Tag Archive | "bitcoin"

More Problems for Bitcoin?


(Photo credit to: PCWorld.com)

(Photo credit to: PCWorld.com)

 

It seems that the ever-controversial virtual currency Bitcoin is back making headlines with it’s involvement in a multi-million dollar lawsuit. What current roadblock faces this infamous currency? Will Bitcoin ever be accepted? Or will this lawsuit cause more damage than good? What started as a pipe-dream partnership has now turned sour with major players of the industry at each other’s necks.

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More Bad Press for Bitcoin


In the last few months, we’ve been following the ongoing debate surrounding the crypto-currency, Bitcoin. While many say “even bad press is good press,” recent press for Bitcoin has once again associated it with the shady corners of the internet. Forbes recently released two articles online, one that interviews the Silk Road’s owner and the other regarding those who have recently been subpoenaed for their involvement with Bitcoin.

Welcome to The Silk Road, Internet’s Black Market

(Photo credit to: Fargolawyers.blogspot.com)

(Photo credit to: Fargolawyers.blogspot.com)

While the Silk Road isn’t the only shady website offering illegal products and substances, it’s certainly becoming one of the largest. Most of their success has been through a combination of Tor and the anonymity of Bitcoin. In the last two and a half years Silk Road has grown to one of the largest and now finds themselves in between competing sites and the DEA. It’s surprising that Silk Road has lasted this long, though the founder and owner has done everything in his power to keep a low profile. It took Forbes reporter Andy Greenberg eight months even to convince this individual, who goes by the name of Dread Pirate Roberts (a Princess Bride reference) to even commit to this interview. Greenberg also ran into his fair share of obstacles, as he constantly acted on trial and error with the questions he could ask. At one point Greenberg and Roberts cut communication completely for a month, following Greenberg’s request for his name and nationality.

Silk Road’s Bad Press for Bitcoin

To even access Silk Road, you would need to download and run the anonymity software known as Tor. This basically makes it impossible for anyone to track the pathway from your computer to Silk Road’s actual servers or to the wizard himself, Dread Pirate Roberts. Greenberg actually compares Tor’s technology to being escorted somewhere blindfolded. Roberts takes these precautions as “the highest levels of government are hunting me… I can’t take any chances.” – Forbes, Andy Greenberg

(photo credit to: Clker.com)

(photo credit to: Clker.com)

Well, when you run one of the busiest websites peddling ridiculous amounts of heroin, LSD, cocaine, methamphetamines, marijuana, and ecstasy it’s pretty easy to see how you’d hit the top of the DEA’s list. Combining Tor’s technology with Bitcoin’s mechanics provides Silk Road with the perfect formula for anonymous drug sales and purchases. All the user has to do is convert their dollars or Euros into Bitcoin, use Tor to access Silk Road, pick their poison (literally), and wait for it to be conveniently mailed to their chosen address by the U.S Postal Service. Silk Road charges fees for every transaction, using a commission percentage that decreases as the ordered amount increases. In the first half of 2012 alone Carnegie Mellon researcher Nicolas Christin estimates Silk Road has grossed $1.2 million each month. Another study found that this illegal substance emporium also receives an alarming 60,000 visits per day.

Days before this article was posted, Forbes posted an article about how the New York State Department of Financial Services has begun to subpoena those currently making money off of Bitcoin and Bitcoin investments. A federal judge even declared this volatile currency real money, as it also received an experimental ticker (XBT). Twenty two digital currency companies and investors have received subpoenas so far, as the NYSDFS requests information like money laundering controls, consumer protection practices, source of funding, and more. Their intent is to understand Bitcoin’s logistics while also ensuring that illegal activities like Silk Road do not continue to be funded by the new currency.

Of course, all of this recent press for Bitcoin comes as a result of various busts and money laundering rings virtual currency companies have been operating with the use of Bitcoin.

Will any of these efforts stop websites like Silk Road from their illicit operations? Or will Bitcoin continue to fund narcotics, illegal documents, and more?

Less Press for Bitcoin Would Probably Benefit

At this point in time, I believe that Bitcoin is better off staying out of the limelight. Any type of press may be good for exposure, but associations to Internet’s black market is definitely not. Unfortunately, it’s not even just Silk Road regulators have to be concerned about. Competitors like Atlantis are constantly toeing the line to see how far they can push it. This particular competitor has even started a marketing campaign, showing ads on YouTube for narcotic purchases. Of course, Dread Pirate Roberts doesn’t seem to be too concerned as Forbes latest article will most likely add to Silk Road’s growing user-base. According to Roberts, Silk Road is an example of “standing up for our rights as human beings and refusing to submit when we’ve done no wrong.” – Forbes, Andy Greenberg

Bitcoin’s Latest Round of Press Wrap-Up

I project that the remaining months of 2013 will be quite an interesting ride for Bitcoin, it’s users, and those who participate in illegal sites like Silk Road. Individuals and companies like the Winklevoss twins and Google’s venture fund will now have to pony up their Bitcoin information, which makes the currencies main premise of anonymity somewhat pointless. It’s proven to be completely necessary though, as more people continue to use Bitcoin for illegal purchases on sites like Atlantis or Silk Road. Now that the “War on Drugs” have also taken over the Internet, what does this mean for our privacy? Will these developments give the NSA and other organizations all the ammunition they need to keep our activity on close watch?

What are your thoughts about the recent press for Bitcoin? Will you continue to buy and sell this crypto-currency or are you keeping your distance?

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Winklevoss Twins File For Bitcoin ETF


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Yes, you read that correctly. The Olympic rowers from Harvard are now making waves in the stock market. As they continue to jump from one venture to the next, they have been active in the Bitcoin market for the past few months. Now, it’s apparent they had bigger plans for Bitcoin; submitting a S-1 filing to the SEC late Monday for the Bitcoin ETF. They hope to enter the exchange transfer funds market with the latest craze in virtual currency. The announcement though was met with skepticism as Bitcoin’s past is filled with volatile highs and lows. While the Winklevoss twins await approval from the SEC let’s take a look at why so many of the market’s influencers are discrediting this launch.

Image via Julien M. Hekimian/Getty Images

Image via Julien M. Hekimian/Getty Images

Why is There So Much Backlash to the Bitcoin ETF?

There is a reason why so many investors and financial groups are staying away from Bitcoin and the Winklevoss’ plan. For one, while the Bitcoin network may not be controlled or managed by groups like the Federal Reserve, increasing regulation and the stability of the major markets still greatly influence the price of Bitcoin. Like most other commodities, when it is difficult to keep something in circulation the price will increase, and vice versa. Bitcoins are the same way, as the prices fluctuate on how many Bitcoins are in circulation and how easily it is to be mined.  Mining is the term for the creation of a Bitcoin. As mining has evolved, the cost and complexity of the processors required has increased.

In their S-1 filing, the Winklevoss twins state that the share price for Bitcoins in their Bitcoin ETF will be a fifth of a Bitcoin’s value. This means that for every five shares purchased, the Winklevoss twins have to purchase a Bitcoin. Furthermore, overall value for the shares will be determined through what they call a “Bitcoin blend.” For this the price will reflect the daily average of the share’s high point and low point which can be extremely risky for any investor. Did I mention that the twins also launched Math Based Asset Services, the company who will be managing the portfolio? Or how about the fact that they will also be “storing” all of the Bitcoin virtual currency on their own proprietary system? Of course they will be requesting a fee for storing your Bitcoin, though the transaction fee is still undisclosed at this point.

If you thought these points were the worst of it, continue reading. There are plenty of surprises still waiting for you to uncover!

Regulators Concerned With Bitcoin ETF

Any person who has exchanged Bitcoin knows about the certain risks involved. While the virtual currency has been around since 2009, it’s history and past use should definitely pose concern to market regulators. Besides the apprehension of a rapidly growing intangible currency, regulators are also concerned with the potential money laundering abuse that can occur through a Bitcoin ETF. Even before the twins filed with the SEC Bitcoin has seen it’s fair share of publicity though it was usually infamously rather than any substantial worth. It was only a few months ago that money service group Liberty Reserve was shut down being reported as one of the biggest money laundering services ever uncovered. What is really stopping a hacker from hijacking the exchange for money laundering down the road? The largest exchange service, Mt. Gox, even recently filed to be considered a money service business as an assurance to authorities that they are fine with being subjected to the same regulations more established currencies exchanges abide by.  What should be more disconcerting for all “potential investors” are the key points the twins address in their 74 page filing. For starters, they address that if bitcoins were ever outlawed in the future, your shares would also be considered illegal and could be sanctioned. They continue by clarifying that neither twin has any history managing or operating an investment vehicle and state that their experience could be “inadequate or unsuitable to manage the Trust.”-(Bloomberg News) Well, if that doesn’t make you feel much better about investing in Bitcoin I don’t know what will! Moving on they also point out that because the currency is fairly anonymous, investors with brokers must trust that they will be honest with any Bitcoin EFT trades they manage. Then of course they go on about the “blending” pricing method for a ridiculously volatile currency. Basically, they’re letting you know that you will always get the average of the high and low, while they are reaping the benefits from higher share amounts and transaction fees for storage. Plus, what is stopping a hacker from getting into the exchange and manipulating the Bitcoin price to extreme levels? Saving the best for last the Winklevoss twins also mention how the Bitcoin ETF share prices can drastically drop IF the cap on mining was lifted. I’m not sure how this filing is even still being entertained, as this is probably one of the riskiest markets to invest into. Just look at all of the provisions and the potential for disaster. It could do a complete 180 turn, but there is nothing promising that you will find success in this market.

Going back to the Winklevoss’ experience, by digging deeper into their background you can see this is just another one of their trends.

What Have the Winklevoss Twins Done in the Past

They definitely have been busy since attending Harvard with their adversary Mark Zuckerberg, the founder of Facebook, Inc. You are probably more than familiar with the conflict between the three, as the twins claim to have contributed key elements that led to the creation of Facebook. After receiving a small settlement, the twins began to hop from one venture to another. Their latest ventures include an e-Commerce site Hukkster and a money manager online community called SunZero. In April they had purchased 1% of all outstanding Bitcoins, which are currently valued at approximately $10 million.  From there they filed with the SEC late on Monday for an IPO of $20 million offering to exchange their holdings for shares. Their claim to the press is to make Bitcoin more mainstream using Bitcoin ETF to make it more cost efficient for people to purchase Bitcoins. As mentioned earlier, every five shares totals one full Bitcoin.

On a positive note, there are certain advantages Bitcoin can have if given the green light.

Bitcoin ETF Reshaping Currency

While Bitcoin has been used in the past for gambling, money laundering, and other illegal activities it holds an abundant amount of potential. If the Bitcoin ETF platform is approved, it will gain a multitude of exposure by the general public. Bitcoin holds all the necessary potential and skills to revolutionize payments, it just needs that initial spark. This can only happen if Bitcoin becomes widely used. Since being created by an anonymous hacker (going by the psuedonym “Satoshi Nakamoto”) Bitcoin’s use has definitely grown. There are many online websites that accept Bitcoin as easily as Paypal, including a few brick and mortar establishments accepting it.  Kickstarter even has a project titled “Life On Bitcoin,”  a documentary following a couple living in a rural community and only use Bitcoin for transactions. The anonymity and security that made Bitcoin so valuable also has its appeal although it works against the virtual currency in regards to the stock market.

Wrap-Up: What’s the Verdict on Bitcoin ETF?

As the SEC has yet to approve or deny the twins’ filing there are still many undisclosed details that would help brokers, traders, and groups alike make a more intelligent decision. Before making any decisions though, you need to conduct your own research as well. While digging for information consider this:  The Winklevoss twins are known for jumping from one investment to the other. In this case, it seems they are looking for a quick, lucrative way to increase their initial $10 million investment. How would they do so? By creating a lot of hype around a controversial currency, one that has the potential to be amazing. They’ll stand by it as advocates while profiting from the increase in value and the systems they’ve created to store the virtual currencies. If approved by the SEC, you need to make sure this investment is worth the risk. So far, evidence has shown this may be one IPO to ignore. We will have to wait and see what the SEC decides.

In the meantime, what are your thoughts? Do you think Bitcoin ETF can be successful? Or do you think this will lead to a lot of disappointed investors, brokers and financial groups? Let us know!

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Posted in ETF, IPOComments Off on Winklevoss Twins File For Bitcoin ETF

Risks and Concerns On Trading Digital Currency


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Earlier we wrote an introduction into trading digital currency and Bitcoin (BTC). One of the most important parts of trading and investing, in general, is knowing the risks involved. When trading virtual currency, it is especially crucial to choose the right exchange, follow relevant world events and understanding where and how to appropriately store your digital money.

Trading Digital Currency and Government Regulation

trading digital currency

As was mentioned before, virtual currencies are not recognized or regulated directly by governments. This had led to some recent clashes; the most notable with the US government.

Just last week a major digital currency exchange system, Liberty Reserve, was shut down. Its owners were charged with money laundering for failing to comply with the Know Your Customer (KYC) and other Anti-Money Laundering (AML) regulations regarding the nature of the transactions into their currency. Investigators claimed that they were able to create and utilize accounts with bogus names. Prosecutors claimed the service was mainly being used anonymously to conduct criminal activities.

Liberty Reserve was a different type of digital currency trading system than Bitcoin in that it’s ledgers were centralized. The trading between US dollars or Euros were performed by external exchanges and not by the reserve itself. These exchangers charged a high level fee to exchange in and out of the Liberty Reserve system. Being that these internal transactions could be sent completely anonymous, those looking to conceal and launder the proceeds of illegal activities would be willing to pay the excessive internal and external exchanger charges.

Bitcoin has recently suffered dissimilar setbacks in the regulation of its largest exchanges. In the past month, the largest Bitcoin exchange MtGox had its US accounts seized because the owner failed to declare that he was operating a Money Services Business (MSB). The exchange continues to operate, but it is difficult for Americans to retrieve their deposits in dollars instead of Bitcoin.

Bitcoin and newer cryptocurrencies don’t suffer from many of the same problems as Liberty Reserve because the currency itself is decentralized much like modern P2P (Peer to Peer) filesharing clients. It is also much easier to exchange between these coin and fiat currencies as the fees are much lower than bank wires or paypal. Finally, all transaction records are public and can be traced back, giving the so there is more of an argument to use Bitcoin for legitimate purchases.

Staying Secure While Trading Digital Currency

One of the consistent ongoing threats to using a digital currency is the threat of losing an investment to hackers. Bitcoin has proven itself very resilient to all hacking attempts on the currency. Since 2008 there has been no way to counterfeit Bitcoin and no one has managed to spend the same coin twice. This is a major reason the value has been so resilient to other negative news.

While the currency itself is secure, the exchanges have proven to be anything but secure. Nearly every major exchange has experienced theft of some amount of Bitcoin either through an internal security breach by a disgruntled ex-employee or through outright hacking attempts by various groups. As Bitcoin can’t be charged back, there is no way to “freeze” this money. The best attempts out there are to trace its public record of transactions and try to block stolen Bitcoin from trading on large exchanges, much like the US government can flag serial number ranges on paper money.

trading digital currency 2

Another attack on the exchanges has been via a Distributed Denial of Service (DDOS) attack, where a hacker controls a large number of compromised computers and floods the exchange with various commands and requests. The exchange becomes bogged down and trades begin to lag significantly. This makes it difficult for the order book to fill up and the spreads increase. In the most recent significant price drop hackers were able to manipulate the perceived value of Bitcoin by stalling the major exchanges and causing a price drop, then ceasing the attacks and letting the value rise again.

For end-users of virtual currency it is advised to keep a “cold copy” of their digital wallet encrypted in a USB drive or burned to a CD. Virtual currency is most vulnerable when stored at a third-party or kept accessible by a internet connection. Loss of personal funds usually happens in one of two ways:

  • A local copy of a Bitcoin wallet gets destroyed by a failing computer or deleted by user error, the coins are not recoverable.
  • Coins are stolen through a trojan and/or phishing attack on the system. This usually happens on Windows but can happen on other OS by using outdated Java. Once the coins are stolen, again it may be possible to trace, but unlikely to ever recover.

There have indeed been cases in the past year where some users lost BTC wallets worth over $100,000 USD due to poor security practices. Phishing attacks can also rob users of funds stored in third-party wallets or exchanges by tricking them into entering their login details to a fake page.

Moving Forward

Despite the above risks, trading digital currency like Bitcoin can be an exciting way to diversify your investment portfolio especially if you already engage in forex trade. Many of the above risks can happen with traditional brokerage accounts if the investor has poor security practices and fails to keep an updated system. Contrary to the above setbacks, the market for virtual currency continues to grow and is expected to continue to do so.

Are digital currencies like Bitcoin too vulnerable to theft? Would you invest in Bitcoin or are the risks of being hacked too high?

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What Is Bitcoin? An Intro to Digital Currency


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There is an exciting new market emerging in the form of digital currency, and many asking what is bitcoin? Digital currencies have existed for years in the form of centralized digital gold currency. In the past few years though a new kind of digital currency based on cryptography has risen.  The most well known of these crypto-currencies is Bitcoin.

what is bitcoin

What Is Bitcoin?

Bitcoin is a decentralized, peer-to-peer, deflationary currency first emerged in 2008. This form of currency relies on massive amounts of computer power to create new coin through a process called “mining.”  In many ways its comparable to gold. Both have a maximum amount that can be acquired through mining. As more bitcoin is mined the more difficult it is to mine, causing less to be found.  Eventually, bitcoin will reach a maximum of 21 million coins after which no new coin can be mined.  Because of the limited amount like gold, bitcoin is deflationary.  For investors, this makes bitcoin a very interesting hedge for inflationary fiat currency (physical currency, like the US dollar).

Since 2009, the value of bitcoin has increased over 30,000%.  From the beginning of this year up to June 1st bitcoin has increased over 900% alone.  It has outperformed every other market in long-term growth and the size of the market is now worth nearly $1.25 billion. What’s even more intriguing is it’s consistent growth each month.

Explore the Bitcoin Market

what is bitcoinThere are many attractions to a digital currency like bitcoin.  The most obvious attraction is that bitcoin is digital, not taking up any physical space unlike paper currency or gold. It can be stored on a flash drive, a computer, a mobile phone, a QR code (seriously!), on a physical coin with tamper-proof holographs, or even in a “brain wallet” which is actually a phrase that you would memorize.

Another huge attraction is it’s independence and freedom from government and bank control.  Funds in a bitcoin wallet cannot be frozen or confiscated!  There are no central banks controlling the supply of bitcoin and it isn’t influenced by the status of any country’s economy.  Recently many investors have flocked to bitcoin, especially those in the Euro-zone debt crisis involving Cyprus.

Another attraction to bitcoin is it’s very low and often times non-existent transaction fee to send a transaction to anyone, anywhere in the world.  For those of you looking to avoid high merchant fees charged by credit cards or money transfer services like Western Union, bitcoin is a great alternative. Transactions across the bitcoin network appear in seconds and confirm in minutes! It’s also not possible to chargeback a bitcoin transaction which eliminates a lot of the common scams performed using services like PayPal.  Unlike traditional currency, every bitcoin transaction record is public, so it’s trivial to prove that someone was paid.

In the past year alone the value for one bitcoin has increased over 1000%.  How many other types of currency have you seen increase at a similar rate? What is really appealing to curious traders is how each bitcoin can be divided down into 100 million smaller pieces called satoshis. By doing so it’s still possible to buy very small amounts of a bitcoin even as the value continues to climb.  There have also been proposals for alternative ways to count small amounts of bitcoin more efficiently, like the tonal bitcoin.

How Do I Buy Bitcoin? What Are Bitcoin Exchanges?

You can buy and sell bitcoin in a number of different ways. The highest volume method has been using bitcoin exchanges.  These function much like a forex exchange in which a fiat or other digital currency is exchanged for bitcoin.  The drawbacks in using these exchanges have been the fees they charge and the security risk of letting a third party hold the bitcoin.  Another way to trade have been through the over-the-counter (OTC) community.  OTC uses a web-of-trust system between individual traders to negotiate payment.  With OTC you may avoid the fees and security risk, but it’s much more difficult to trade and a lot easier to get scammed.  Lastly, some people use mobile apps to carry their bitcoin with them and do face-to-face transactions with fiat cash for bitcoin.

Digital currency and bitcoin are lucrative, but are not without their faults.  Historically, bitcoin has been exceedingly volatile and the exchanges have experienced some pressure from federal regulators. During the largest exchange involving MtGox, their US accounts were seized for not properly registering their accounts as a Money Services Business (MSB). Additionally other domestic exchanges have closed due to the costs of acquiring a proper licence to operate in the country.   In April the value of bitcoin went from $266 to approximately $50 before rebounding to over $120.  This has made bitcoin incredibly exciting to trade but also difficult to keep as an investment.

Are digital currencies and bitcoin the future? Will we all be buying bitcoin? What do you think?

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(photo credits to: En.Bitcoin.It/Wiki)

Posted in Alternative InvestmentsComments Off on What Is Bitcoin? An Intro to Digital Currency


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