BitBeat: For Bitcoin’s Miners and Spenders, a Supply and Demand Imbalance

Two Bitcoin Start-Ups in Nebraska Organize ‘Bitcoin Day Omaha’

Two start-ups working in the cryptocurrency realm in Omaha, Nebraska are aiming to put together a fun and educational experience for bitcoin enthusiasts and newcomers on the 15th of September in the Old Market neighborhood of the city.

Dubbed Bitcoin Day Omaha, the event was organized by Alpha Bitcoin and BlockchainIO. At the event, attendees will be able to learn about this emerging digital currency, get a bitcoin wallet established, and perhaps even go on a scavenger hunt around local businesses, where they can win prizes, according to Silicon Prairie.

That’s not all, though. The half-day event will also feature a bitcoin mining demonstration and a cocktail/social hour. And if you’re in the market for some new wheels, there’s a 2014 Kia Soul that you can have a chance at winning.

The event runs from 2 pm to 9 pm on the 15th (a Monday). Educational sessions/seminars begin at 2 pm, and the aforementioned scavenger hunt begins at 5 pm.
At the social hour, the first bitcoin ATM in Omaha will be revealed.
All in all, if you’re in the area and don’t have a terrible lot going on that Monday night, you may want to consider popping in. The event is open to all.
Nebraska hasn’t quite been a hot spot for bitcoin activity over the past year, but this event could possibly get the ball rolling in the area.

The location of the event is Blue Sushi Sake Grill on 416 South 12th Street.

Source : http://newsbtc.com

Apple’s New Digital Wallet Patent References ‘Virtualised Currencies’

Many analysts expect Apple to enter the mobile payments space soon and a recent patent application that has just been made public appears to back those claims.

The patent application reveals the backend architecture for a versatile mobile “omni-wallet”, and, notably for the cryptocurrency community, also references “virtualised currencies” – although this does not necessarily mean Apple will enable digital currency functionality.

Unlike Google, which uses an open approach with Android, Apple enforces very strict policies in its iOS ecosystem. The Cupertino-based tech giant vets every app submitted to its app store and for some months refused to all allow cryptocurrency apps in its walled garden.

That changed in June, with a revision of its App Store Review Guidelines that opened the floodgates for iOS bitcoin apps once again.

QR, Cloud and NFC functionality

The backend patent application describes a comprehensive wallet system that can handle digital debit and credit cards, along with coupons issued by merchants and other organisations.

The “virtualised currency” reference does not necessarily suggest the wallet will be capable of storing digital currencies like bitcoin and is general enough that it could cover a wide range of concepts, ranging from store credit to various loyalty schemes offered by merchants, or even Apple itself.

There is another alternative: Apple could choose to introduce a digital currency of its own, similar to Amazon Coins. The US Patent and Trademark Organisation (USPTO) published an Apple patent application for ‘iMoney’ last year.

Putting the pieces together

Apple does not have a habit of launching incomplete products. The company is renowned for polishing and, perhaps, overdesigning its products, both in the software and hardware departments. So we expect nothing less from its upcoming payments push.

And while the company usually keeps a tight lid on leaks, it does seem to be setting up the building blocks for a comprehensive mobile payments service.

Last year’s iPhone 5S launched with Touch ID, a simple fingerprint sensor that enables biometric authentication. With the iOS 8 Touch ID API, the company will open up the sensor to third-party apps.  It is also rumoured that Apple will integrate Near Field Communications (NFC) in upcoming iPhones, which could launch in a matter of weeks.

The company’s iBeacon technology is based on Bluetooth 4.0 Low Energy and it is already available on a wide range of Apple devices running iOS 7. The technology has a number of potential applications in brick-and-mortar shops.

On their own, none of these technologies deserve the ‘killer app’ moniker. However, Apple already has upwards of 800 million user accounts and the sheer size of its user base could prove more important than the technology behind its products and services. Quite what that technology is, we’ll just have to wait and see.

Source : http://www.coindesk.com

BitBeat: For Bitcoin’s Miners and Spenders, a Supply and Demand Imbalance

Getty Images

Welcome to BitBeat, your daily dose of crypto-current events, written by Paul Vigna and Michael J. Casey.

Bitcoin Latest Price: $510.99, up 1.9% (via CoinDesk)

Crossing Our Desk:

- The amount of hardware being thrown at bitcoin mining continues to rise, but if those mined bitcoins aren’t being used,  an imbalance between supply and demand will develop that may increase volatility in the price, CitiFX’s Steven Englander wrote in a note.

The number of transactions have been stable this year, in a range between 60,000 and 80,000 a day, according to data from Blockchain. That’s a huge jump from under 10,000 a day two summers ago. The problem is the number of transactions has plateaued at those levels, but  the amount of mining activity keeps increasing. The degree of difficulty in mining – the built-in adjusting mechanism that makes solving the bitcoin algorithm harder as more miners come onboard – has jumped twice recently, and the hashrate, a measure of total mining activity, has been rising as well.

“This uninspired demand side may interact with the rising costs of mining, which has become a very specialized and capital intensive industry,” Mr. Englander said. “For now we have miners looking to sell and not much of anyone looking to buy.”

Mr. Englander thinks this will make “extreme volatility” inevitable. It seems to us that it could result in miners simply hoarding their mined bitcoins rather than sell at low prices. Either way, the real key here seems to be the transaction flow, and right now at least it’s pretty stable – which for bitcoin isn’t necessarily a good thing. (Paul Vigna)

- Korbit, a South Korean bitcoin exchange, raised $3 million in Series A funding, with the round led by SoftBank Ventures Korea, and in the U.S. by Pantera Capital. Other investors included BAM Ventures, Bitcoin Opportunity Corp., Tim Draper, Pietro Dova and Strong Ventures. The company, which began in April 2013, operates an exchange, and offers wallet and merchant-processing services. It raised $400,000 in January. (Paul Vigna)

In the News:

- Speaking of mining, you can mine cheaply, to be sure, but can you do it profitably? A new service from GAW Miners offers cloud-mining contracts for as little as $16, according to a post on Inside Bitcoins. The question they pose is whether you can make any money at that low price.

The company calls these contracts “Hashlets,” and proclaimed in a forum post that “there will never be a time a Hashlet cost more to run than you make, and they will always make money.” Given the legion of problems that have bedeviled the mining industry, that kind of a claim is going to raise immediate flags.

That $15.99 price buys you on megahash (a measure of processing power); customers can buy more if they wish. Inside Bitcoins did a back-on-the-envelope assessment, and figured you could make your money back in about two months, however they were concerned about those increases in the level of difficulty, ”with the most recent one being quite significant.” That could cut into the profitability of the Hashlets, they argue.

The bottom line here is that the more miners that come online, the harder it gets for everybody to mine, and the lower the payouts – unless you spent the considerable sums to corral enough hardware to offset the rising difficulty. The trick becomes spending enough to keep ahead of the competition, and turn a profit. (Paul Vigna)

Source : http://blogs.wsj.com

DigitalBTC’s New Mining Centre Powered 100% by Renewable Energy

Australian bitcoin firm digitalBTC has announced a multi-year hosting and power supply agreement with Verne Global – a UK-based company specialised in “power-conscious” data centre solutions.

Under the agreement, digitalBTC will instal mining hardware at Verne Global’s data centre campus in Iceland, which is powered exclusively by renewable energy, and will source approximately 50% of its power needs from the company.

The remainder of its Icelandic electricity requirements will also be sourced from green suppliers, digitalBTC indicates.

Cutting operating costs

DigitalBTC highlights a number of advantages provided by the new deal. It expects significant savings on power costs of up to 40%, which will in turn help increase the return on investment (ROI) from its bitcoin mining operations.

The savings will also enable the company to extend the life of the mining hardware, as cheaper power means mining hardware remains economically viable for longer periods of time.

Lastly, using dual-sourced renewable energy will significantly reduce the carbon footprint and allow for more expansion.

Zhenya Tsvetnenko, digitalBTC executive chairman, said the agreement would provide the company with stable, cheap and green power in the long run:

“As well as basing our operations on clean renewable energy, we are also able to drive significant power cost reductions, which will flow straight through to our bottom line, and significantly reduce our carbon emission through the use of green energy. Additional power is very hard to secure in many locations, where the capacity has already been reached.”

Tsvetnenko concluded the contract with Verne Global gives digitalBTC more room to grow and will be factored into the company’s decisions on potential expansions.

Green power, free cooling

Verne Global sources power for its data centre campus from Iceland’s power grid, which almost completely relies on geothermal and hydroelectric power.

Furthermore, the company uses ‘free-cooling’, which essentially means it relies on the naturally low air temperature to keep server temperatures down. This helps the firm save money on cooling, as server rooms usually need a lot of costly air-conditioning to avoid overheating.

Verne Global’s green-powered data centre campus in Iceland

Verne Global CEO Jeff Monroe said digital currency is moving into the mainstream and it is becoming clear that digitalBTC is making “sound business decisions” that indicate they will be a significant player in the digital currency industry for years to come.

As far as mining hardware goes, digitalBTC has decided to stick with BitFury. The company ordered its first $2m batch of BitFury miners back in March, with additional tranches following later.

As of 30th June, the company claimed to hold an estimated 3,600 BTC awaiting liquidation and, by July, had mined a total of 8,600 BTC. In a regulatory filing, digitalBTC said it had achieved “complete payback” on $4m-worth of BitFury mining hardware.

In a recent feature, CoinDesk examined how and why bitcoin mining companies are moving to regions with cheaper cooling and energy, with Scandinavia and Iceland proving especially popular.

Source : http://www.coindesk.com

The Long-Term Drivers of Bitcoin

Last week, in an opening salvo into the Bitcoin trading world, I suggested that you may want to look at a long position in Bitcoin against the U.S. Dollar to take advantage of the weakness in the previous weeks. That looked good initially as the expected jump came and would still be showing a profit, but the retracement over the last couple of days upheld what I said at the time, that this was a fairly long-term idea and as such required a belief in the fundamental value of the virtual currency.

I am not a Bitcoin evangelist, nor an expert, but then neither am I a hater. I simply have a trading background and therefore have an interest in a volatile market. The deeper I have looked into the phenomenon, however, the more convinced I have become that Bitcoin has a future and could have a lasting influence on the world of business and finance.

My writing on the subject has prompted several discussions with people who hold a range of views, but I have yet to find anybody who has given me what I consider a convincing argument as to why they believe it will fail. If you have such an argument, feel free to enlighten me in the comment section. Usually that view seems to be based on an inability, or sometimes an unwillingness, to understand what Bitcoin is and how it functions. Some have said that it is all an illusion based on perceived rather than real value, at which point I gently point out that the same is true of the pieces of green paper that they dedicate so much of their life to accumulating.

To me it seems that a virtual peer-to-peer currency is just that, a currency, but one with the built in advantage of an inherent limit to supply. If the argument is simply that it is overvalued, then fine; I disagree at current levels, but every trade needs a buyer and a seller. While that disagreement may result in short term volatility, though, it is hard to see how a currency that has some degree of scarcity can, over time, fail to appreciate against one where supply continues to increase.

That function as a currency, though, is important, as supply is only half the story. That is why I included in last week’s piece the expansion of merchants accepting Bitcoin for payment as a positive upward driver of price. As Cloud Jacking rightly pointed out in the comments on that article, though, in the short term that is actually a negative for the exchange rate. The Bitcoin that is spent is immediately converted to dollars, so more merchants mean more sellers and therefore downward pressure on price. That is true, but if Bitcoin is to establish itself as a genuine global currency, then wider acceptance is essential. Once that comes, the dynamics of limited and decreasing supply versus the ever expanding supply of other currencies take over.

I also touched on the growing use of Bitcoin in third world and developing nations. I don’t wish to drift into the hyperbole that so often characterizes true believers in technological innovation, but it strikes me that in that respect a virtual currency has transformational potential. I am speculating to some degree, but it would seem logical that building wealth in many of those nations has been discouraged by the tendency of governments in the past to inflate away the value of wealth stored in the native currency.

As the Chinese government discovered, exchange controls on something that exists in a virtual environment are difficult, if not impossible to enforce, so there is now a way for those of an entrepreneurial bent in poorer nations to store and accumulate wealth. Call me a crazy idealist, but I believe that that will encourage innovation and entrepreneurship in those countries. In the short term that may have some detrimental effects in developed nations but generally expansion of the global economy is a good thing. Regardless, it will provide a growing source of demand.

None of this means, however, that Bitcoin is necessarily going to appreciate over the next few weeks or months. Market dynamics make that likely, but not certain. That is why I recommended a stop loss be put in place just below the $400 level if you were to buy at around $475. In fact if that level breaks a run back down to around $200 would look likely, so if your trading platform allows it a short with a tight stop may be a decent strategy if that happens.

If it does, and I suggest such a trade though, it would be just a trade. There are strong enough long term drivers to suggest that, as hard as it is for some to comprehend, Bitcoin is here to stay. 

Source : http://www.nasdaq.com

BlockSign Utilises Block Chain to Verify Signed Contracts

A new company, BlockSign, lets customers digitally sign legally binding contracts and preserve them in the public domain.

Running on the block chain, the decentralised public ledger that records transactions on the bitcoin network, the BlockSign platform provides a way to sign, timestamp and later verify documents on the web.

How BlockSign works

From a user perspective, BlockSign works as a web application. A PDF signed with the program will indicate where a signature is to be placed, and the user places a stamp in a stylized font there. Into this signature is encoded an email address and the date.

The BlockSign service then creates a cryptographic hash of the entire document, which it stores in a 40-byte slot included in every bitcoin block, called OP_RETURN. That slot can be used for storing messages and other arbitrary data.

That means that the hash is logged in the block chain. “We verify the document, running it through the hashing function, and we search the block chain for the string to see if it has been logged,” said founder Nicholas Thorne.

A verification record stored by the company on the user’s behalf enables users to check that a particular document is signed and valid.

The system’s security relies on two-factor authentication. It sends a confirmation request to the user via email to confirm their identity. Of course, email is notoriously insecure, so Thorne hopes to use private keys at some point.

Misuse of the block chain?

Not all developers are enthusiastic about the idea of using bitcoin for timestamping documents.

“In my opinion, ideally the bitcoin block chain should be used for bitcoin payments,” says Adam Back. He developed Hashcash, the algorithm bitcoin uses to generate and verify currency, and has also been working on a system for application-specific block chains, linked to bitcoin’s own.

OP_RETURN’s 40 bytes were originally meant to be 80 bytes. Today, the 40-byte limit compares to an average recent transaction size of 570 bytes, which makes its theoretical limit roughly 7% of the average block size.

BlockSign doesn’t use all of that OP_RETURN space. It only uses 32 bytes for its hash – and the slot is not used by many people at all today. Roughly a quarter of blocks used OP_RETURN in a recent 80-block block chain sample.

Businesses welcome

Bitcoin developer Mike Hearn isn’t worried about more companies using OP_RETURN for their networks.

“Bitcoin’s limiting factor today is actually growing legitimate usage and traffic,” he said. “The more users we have, the more political immunity we have, so if some of those users care more about time-stamping documents than buying things, that’s OK by me. I’m sure bitcoin can scale to accommodate everyone.”

Having said that, if use of OP_RETURN for applications like BlockSign’s caught on, it could be more expensive, Hearn said. “Like any bitcoin transaction, you have to pay for it using either fees or coin priority. If some company were to start using lots of these transactions, the fee costs would start to increase.”

Both Hearn and Back recommend using a Merkle tree structure, which enables many timestamps to be compressed into a single OP_RETURN output. “This would be a way to save money for only a little bit of extra code,” Hearn says.

However, Thorne says that the team hasn’t used the Merkle tree system in its first release, arguing that the company wanted to get a product out there that was simple to use. However, the team is considering Merkle tree storage for a future release, he says, arguing that the venture doesn’t yet have the volume to make it an issue. BlockSign will have to swallow more transaction fees in the meantime.

Giving back to bitcoin

There is another question, however: should companies piggyback private, for-profit activities on the block chain without investing time in supporting bitcoin development?

Thorne admits that his team of three developers isn’t contributing to bitcoin’s open-source project.

“They would love nothing more than to be able to push up a change that was accepted, and I think they’re working hard to do that, but they probably just haven’t done it yet because they’re still learning a lot and building this one implementation,” said Thorne, adding:

“But I think that will allow us to learn and make recommendations over time and contribute meaningfully to what’s going on.”

Bitcoin core developers have complained about the lack of help from for-profit businesses in the past, and Hearn has pointed out multiple times that protocol development is suffering.

Bitcoin’s lead developer Wladimir van der Laan echoed the need for more support. “There are huge investments in bitcoin companies, but only very little of that ends up helping bitcoin core development,” he said.

About BlockSign

Thorne’s team was originally formed a couple of years ago, as part of Basno, a digital badge company that Thorne founded.

That team raised $1.225m in a seed funding round in summer 2013. Basno is now a revenue-generating business, and the company is using the funding at a “pretty slow burn rate,” Thorne said, adding that BlockSign is a subsidiary of Basno.

Not contributing to the bitcoin protocol’s core development while aiming to use it for profit isn’t something unique to BlockSign by any means.

Van der Laansaid:

“Of all the companies in the bitcoin space (including mining pools, mining hardware producers, exchanges, payment processors, wallet vendors), as far as I know it is still only BitPay that has significant contributions to Bitcoin Core.”

The question for readers is this: is this a situation which needs rectifying?

Disclaimers: This article should not be viewed as an endorsement of any of the companies mentioned. Please do your own extensive research before considering investing any funds in these products. Additionally, CoinDesk founder Shakil Khan is an investor in BitPay.

Source : http://www.coindesk.com

Bootstrapping a Bitcoin Startup Amid Argentina’s Financial Uncertainty

 

While innovative ideas aren’t in short supply in the bitcoin community, bootstrapping a bitcoin business remains a risky proposition no matter how promising the market.

For example, despite the widespread perception that Argentina has emerged as the leading bitcoin market in Latin America, the country still poses a significant challenge for entrepreneurs given its lack of regulatory clarity and history of capital controls.

Despite these challenges, however, Argentina’s entrepreneurs are seeking to bring the benefits of bitcoin to the market. One such entrepreneur is Matías Bari, CEO and co-founder of bitcoin brokerage SatoshiTango, a Buenos Aires-based business that styles itself as a Coinbase for the country’s bitcoin users.

A former chemical engineer and e-commerce industry veteran, Bari first learned about bitcoin in 2013 upon reading about the then-unfolding saga of Silk Road. Like many, Bari’s initial interest soon blossomed into a fascination with cryptography. Bari told his friend and current partner Mariano Craiem about bitcoin, and both were soon hooked on its potential.

Bari recalled:

“For three to four months, everyday we were saying let’s do something with bitcoin, we have to do something with bitcoin, so we started to learn, we bought bitcoin, we sold bitcoin, we lost money, we made money, then we said ‘OK, let’s do this, let’s start a business.’”

Together with two additional partners, Bari and Craiem launched SatoshiTango with the goal of making bitcoin buying and selling easy for the average Argentinian, putting their savings on the line in the process.

 

The power of prepaid

For SatoshiTango, Bari is seeking to create a user-friendly system that avoids the clutter and financial jargon of a traditional bitcoin exchange, while leveraging financial tools that are more familiar to Argentinian shoppers.

One notable design aspect is that users don’t buy bitcoin directly from the SatoshiTango website. Rather, they order a prepaid card featuring a 16-digit code that they can then use online to purchase bitcoin.

Bari explained:

“We believe that if people are familiar with prepaid cards, why not use these? People are very happy because they understand when they buy a prepaid card, the card is ready to buy bitcoin, and the exact amount they have in their hands is what they can buy.”

Argentinian consumers, Bari said, are used to pre-paying for purchases, and that such buying behavior is common among cellphone users, who pay for minutes as needed, rather than on a monthly basis.

Notably, the idea to use prepaid services as an onboarding tool is not unique to SatoshiTango. Argentina-based merchant processor BitPagos, for example, recently launched Ripio, a service that allows bitcoin users to make purchases using a popular mobile phone recharging service.

Sellers, in turn, can choose to receive their money by wire transfer or in cash, although the cash delivery service is available only to residents in Buenos Aires. SatoshiTango charges a 2% fee for all transactions.

Finding solutions

Of course, given the difficulties of operating in Argentina, Bari indicated that the SatoshiTango service is not yet as advanced as it aspires to be.

For example, he notes that while he is happy with SatoshiTango’s prepaid payment system, his company is currently barred from more advanced solutions like those in the US that might be more consumer friendly.

“We cannot do the same thing that Coinbase does. We cannot take money with an ACH [automated clearing house transaction], with an automatic debit from a bank account, it’s not legal in Argentina,” Bari explained.

As a self-funded startup, Bari also noted the challenge of handling legal costs to ensure his service is compliant with local laws. However, Bari said, his startup intends to shoulder this burden using their personal funds, adding:

“You can really spend a lot of money on advising, but we’re willing to spend that money, we’re using our savings and trying to figure out how to make the next step.”

In spite of the company’s efforts to offer an introductory service, Bari suggests that mainstream user adoption of bitcoin is still far off, noting that most of the company’s users are early bitcoin adopters.

Real risk remains

Bari acknowledged that Argentina’s government is still learning about bitcoin, and that his belief is that its officials still harbor certain reservations about its use.

In part, Bari said, this is due to misconceptions about bitcoin that the community can take action to help dispel. Referring to the recent restrictive policies embraced in Ecuador and Bolivia, he said:

“We need to help the authorities to understand that this is not a way to launder money. [...] I think that most of this banning takes place because of fear and misinformation.”

When asked about fellow Argentina-based bitcoin exchange Unisend and its issues securing a bank account, Bari acknowledged the possibility that his business could face similar operational challenges.

Still, he chose instead to focus on the benefits that persevering through this period of uncertainty would bring, saying:

“It’s a challenge, but once you succeed in Argentina, you can go to other countries in Latin America. It’s much easier. You get trained here, you have to work so hard for things that in other places are not that hard.”

Sweat and struggle

Bari said that SatoshiTango is currently a four-man operation and, for now, the founders plan to keep it that way, although they do recognize they will need the capital to realize their goals down the road.

Working at a bootstrapped business means all four members juggle multiple tasks, speaking to customers, adding new features to the site and keeping up to date on an evolving industry.

Here again Bari emphasized the positive aspects of working in such an operation where the founders’ “sweat and blood” are the main ingredients for success.

He concluded:

“I wake up earlier than before, because I like to start my day with SatoshiTango, and I believe that is the great advantage. We really enjoy this.”

 Source : http://www.coindesk.com

Japanese Politician to Crowdfund Bitcoin Research Tour

Image from Mineyuki Fukuda’s crowdfunding campaign page

Japanese politician and bitcoin supporter Mineyuki Fukuda has taken a novel approach to bitcoin research, launching an online crowdfunding campaign to conduct a research tour of bitcoin businesses in the US.

So far, Fukuda has raised 23% of his target ¥600,000 ($1,367) needed to fund the mission, which he is conducting independently. By taking the tour as a private citizen, he is not drawing any taxpayer funds.

Fukuda, a member of parliament with the governing Liberal Democratic Party, has been a pioneer for digital currency acceptance in Japanese politics. As head of the government’s IT Strategy Committee, he has frequently met with representatives from the bitcoin community at his office and even attended local meetups.

His efforts have led to the formation of Japan’s digital chamber of commerce group the Japan Association of Digital Asset (JADA), which has the government’s blessing and will liaise between businesses and relevant government departments.

Crowdfunding campaign

Fukuda’s crowdfunding campaign site describes the mission as one that will find the politician “visiting the frontline” of the bitcoin and digital currency industry with the intent to exchange opinions and ideas.

“Bitcoin is called the greatest invention since the Internet,” it continues.

The campaign details page also lists some basic background and information about bitcoin, and mentions that Japan’s own homegrown digital currency, Monacoin, has received international attention.

Donor rewards

As with most crowdfunding campaigns, there is a rewards hierarchy based on the chosen level of participation:

• ¥1,000 ($9.60) will earn donors a published copy of Fukuda’s research report
• ¥3,000 ($28.90) lets you join Fukuda as he makes a street-side ‘stump speech’ and even speak yourself for three minutes
• ¥5,000 ($48.10) allows you to attend a live seminar where Fukuda will present his findings
• ¥10,000 ($96.30, limited to 30) gets you a seat at a dinner presentation Fukuda will host (dinner not included)
• ¥50,000 ($481, limited to nine) takes you on the full tour of Japan’s Parliament House, with Fukuda as a guide and lunch provided.

All donations receive a copy of the report.

Ironically, perhaps, the Japanese crowdfunding platform used, ShootingStar.jp, does not accept bitcoin.

Japanese digital currency policy

Despite the interest shown in digital currencies by Fukuda and other individual members of Japan’s parliament from both major parties, the government has no plans for new legislation. Its only official statement has been, “We’re in charge of money. If it’s not money, it’s not the Ministry of Finance/Financial Services Authority’s jurisdiction.”

For now, this is a benefit to bitcoin businesses, as the government has not sought to regulate the industry. Instead it is putting its trust in representative organizations like JADA to form guidelines and help the industry self-govern.

On the other hand, creditors of failed bitcoin exchange Mt Gox (which collapsed before any of the initiatives mentioned here were created) have bemoaned the lack of official consumer protection for bitcoin business users.

Source : http://www.coindesk.com

Citi: Miners and Merchants Are Keeping Bitcoin Prices Low

Bitcoin’s price is poised for “acute instability” due to an oversupply of coins from miners and large merchants, along with a weak growth in demand, according to a new research note from financial giant Citi.

The Citi analysis points to the increased sophistication and cost of mining as a major driver for growth in bitcoin supply.

As mining costs rise, miners come under pressure to sell their freshly unearthed bitcoin to recoup the costs of their investment in equipment. Citi notes that about 3,500 BTC are mined daily, against a backdrop of 60,000–10,000 BTC in daily trading volume in recent months. The research note says:

“If the miners are a steady source of supply and there is no increase in final demand, we have this overhang of bitcoin being sold in the market. In consequence, we have downward price pressures.”

Merchants add downwards pressure

Citi also arrives at a counter-intuitive conclusion about prominent merchants embracing bitcoin payments.

Moves by firms like Dell and Expedia to accept bitcoin for laptops or for hotel bookings are generally viewed with enthusiasm by the bitcoin faithful. However, Citi points out that the merchants are converting any bitcoin they receive from customers into fiat immediately, putting further selling pressure on the bitcoin price.

“For corporations to receive bitcoin and hold it would be an aberration.”

Additionally, Citi points out that accounting rules may prevent large corporations from holding bitcoin even if they wanted to.

Under the generally accepted accounting principles (GAAP), corporations may not be able to count bitcoin holdings as a hedge against currency risk due to the volatile nature of the digital currency. They may instead have to count bitcoin assets as a speculative position, which would increase their risk profile.

In other words, large merchants can’t be relied on to drive bitcoin demand, nor are they long-term holders of the digital currency.

“For corporations to receive bitcoin and hold it would be an aberration,” the Citi note said.

Weak consumer demand

With bitcoin supply growing from miner and merchant sales, demand for the digital currency has to be taken up by consumers. Citi, however, doesn’t see this happening.

According to the bank, bitcoin’s potential to provide benefits to the man on the street hasn’t been realised yet. As a result, there are currently few incentives for end-users to use bitcoin instead of a credit card, for example.

Bitcoin demand is currently buoyed by users who spend the digital currency “for love, not money”, the note says. However, evidence from the market suggests that there isn’t enough love to keep the bitcoin price from declining:

“Consumers who do use bitcoin [...] are doing it for love, not money. And the flat transactions profile suggests that love may not be enough.”

Other market observers have also concluded that the overhang of supply from miners and merchants could contribute to bitcoin’s price weakness. Mark Lamb, chief executive at Coinfloor, a London-based bitcoin exchange, said that sell-side pressures have intensified in recent months, with miners and merchants as the most likely traders.

“Last year miners were selling a much lower percentage of new bitcoin mined. Nowadays it’s estimated that they’re selling 70–90% of their bitcoin. Merchants coming in are also probably selling quite a bit of their bitcoin. So we’re having this constant sell-side demand,” he said.

Big funds aren’t helping

For bitcoin investors hoping for a rise in prices, the presence of a planned $200m hedge fund from Global Advisors, based in Jersey, and the $150m Pantera Capital fund is a sign that prices have to rise eventually. The Pantera fund, in particular, only takes long positions on bitcoin, signalling to some that the digital currency still has room to appreciate.

Citi’s Steven Englander, who wrote the report and is the bank’s global head of foreign exchange strategy for industrialised economies, doesn’t buy that argument.

In response to questions from CoinDesk, he said:

“Indications are that [merchant] transactions are flat to falling and investors who bought at higher prices may be cutting rather than adding positions.”

Source : http://www.coindesk.com

BTCChina Reveals Proof of 100% Reserves by Its Proposed Solution

As the first exchange in China who released 100% reserve proof solution (see full announcement and solution here : http://www.bitell.com/t/2042), BTCChina implemented it and finished the audit on Aug.25th.

5 witnesses who are famous in Chinese bitcoin circle were invited to BTCChina's office to check database and hot/cold wallet amount, pick up hotline phone calls by random BTCChina users to check user account data under the user's authorization.

Through a couple of hours' checking, they co-signed a testimony to state that:

1. We verified that The total amount in users’ accounts in database is the same with the total amount in cold / hot wallets.
2. We checked randomly by users who called in and authorized us, verified that data in the user account is the same with that in platform database.

Through above solutions, we consider that the BTCChina is with full reserves at the time when we checked. '

Source : http://www.bitell.com