­coins being gen­er­at­ed has had enough of ser­vic­ing unhap­py clients.

    KnCMin­er has stopped sell­ing hard­ware and is instead expand­ing its own data cen­ter where thou­sands of its machines mine bit­coin and sim­i­lar soft­ware by solv­ing com­plex math­e­mat­i­cal algo­rithms.

    After bitcoin’s price col­lapsed from a high of more than $1,000 to lows of around $300 ear­li­er this month, .cus­tomers once eager to mine the dig­i­tal cur­ren­cy have start­ed to ask for their mon­ey back, accord­ing to KnC co-founder Sam Cole. Yet the pull­back by indi­vid­u­als who had hoped to grow rich in their garages belies the poten­tial for com­pa­nies that have built up the scale to stick the course, he said.

    “When we don’t have these cus­tomers buy our hard­ware it becomes a dif­fer­ent busi­ness mod­el. It becomes much eas­i­er, much more open, much more hon­est,” Cole said in a phone inter­view. “There’s still going to be $2 bil­lion, at today’s price, mined in the next few years. That’s a lot of cash that’s up for grabs and we’re going to do our best to take a decent chunk of it.”

    After rais­ing $14 mil­lion in ven­ture cap­i­tal, KnC is look­ing at more loca­tions in Ice­land and Swe­den as it aims to con­trol as much as 20 per­cent of the bit­coin min­ing mar­ket, com­pared with the 5 per­cent it mines itself today.
    Seek­ing Cap­i­tal

    KnC is now try­ing to secure a sec­ond cash injec­tion, tar­get­ing $50 mil­lion to build more data cen­ters and devel­op new min­ing equip­ment.

    Cole says the biggest min­ers will end up prof­it­ing most as scale becomes increas­ing­ly impor­tant. KnC gen­er­ates bit­coin at a cost Cole says is “sig­nif­i­cant­ly below $400” per unit. The com­pa­ny does its min­ing in a heli­copter hangar in Boden, a Swedish town near the Arc­tic cir­cle, where it’s in the process of tripling capac­i­ty.

    One bit­coin cur­rent­ly trades at about $388, rep­re­sent­ing a 47 per­cent decline year-to-date. There are 21 mil­lion pos­si­ble bit­coin units that can be mined, with about 13.4 mil­lion already in cir­cu­la­tion, accord­ing to blockchain.info.

    Since its incep­tion in 2008, bit­coin has been linked to a series of cor­rup­tion scan­dals span­ning mon­ey laun­der­ing to pay­ment to view child pornog­ra­phy sites. Yet pro­po­nents of the soft­ware are attract­ed by an absence of bank­ing fees and the prospect of a decen­tral­ized alter­na­tive to fiat cur­ren­cies. And despite reg­u­la­to­ry chal­lenges and oth­er glitch­es, bit­coin has man­aged to attract suf­fi­cient ven­ture cap­i­tal to con­tin­ue grow­ing.


    KnC says its shift in focus reflects an indus­try-wide trend.

    “We’re see­ing a com­plete change in the indus­try,” Cole said. “It’s accel­er­at­ed out of the garage and the homes, to the small busi­ness­es, to the large data cen­ters, and now you’ve got to have a mega data cen­ter for it to be prof­itable.”

    Posted by Pterrafractyl | October 21, 2014, 6:37 pm
  15. Remem­ber e‑Gold, the ear­ly attempt at cre­at­ing a dig­i­tal gold and sil­ver backed cur­ren­cy? Well it’s back and this time it’s state-backed! Well, not pre­cise­ly. But it looks like Texas Gov­er­nor Greg Abbott just signed into law an attempt to cre­ate a pri­vate­ly oper­at­ed Texas-backed gold depos­i­to­ry intend­ed to rival the Fed­er­al Reserve Bank of New York’s vault. The idea is that depos­i­tors will be able to write checks against their accounts to oth­er gold accounts which could, in the­o­ry, allow these accounts to act as a met­al-backed cur­ren­cy to chal­lenge the dol­lar. At least that’s what the bil­l’s back­ers are hop­ing for:

    TPM Cafe: Opin­ion

    With Eye on Fis­cal Armaged­don, Texas Set to ‘Repa­tri­ate’ Its Gold To New Texas Fort Knox

    By Bri­an Mur­phy
    Pub­lished June 16, 2015, 9:18 AM EDT

    Texas wants its gold back.

    On Fri­day, Gov. Greg Abbott signed leg­is­la­tion that will cre­ate a state-run gold depos­i­to­ry in the Lone Star State – one that will attempt to rival those oper­at­ed by the U.S. gov­ern­ment inside Fort Knox and the Fed­er­al Reserve Bank of New York’s vault in low­er Man­hat­tan. “The Texas Bul­lion Depos­i­to­ry,” Abbott said in a state­ment, “will become the first state-lev­el facil­i­ty of its kind in the nation, increas­ing the secu­ri­ty and sta­bil­i­ty of our gold reserves and keep­ing tax­pay­er funds from leav­ing Texas to pay for fees to store gold in facil­i­ties out­side our state.” Soon, Abbott’s office said, the state “will repa­tri­ate $1 bil­lion of gold bul­lion from the Fed­er­al Reserve in New York to Texas.” In oth­er words, when it comes prepar­ing for the cur­ren­cy col­lapse and finan­cial armegge­don, Abbot­t’s office real­ly seems to think Texas is a whole ‘nother coun­try.


    And the new depos­i­to­ry will not just be a well-guard­ed ware­house for that bul­lion. The law Abbott signed calls for the cre­ation of an elec­tron­ic pay­ments sys­tem that will allow gold, sil­ver, plat­inum, pal­la­di­um, and rhodi­um depos­i­tors to write checks against their accounts, mak­ing the depos­i­to­ry into a bank – one that will cre­ate a met­al-backed mon­ey sup­ply intend­ed to chal­lenge the paper cur­ren­cy issued by the Fed­er­al Reserve — or “Yan­kee dol­lars” as one of the law’s top sup­port­ers calls them. And in case the Fed or Oba­ma wants to con­fis­cate Tex­as­’s gold, nice try Fed and Oba­ma! In keep­ing with this sus­pi­cion of the Fed and Wash­ing­ton, the new law also explic­it­ly declares that no “gov­ern­men­tal or qua­si-gov­ern­men­tal author­i­ty oth­er than an author­i­ty of [Texas]” will be allowed to con­fis­cate or freeze an account inside the depos­i­to­ry. Gold that’s entrust­ed to Texas will stay in Texas.

    The depos­i­to­ry law is the brain­child of a sec­ond-term state rep­re­sen­ta­tive in the Texas leg­is­la­ture named Gio­van­ni Capriglione, a 42-year-old Repub­li­can from South­lake, just north­west of Dal­las-Fort Worth Inter­na­tion­al Air­port. A pri­vate equi­ty man­ag­er with an MBA, Capriglione was elect­ed in 2012 after beat­ing an sev­en-term incum­bent with the back­ing of Tea Par­ty activists. He told the Star-Telegram that when he first announced his inter­est in estab­lish­ing a depos­i­to­ry in Texas in 2013, he “got so many emails and phone calls from peo­ple lit­er­al­ly all over the world who said they want to store their gold … in a Texas depos­i­to­ry. Peo­ple have this image of Texas as big and pow­er­ful … so for a lot of peo­ple, this is exact­ly where they would want to go with their gold.” On his offi­cial Face­book page, Capriglione said he has “ just been over­whelmed with all of the con­tacts and write-ups and inter­views” he’s got­ten.

    Fed crit­ics her­ald Capriglione’s bill as a long-await­ed and much-need­ed assault on the government’s print­ing press. Ryan McMak­en at the lib­er­tar­i­an Mis­es Insti­tute (named after Aus­tri­an econ­o­mist Lud­wig Von Mis­es) wrote that “while the Texas depos­i­to­ry is a gov­ern­ment-owned enter­prise, it nev­er­the­less is an improve­ment since it is a case of decen­tral­iza­tion (and arguably nul­li­fi­ca­tion)” that will present “alter­na­tives to the Fed­er­al­ly-con­trolled mon­e­tary and bank­ing sys­tems.” In what Capriglione – the depos­i­to­ry bill’s spon­sor – called “an easy to read sum­ma­ry of the specifics” of the law, a Tea Par­ty site described the depos­i­to­ry as a “game chang­er.” The author of the piece, a met­als deal­er named Franklin Sanders, wrote that “since at least 1991 I have firm­ly believed that when­ev­er an elec­tron­ic pay­ments sys­tem could be estab­lished using sil­ver & gold, it could sup­plant fiat cur­ren­cies world­wide with­in two years at most, less time giv­en a cri­sis. Now Texas steps for­ward to make it stick. And if Texas has the nerve to car­ry though, it will make Texas a cen­ter of world finance to rival New York and Lon­don bet­ter than Switzer­land, because it con­tains 27,695,284 Tex­ans and all but two of ‘em are armed & seri­ous.” (Sanders favors the term “Yan­kee dol­lars” to describe paper cur­ren­cy.)

    Oth­er gold enthu­si­asts go fur­ther in blow­ing the seces­sion­ist dog whis­tle. “If the Fed gets too car­ried away with its dig­i­tal mon­ey print­ing, then Texas will already have some kind of sys­tem to work off of in terms of not using the dol­lar. I’m not say­ing it will come to this, but it is sym­bol­ic in retain­ing some lib­er­ty, sim­i­lar to gun own­er­ship in this coun­try. It is not some­thing that will like­ly be used against a tyran­ni­cal gov­ern­ment because the sym­bol­ism itself keeps tyran­ny in check,” writes Geof­frey Pike at Wealth Dai­ly. The Tenth Amend­ment Cen­ter, mean­while, pre­dict­ed that “while [the bul­lion depos­i­to­ry] won’t nul­li­fy the Fed’s mon­e­tary monop­oly on its own, it rep­re­sents an impor­tant step for­ward in that direc­tion.”

    The depos­i­to­ry, then, will insu­late Tex­ans from a just-around-the-cor­ner eco­nom­ic and geopo­lit­i­cal cat­a­stro­phe brought on by paper mon­ey and cau­ter­ize the seem­ing­ly-still-fresh trau­ma of Franklin Roosevelt’s 1933 exec­u­tive order mak­ing gold coin hoard­ing ille­gal dur­ing the Great Depres­sion.

    But to the trained ear, there’s an even more aggres­sive­ly anti-Fed term being invoked in praise of the Texas depos­i­to­ry: “repa­tri­a­tion.” Ordi­nar­i­ly it’s a word used to describe the move­ment of assets or cur­ren­cy from one nation to anoth­er. Yet on the web­site of Schif­f­Gold, the gold bro­ker­age owned by one­time U.S. Sen­ate can­di­date Peter Schiff — whose claim to fame is to have pre­dict­ed the 2007 hous­ing crash (it hap­pened!) fol­lowed by a death spi­ral of hyper­in­fla­tion (still wait­ing!) — Texas is described “join[ing] the ranks of major glob­al economies that want to bring their gold home from New York.” “Ger­many, Aus­tria, the Nether­lands, and oth­er Euro­pean nations have already begun to repa­tri­ate gold from the New York Fed or have pro­posed to begin doing so,” said a post on the firm’s web­site that ran on the same day as anoth­er pre­dict­ing the com­ing of a “cash­less soci­ety.”

    Accord­ing to this nar­ra­tive, then, Texas isn’t just set­ting up its own depos­i­to­ry, pay­ments sys­tem, and a safe haven for gold that can’t be con­fis­cat­ed by the fed­er­al gov­ern­ment. Instead, it is sig­nal­ing a loss of con­fi­dence in the Unit­ed States by pulling its gold out of the largest gold vault in the world eighty feet below the Fed­er­al Reserve Bank of New York’s Flo­ren­tine-inspired head­quar­ters in low­er Man­hat­tan. There, a spe­cial police force guards some 530,000 gold bars pro­tect­ed behind a 140-ton air­tight steel and con­crete framed door sealed with a 90-ton steel cylin­der and time locks. Nobody enters the vault alone, ever; three peo­ple are present, even if it’s just to change a light bulb. Most of the gold in the vault belongs to oth­er nations; the Fed stores and guards it as a cour­tesy to allies. Thus, the idea that Texas is some­how tak­ing on an unwise risk by lodg­ing $1 bil­lion in bul­lion in the vault – so much so that it regards the New York bank as a for­eign enti­ty from whom gold ought to be just­ly “repa­tri­at­ed” – is to reject the prac­ti­cal and geopo­lit­i­cal real­i­ties of gold own­er­ship in the 21st cen­tu­ry. Even in fic­tion it is hard to recall a more secure site that has at its dis­pos­al more robust resources to guard and defend itself.

    This is why, if you were sus­pi­cious about Gov. Abbott’s claim that “the [depos­i­to­ry] law will repa­tri­ate $1 bil­lion of gold bul­lion from the Fed­er­al Reserve in New York to Texas,” you were on to some­thing.

    Indeed, Texas has no gold bars in the Fed­er­al Reserve’s New York vault. And what the state has is not worth a bil­lion dol­lars. Instead some 4,200 gold bars bought in 2011 by the Uni­ver­si­ty of Texas’s endow­ment fund (the sec­ond largest in the coun­try after Harvard’s) are stored in the base­ment vault of HSBC’s head­quar­ters at 450 5th Avenue in New York City, just south of the New York Pub­lic Library. For the last four years, the endow­ment has paid an esti­mat­ed $1 mil­lion per year to store their gold there. (If it had been at the New York Fed the cost would have totaled about $15,400 over that peri­od). And the new depos­i­to­ry law does not require the university’s endow­ment fund to relo­cate the gold to Texas.

    In case you’re won­der­ing why the university’s endow­ment fund ever bought real phys­i­cal gold to begin with (not just paper assets), that’s a sto­ry almost as odd as the state’s new effort to bring its gold back to Texas to ward off finan­cial Armaged­don in the coun­try’s oth­er 49 states. That sto­ry seems to begin and end with a hedge fund man­ag­er named Kyle Bass. Bass, a for­mer Legg Mason and Bear Stearns man­ag­ing direc­tor and out­spo­ken Fed crit­ic, was named to the endow­ment fund’s board of direc­tors (list­ed – and pic­tured – here... ahem) and imme­di­ate­ly began press­ing his appar­ent­ly sug­ges­tive col­leagues to shift their gold options invest­ments into a stake of phys­i­cal gold.

    Bass isn’t just a casu­al met­als spec­u­la­tor. When he believed nick­el was under­val­ued he bought 20 mil­lion nick­el coins to prove his point (they’re stored on a pal­let in a Brinks vault). A brave new world mix of coun­try club and prep­per com­pound, in a Michael Lewis pro­file, Bass revealed that he’d pre­pared for a col­lapse of the gov­ern­ment and econ­o­my by accu­mu­lat­ing – in his words – “guns and gold.”


    Gold investors — and phys­i­cal gold investors in par­tic­u­lar – can be tempt­ed to think of gold as a dif­fer­ent kind of hold­ing: a one-way invest­ment whose sale can nev­er be jus­ti­fied. Peter Schiff pre­dict­ed in Octo­ber 2012 that gold would soon climb from $1700 to $5000 per ounce. He keeps adjust­ing that time­line. There­fore, if you bought gold because it was a hedge against hyper­in­fla­tion that did not hap­pen, don’t sell the gold – just keep believ­ing that infla­tion is com­ing in the next quar­ter, or next year, or that the gov­ern­ment is secret­ly cook­ing the infla­tion fig­ures. If gold prices slump, blame cen­tral banks for col­lud­ing to keep prices low.. If the val­ue of gold falls in dol­lars, quote a rise in anoth­er country’s cur­ren­cy that lets you tell a good gold sto­ry.

    Fed a steady diet of fear, para­noia, and sur­vival­ism, the con­sumer mar­ket for phys­i­cal gold is left par­tic­u­lar­ly sus­cep­ti­ble to mag­i­cal think­ing. So in addi­tion to those 4200 Uni­ver­si­ty of Texas bars yearn­ing to return home from Texas, that think­ing is part of what helped the Texas bul­lion depos­i­to­ry bill win pas­sage in the Texas leg­is­la­ture. Texas state Rep. Gio­van­ni Capriglione first intro­duced his depos­i­to­ry bill as a fresh­man leg­is­la­tor in 2013. Despite sup­port from then-Gov. Rick Per­ry, Capriglione’s bill died with­out a vote when a fis­cal analy­sis showed that the state would be on the hook for $14 mil­lion in the first two years due to the costs of set­ting up a state-run depos­i­to­ry guard­ed and admin­is­tered by peo­ple on the pub­lic pay­roll.

    In a tele­phone inter­view with TPM, Capriglione said dur­ing the “inter­im peri­od” between leg­isla­tive ses­sions before his sec­ond term began, he set about re-design­ing the depos­i­to­ry bill to out­source many of those more expen­sive func­tions to the pri­vate sec­tor. Although the depos­i­to­ry is per­form­ing the same func­tions in the new law as it had in the old­er ver­sion of Capriglione’s bill, shift­ing the exe­cu­tion to pri­vate con­trac­tors yield­ed a so-called “fis­cal note” in the leg­is­la­ture that cal­cu­lat­ed an “inde­ter­mi­nate fis­cal impact to the state.” Because it’s out­sourced rather than run by state employ­ees, it is no longer count­ed as a con­crete expense in the state bud­get.

    More­over, by pri­va­tiz­ing the depository’s oper­a­tions, Capriglione said he was able to begin recruit­ing “stake­hold­ers” who “are inter­est­ed in being a part of the sys­tem we’re cre­at­ing.” Rather than build a Fort Knox-type facil­i­ty in Texas, Capriglione said “there are com­mer­cial vaults not being used or not at full capac­i­ty, and I’ve heard from groups will­ing to start their own depos­i­to­ry and IT secu­ri­ty com­pa­nies with under­ground stor­age facil­i­ties for data cen­ters who can make space avail­able” for gold and oth­er pre­cious met­als.

    Most impor­tant­ly, Capriglione found that by offer­ing gold bro­kers and deal­ers the chance to become “depos­i­to­ry agents” who can accept deposits on the state’s behalf or set up accounts with their own pre­cious met­al hold­ings that can then be sold off and sub­di­vid­ed to would-be depos­i­tors, he found a broad net­work of sup­port­ers for the state depos­i­to­ry. “These agents will be licensed and bond­ed,” he said, “they’re mid­dle­men who can, say, deposit $1 mil­lion of their own gold into an account and, act­ing as depos­i­to­ry agents, make oth­er accounts by vir­tu­al­ly mov­ing the gold.” In oth­er words, by pri­va­tiz­ing his would-be Texas Fort Knox and open­ing the sys­tem up to mid­dle­men them­selves look­ing to ser­vice the prep­per-fueled mar­ket in phys­i­cal gold, Capriglione gained a new legion of well-heeled sup­port­ers for his bill. With a new­found squadron of ben­e­fi­cia­ries at hand, Capriglione saw his bill approved by both hous­es of the leg­is­la­ture and signed into law by Gov. Abbott.

    Yet some details have yet to be worked out. “We’re not going to allow enti­ties out­side of [Texas] to seize assets,” he said. “In 1933, the Feds seized cer­tain assets,” he said, refer­ring to Roosevelt’s noto­ri­ous exec­u­tive order (mem­o­ries of which are lucra­tive­ly mis­stat­ed by some met­als deal­ers). He acknowl­edges that because the depos­i­to­ry law bars the fed­er­al gov­ern­ment from seiz­ing or freez­ing gold accounts, it will be nec­es­sary for Texas to “do the right thing” in “civ­il asset for­fei­ture cas­es.” “We don’t want illic­it goods to be repa­tri­at­ed or crim­i­nals or drug lords” to see Texas as a safe har­bor, he added. “The [state] comp­trol­ler will have to come to a con­clu­sion with the Attor­ney Gen­er­al” on set­ting pol­i­cy.

    As of yet, Capriglione doesn’t know where the bul­lion depos­i­to­ry might be locat­ed. But he dis­missed a sug­ges­tion that a build­ing known as a the “Texas Bul­lion Depos­i­to­ry” will attract crim­i­nal mas­ter­minds. “You don’t need as much secu­ri­ty because gold is incred­i­bly heavy and hard to liq­ui­date,” he said. “There aren’t many heists of gold bullion…nobody’s going to be able to steal 80,000 pounds of gold.”

    Rushed for time, Capriglione cut short his inter­view before he could be asked if he had ever seen the films “Heist,” “Goldfin­ger,” “Ocean’s Eleven,” or “Die Hard 3.”

    Oh boy this is going to be inter­est­ing. So pri­vate “depos­i­to­ry agents” (gold deal­ers) can accept gold on the state’s behalf, set up accounts, and vir­tu­al­ly move gold deposits around the sys­tem (in effect, cre­at­ing e‑gold). But they won’t have to actu­al­ly move their gold to a super-guard­ed giant gold vault some­where in Texas. No, these same pri­vate enti­ties will be allowed to set up their own depos­i­to­ries and store the gold there:

    More­over, by pri­va­tiz­ing the depository’s oper­a­tions, Capriglione said he was able to begin recruit­ing “stake­hold­ers” who “are inter­est­ed in being a part of the sys­tem we’re cre­at­ing.” Rather than build a Fort Knox-type facil­i­ty in Texas, Capriglione said “there are com­mer­cial vaults not being used or not at full capac­i­ty, and I’ve heard from groups will­ing to start their own depos­i­to­ry and IT secu­ri­ty com­pa­nies with under­ground stor­age facil­i­ties for data cen­ters who can make space avail­able” for gold and oth­er pre­cious met­als.

    Most impor­tant­ly, Capriglione found that by offer­ing gold bro­kers and deal­ers the chance to become “depos­i­to­ry agents” who can accept deposits on the state’s behalf or set up accounts with their own pre­cious met­al hold­ings that can then be sold off and sub­di­vid­ed to would-be depos­i­tors, he found a broad net­work of sup­port­ers for the state depos­i­to­ry. “These agents will be licensed and bond­ed,” he said, “they’re mid­dle­men who can, say, deposit $1 mil­lion of their own gold into an account and, act­ing as depos­i­to­ry agents, make oth­er accounts by vir­tu­al­ly mov­ing the gold.” In oth­er words, by pri­va­tiz­ing his would-be Texas Fort Knox and open­ing the sys­tem up to mid­dle­men them­selves look­ing to ser­vice the prep­per-fueled mar­ket in phys­i­cal gold, Capriglione gained a new legion of well-heeled sup­port­ers for his bill. With a new­found squadron of ben­e­fi­cia­ries at hand, Capriglione saw his bill approved by both hous­es of the leg­is­la­ture and signed into law by Gov. Abbott.

    And, again, these deposits are all state-backed, but they’ll be held in pri­vate depos­i­to­ries scat­tered all over Texas. Depos­i­to­ries that will pre­sum­ably be full of gold from all over the world if this scheme takes off. The peo­ple of Texas had bet­ter hope the con­tents of the pri­vate depos­i­to­ries are ful­ly insured. The full faith and cred­it of the gold­en state of Texas just might depend on it.

    Also, if you’re look­ing for a place to park your cash, gold is an obvi­ous option, but have you con­sid­ered invest­ing in high-per­for­mance pow­er tool man­u­fac­tur­ers? Maybe you should.

    Posted by Pterrafractyl | June 17, 2015, 6:33 pm

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