It has been a busy morning at All Things Bitcoin!
Silicon Valley Business Journal
It’s the end of the second day of Bitcoin 2013, the first international conference for Bitcoin, a digital currency that bills itself as the future of payments. The day’s events are over, and most people have already left the San Jose Convention Center and made the trek three blocks to the bar where they’re holding the afterparty — a place where they’ll pack several hundred people into a space built for half that number, and where, tellingly, they don’t yet accept Bitcoin.
The meeting room is empty, save for a handful of us milling around near the stage, eager to hear more from a group of economists talking about the future of Bitcoin as a world currency. I’m listening to a heated discussion between a local mutual fund manager and a European economist who’d done his PhD thesis on Bitcoin. They’re talking about something I’ll hear a lot about this weekend — liquidity. Is Bitcoin liquid enough to ever be a world currency? It’s getting pretty technical — concepts like price elasticity and the velocity of money are thrown around.
Finally, in the middle of an explanation of what the Austrian school of economics has to say about the relationship between debt and boom and bust cycles, the fund manager throws up his hands.
“I’m not interested in schools,” he says. “I don’t care about Austrian school or Chicago school or anything like that. The only thing I care about is, ‘Can this make me money?’”
We get kicked out of the conference hall shortly thereafter — they’re closing up for the night. As we head over to the bar, I talk to the fund manager about Game of Thrones. I forget to ask him if he got a satisfactory answer to his question.
What is Bitcoin?
At the Bitcoin 2013 conference this weekend, I was told it was the future of payments. I was told it was the ultimate growth commodity, that it could only go up, that one need only buy and hold and they’d surely get rich.
I was told it was the best chance the world had ever had to reform the banking system. I was told that it would surely fail. I was told that it was the most dangerous idea ever devised.
“Either Bitcoin will destroy the state, or the state will destroy Bitcoin,” one person told me.
In a way, they were all right. Bitcoin is all these things, if only to different people. People tended to fall into two camps — true believers who really did think Bitcoin could take over the world, and businessmen who knew that to do it, the Bitcoin community might have to make some hard choices.
Whether they knew it or not, these two camps were saying different things this weekend. There was one major point of agreement — in the future Bitcoin would either be worth billions, or it would be worth nothing. And given recent moves by financial regulators, the point at which that question is decided might be coming sooner, rather than later.
No, seriously, what is Bitcoin?
At its simplest level, Bitcoin is a digital currency that maintains value through scarcity and relative irreversibility of transactions, even without a central body to control the money supply. At the core of Bitcoin is the so-called “Block Chain,” a ledger (which is stored in the cloud) of every Bitcoin transaction that has ever occurred.
When a new transaction happens (ie., when a bitcoin is sent from one person’s digital wallet to another) it is added to the block chain by a network of so-called “miners,” who use their machines to independently verify that the transaction has occurred by doing a lot of really heavy number crunching.
These miners also generate a small amount of Bitcoin every time they verify a transaction, which both incentivizes them to do so and adds more Bitcoin to the total supply. The amount of Bitcoin generated halves roughly every four years. This means that the total Bitcoin supply will top out in 2140, with about 21 million digital units in circulation.
This means a few things. One, Bitcoin is hard for any one person to control, because it works in a peer-to-peer network. Two, it’s really hard to take back a transaction once it’s happened because it’s stored many times in the cloud.
And three, because there’s a set supply, the price of Bitcoin will probably continue to rise as long as it has any value at all to people. Whether that’s a feature or a fatal flaw generally depends on what monetary theory you subscribe to.
Those attributes make it attractive to a certain type of people, regardless of its actual usefulness as a currency. That is to say, if you’re inclined to distrust the government and think that any state meddling in money can only end badly, then the idea of a currency existing on its own that governments can’t realistically control has an intrinsic appeal.
But there’s a second wave of people moving into the community now with other concerns — banks, fund managers, venture capitalists, economists and investors. They have been spurred by the recent growth in the price of Bitcoin, and by events such as the near collapse of the banking system in Cypress and instability in the Eurozone, which demonstrated the value of alternative currency. As they try to turn Bitcoin from a small, mostly underground economy into a true global payment system, they’re running into some problems.
One of the biggest is liquidity — it’s hard to get your money into Bitcoins, and once it’s in, it’s even harder to get it back out. That’s something many of the sponsors who had booths at the conventions were working on. There was a lot of buzz about a gift card app called Gyft, which partnered with BitPay, a Bitcoin processing system for merchants, to let users buy gift cards to a number of retailers — one convention-goer even used it to pay for his hotel room.
Still, that’s just a very small, very new part of the market. Most people who want to turn their Bitcoins into other currency still have to go through a small number of exchange sites. This is probably the biggest problem.
Not only are these sites comparatively small, and unable to process trades quickly, they also put lie to the idea that Bitcoin is completely immune to government pressure. If the governments of the world were really as serious about stopping Bitcoin as some of its more paranoid admirers think, they’d just have to make it hard enough to operate an exchange that it became extremely difficult to ever “cash out” a Bitcoin investment, driving away investors and merchants that might otherwise want to get involved in the currency. At that point, the question wouldn’t be whether Bitcoin would take over the world, but whether it would survive at all.
That might already be happening. Last week the Feds shut down the U.S. subsidiary of the largest exchange, Japan-based Mt. Gox, in what might be the first stage of a much larger crackdown. Mt. Gox’s subsidiary had not registered with the government as a money transfer agent, as was required under the law, and didn’t comply with laws requiring it to keep track of the identities of people changing money on the site in an effort to combat money laundering. Mt. Gox processes upwards of 60 percent of all Bitcoin trades, so its loss would be a major blow to the currency.
FinCEN, the branch of the U.S. Treasury department charged with enforcing financial laws, has laid out a path to running a legitimate exchange in the U.S. But it’s a rocky route, requiring operators to fill out a lot of paperwork, submit to much more government scrutiny, and also collect a lot more information about their users. Some exchanges, like TradeHill, are trying to be as above-board and compliant as possible. Others are ideologically opposed to it, or are trying to find work-arounds.
In any case, it casts a lot of uncertainty on the future of Bitcoin, something the notoriously volatile market doesn’t need.
And there’s also the worry that in becoming legitimate, Bitcoin might lose its soul. More than one person I talked to said over-regulation had the potential to remove a lot of the attributes that attracted him to the currency in the first place.
“If you remove the anonymity, and you remove the irreversibility of payments, then what really is Bitcoin?” one person asked me. “A way to do payments online without having to pay a credit card transaction fee? That’s hardly a rallying cry.”
On the way home from the first night of Bitcoin 2013, head still spinning from an hourlong conversation about monetary collapse and the rise of alternative currencies, I stop off at 7-11 to buy a lottery ticket.
Yeah, I know the math. The odds of winning are about 1 in 75 million, roughly the same odds as being struck by lightning twice in one day.
But the Powerball is at $590 million this weekend, the third-highest payout of all time. I’ve hearing about it everywhere — not at the conference, where no one talks about ‘fiat currency’ except as a derogatory term — but around it, on the streets, in the elevator, in excited conversation between meeting hall staff in their immaculate burgundy jackets. At the 7-11 that night a group of cops is talking about it.
“If I won, I’m gone. That’s so much money, I’d leave San Jose. You’d never see me again,” one tells the other.
At a certain point, even knowing the odds, even realizing it’s a long shot, you think hey, what the hell? I pay my $2. The ticket the cashier hands me is either going to be worth $600 million, or it is going to be worthless. But I am hopeful. Even with those odds, I have the exact same chance as everyone else in America.
I didn’t win. But someone did.
Everybody’s talking about the m-commerce boom, but if you look past the sophisticated surveys, app owners are struggling to figure out why their conversion rates fall short of expectations.
It’s not surprising if you consider the fact that mobile shopping cart abandonment rates are around 97 percent. Many frustrated developers have asked me how they can decrease these huge numbers that just don’t fit their business model.
Perk Offers Users of its Browser the Ability to Turn “Perk Points” into Bitcoin, that can be Used for Instant Peer-to-Peer Transactions and Worldwide Payments
AUSTIN, Texas, May 20, 2013 — /PRNewswire/ — Perk, the world’s first web browser that rewards users for surfing, searching, and shopping online, announced today that its users now have the ability to turn rewards – Perk Points – into Bitcoins. Perk has partnered with more than 2,000 top merchants including 1800 Flowers, BestBuy.com, Urban Outfitters, drugstore.com and many more, to offer its users an array of options to earn and spend Perk Points.
Bitcoin is a new and exciting open-source digital currency that enables instant peer-to-peer transactions and worldwide payments. Bitcoins can be transferred through a computer or smartphone, to directly pay and/or receive payments for goods and services and settle debts among friends.
“We wanted to give Perk users the opportunity to play with what amounts to ‘house money’ when it comes to Bitcoins,” said Adam Salamon, Co-Founder and COO of Perk. “Perk users now have the freedom to convert their Perk Points into Bitcoin, that can be spent however they like, in addition to the great products, services, gift cards, airline miles, social gaming currency and donations that we typically offer.”
Perk believes that by providing its users with “low risk” access to Bitcoin, it will enhance access and use of this revolutionary new way to transact online.
“At Perk we’re always looking to offer our users new and exciting ways to use their points, including the freedom to transmit ‘value’ from one person to the next with Bitcoins,” said Roj Niyogi, Founder and CEO of Perk. “Many people are still trying to grasp the value of a Bitcoin, so we thought it would be appealing to give our users the opportunity to try it out for themselves, with no risk.”
Perk is powered with top tier search capabilities and is built on the open source project, Chromium, the technology behind Google Chrome. The Perk browser is now available for download here (www.perk.com) on both Mac and Windows.
About Bitcoin Bitcoin is one of the first implementations of a concept called crypto-currency, which was first described in 1998 by Wei Dai on the cypherpunks mailing list. Building upon the notion that money is any object, or any sort of record, accepted as payment for goods and services and repayment of debts in a given country or socio-economic context, Bitcoin is designed around the idea of a new form of money that uses cryptography to control its creation and transactions, rather than relying on central authorities.
On September 27th 2012, the Bitcoin Foundation was created in an effort to standardize, protect, and promote Bitcoin. Today, the Bitcoin economy is developing quickly with new users joining every day.
About Perk Perk is the world’s first Web browser – available on Mac and Windows – that rewards users with “Perk Points” that can be redeemed for products, services and causes, by simply surfing, searching and shopping on the Web. Perk is built on the Chromium open source project and includes more than 2,000 merchant partners including 1800 Flowers, BestBuy.com, Urban Outfitters, drugstore.com and many more.
Perk.com is backed by Insight Capital, has its headquarters in Austin, TX with offices in Bangalore, India.
About Jutera Labs Jutera Labs is an Austin, Texas-based technology incubator that operates using the principles of keiretsu, where interlocking business relationships and shareholdings merge to form a shared ecosystem for conceiving, developing, launching and scaling companies. Jutera Labs’ companies focus on the fields of digital media, retail and advertising. The company has offices in both Austin, Texas and Bangalore, India.
Jutera Labs was founded in 2010 by ex-Social Media.com and Bazaarvoice (NASDAQ: BV) executives Roj Niyogi and Adam Salamon , who have parlayed their experience with running startups in social, deals / loyalty, online and multichannel retailing into an incubator for emerging companies. Jutera Labs completed a Series A round in September of 2011. Its main investor is Walnut Creek, California-based Insight Capital, as well as undisclosed business angels.
When governments center a great portion of their focus around controlling and manipulating economic affairs, they become very nervous at the utterance of the words “alternative currency.” And in the case of Bitcoin, in seems that U.S. officials have heard enough about the currency alternative to become worried that its growing popularity might affect the government’s economically enabled monopoly on power.
Bitcoin has been getting flogged by politicians who have little interest in understanding how the alternative currency works, who uses it and why those tired of government manipulated currency may opt to use it for certain transactions.
Two years ago, when online currency first started to get a little media attention outside of tight-knit Internet cliques, Senator Charles Schumer (D-N.Y.) breathlessly exclaimed at a news conference: “Literally, it allows buyers and users to sell illegal drugs online, including heroin, cocaine, and meth, and users do sell by hiding their identities through a program that makes them virtually untraceable. It’s a certifiable one-stop shop for illegal drugs that represents the most brazen attempt to peddle drugs online that we have ever seen. It’s more brazen than anything else by light-years.”
Of course, Bitcoin is not — as Schumer seemed to be convinced — an online currency specifically designed for the buying and selling of illicit drugs. And since his hissy fit, the virtual currency has become more popular as online companies and even some brick-and-mortar small businesses throughout the Nation have begun accepting Bitcoins.
Even though Bitcoin is proving a viable vehicle for legitimate financial business, the Federal government has doubled down on attempts to highlight the fact that it can be used for illicit means. (Of course, drug dealers, prostitutes, terrorists and mobsters haven’t stopped accepting cash, have they?)
Last week, the Feds initiated actions that prompted the online payment service Dwolla to stop processing Bitcoin transactions. The Des Moines, Iowa-based startup had raised $16.5 million in funding two weeks ago to further initiatives to mainstream Bitcoins. It blamed the decision to stop processing transactions involving the currency on “recent court orders” crippling its ability to send money through MtGox, the largest Bitcoin exchange.
MtGox issued the following statement:
Statement Regarding Dwolla:
Like many who have contacted us, MtGox has read on the Internet that the United States Department of Homeland Security had a court order and/or warrant issued from the United States District Court in Maryland which it served upon the Dwolla mobile payment service with respect to accounts used for trading with MtGox. We take this information seriously. However, as of this time we have not been provided with a copy of the court order and/or warrant, and do not know its scope and/or the reasons for its issuance. MtGox is investigating and will provide further reports when additional information becomes known.
A Department of Homeland Security seizure warrant to Dwolla for the MtGox’s account with the online processing company says that Dwolla, a Japanese startup, failed to register in the United States as a money-transmitting company. That matters, because supposed “anti-terror” financial rules from recent years require online transfer systems to identify users. Dwolla president and CEO Mark Karpeles now faces up to five years in prison.
“The shutdown of MtGox is a little bit worrying, it looks as if the US government wants to put a stranglehold on the kind of business that’s popping up around Bitcoin, but, crucially, it doesn’t affect much the currency itself.” Arwa Mahdawi, a consultant, journalist and Bitcoin employee, told RT. “It’s just the exchanges around it and the U.S. exchanges. And by the nature of it, Bitcoin being an international currency, shutting down an exchange like MtGox, even if it affects the liquidity of Bitcoin, can’t kill Bitcoin.”
Many people watching the Federal case against Bitcoin surmise that the government is simply grasping at straws to make it as difficult as possible for virtual currencies to gain more mainstream acceptance, because the proliferation of a de-centralized, apolitical currency network presents a massive threat to the lucrative symbiotic relationship between government and traditional “private” banks.
SAN JOSE, Calif. (CNNMoney) — The Winklevoss brothers’ legal battle with Facebook over the social network’s messy creation made them rich. They eventually walked away with stock worth around $150 million at today’s share price. (They haven’t disclosed how much of the stock they’re still holding.)
A few months ago, word spread that the twins, Cameron and Tyler, had set up their own investment firm and decided to focus on a curious market niche: bitcoins.
The brothers are betting that the cyber currency can turn them from millionaires into billionaires. They’ve invested in buying the coins directly (they told the New York Times that they began “dabbling” last summer, when prices were in the single digits), and this week, they disclosed their first Bitcoin venture investment: A stake in New York-based payment processor BitInstant.
The Winklevii, as they’re known around town, gave a keynote talk Friday night at Bitcoin 2013, a conference in San Jose, Calif., bringing together Bitcoin developers, miners, investors and enthusiasts.
The presentation was light on specifics but heavy on bullishness, as the brothers charted the currency’s rapid rise and explained why they believe it’s got much further to go.
The price of 1 bitcoin has risen from $5 a year ago to a record high of $266 in April. It currently hovers around $120 per coin, setting the combined value for all 11 million bitcoins in existence at just shy of $1.4 billion.
“This isn’t a bubble or tulip mania,” Tyler told the crowd of several hundred attendees. “This is rapid adoption. This is a rush.”
Ideological underpinnings aside, Bitcoin has two key selling points as a payment system: Anonymity and much lower transaction fees than rival digital systems like credit cards. The twins believe that bitcoins can transform the payments industry the way that Skype and other VoIP (voice over IP) services demolished the long-distance calling market.
They’re eying payment processing services like BitInstant as a way to take the currency mainstream. Winklevoss Capital recently led a $1.5 million financing round for the two-year-old firm.
So when a bitcoin-focused startup takes on venture capital cash, how does it do it: Traditional money or actual bitcoins?
“American dollars,” says David Azar, a private investor who participated in the round. “Only American dollars.”
The world’s most popular Bitcoin exchange is being sued for $75 million by a Washington state startup that says a contract between the two digital currency companies has been breached.
Seattle, Washington’s Coinlab filed the claim Thursday in United States District Court for the Western District of Washington, and is asking for a trial by jury to determine if the Japanese-based Bitcoin exchange Mt. Gox is guilty of breaking a contract signed between the two just six months ago.
Since shortly after the introduction of the virtual crypto-currency in 2009, Mt. Gox has served as the primary exchange place for the majority of the world’s Bitcoin transactions, providing people around the world with an easy-to-use online venue to buy and sell denominations of the increasingly popular digital dollars. In November 2012 they tried to corner even more of the Bitcoin exchange market by cutting a deal with Coinlab that would let the Seattle-based business venture manage the North American share of cyber-trades and, among other benefits, speed of the process of Mt. Gox’s international transactions.
“Mt. Gox, the owner of the world’s dominant Bitcoin exchange, announced today that they have selected Coinlab as their exclusive partner in the United States and Canada. As of March 29, all US and Canadian customers currently transacting with Mt. Gox will transact through Coinlab, Inc,” the Japanese site announced in a press release.
“This should be a huge win for everyone — faster deposit and withdrawal times, easier-to-reach customer service and better access for United States financial markets, market makers and liquidity providers,” Mt. Gox Managing Director Mark Karpeles said after last year’s contract was signed.
Now just a few months down the road, this week Coinlab said their colleagues in Japan failed to honor the terms of the contract. In the lawsuit filed this week, Coinlab attorneys wrote, “Mt. Gox has continued to market to customers in North America and has accepted business from customers there.”
“What tipped us into filing was our complete inability to get Mt. Gox to deliver on the few simple things left that were needed for customers to move over en-masse; we were often left just apologizing to our alpha customers while their own businesses suffered,” CEO Peter Vessenes wrote in a blog post published Thursday. “I’m just not willing to put any of our customers in that position — if we can’t do a good job for you, I won’t promise that we can.”
“I have a vision in which high quality service and technology and ethics can be delivered to you, me, my kids, everyone who has a stake in Bitcoin,” Vessenes wrote. “I have for a number of years now wanted to make sure that Bitcoin is properly situated for everyone’s good,” he added later. “I want a robust economy and a broad base of service and product for everyone.”
Coinlab’s attorney wrote in this week’s complaint that things have not exactly gone as planned. Mt. Gox has breached the contract by failing to cooperate with the terms of the agreement, alleged Coinlab, and in doing so impacted operations for customers of both entities. Additionally they accused Mt. Gox of failing to cooperate in a timely fashion and say they violated a number of terms outlined in last year’s contract.
“Mt. Gox has also failed to provide Coinlab with account reconciliation data, server access and other information promised in the agreement that is essential for Coinlab to market exchange services and service its customers as contemplated in the agreement,” it continued.
In the blog post published this week, Vessenes wrote that his company “regretfully filed” the complaint only after ongoing frustrations brought on by Mt. Gox became too much to handle. When reached for comment by Gawker.com reporter Adrian Chen, Mt. Gox’s Mark Karpeles wrote, “We have not been served nor notified of such a lawsuit (except from your email), so it is difficult for us to comment at this point in time. We will review this within the next hours.”
Traditionally known as a highly-encrypted currency that allows for near complete anonymity in financial transactions, Bitcoin has increased its user base in recent months after its value skyrocketed in worth, hitting an all-time high above $250 per BTC last month — only to drop sharply just days later. A number of online retailers are slowly accepting payments in BTC in addition to allowing customers to use credit cards, and last month a man from Canada offered to sell his home for 5,362 BTC — at the time equivalent to around $395,000 USD.