Thread: The control of Bitcoin can't come soon enough

Bitcoin exchange Bitfloor closes, gives its users their money back

18 April 13 by Ian Steadman

Bitcoin trading exchange Bitfloor has announced it is to "cease all trading operations indefinitely".

The exchange's founder, Roman Shtylman, has posted a message on the site's homepage. He writes: "Unfortunately, our US bank account is scheduled to be closed and we can no longer provide the same level of USD deposits and withdrawals as we have in the past. As such, I have made the decision to halt operations and return all funds."

He adds that "over the next days we will be working with all clients to ensure that everyone receives their funds".

Bitfloor has had an unfortunate history. In September 2012 it was the victim of what was the largest Bitcoin heist up to that point -- hackers gained access to unencrypted backups of the site's encrypted wallet keys and made off with 24,000 bitcoins. At the time those coins were worth roughly £160,000, but at the current exchange rate (as of writing) of £60, they'd be worth £1.44m.

Shtylman was openly apologetic about the security lapse, and had to take to the site's forum to urge users not to panic and withdraw their money. At the time that seemed to work, but now the site appears to no longer be practical.

Since the Bitcoin bubble burst last week, the value of the currency looks to have settled down after a wild few days of fluctuation. Mt Gox, which as the largest exchange acts as the de facto indicator of the current exchange rate, has been showing mild ups and downs between roughly £60 and £40 for almost a week now.

That's where it was before the mad spike of late March and early April, which saw it reach a high of more than £170 per bitcoin, briefly, before it crashed down again. While the bubble no doubt made a lot of money for some people (and lost a lot of money for many more), a return to a stable price can only be a good thing for the cryptocurrency's future as a practical payment method.



Bitcoin bubble pops (a bit), halves in value, recovers slightly


Bitcoin exchange Bitfloor closes, gives its users their money back (Wired UK)

Bitcoin - not quite a currency


Bitcoin isn't a currency.

It looks like a currency, it sounds like a currency, but it isn't a currency.

For those unfamiliar with it, bitcoin is a system of electronically stored units, called bitcoins, which can be exchanged over the internet.

Additional bitcoins are issued in return for "mining" - data processing done by the computers that keep the heavily encrypted system going.

Much of the publicity surrounding bitcoin centres on its attractiveness for those involved in the drug trade and other clandestine activities.

As Bitcoin's web site says, "Through many of its unique properties, Bitcoin allows exciting uses that could not be covered by any previous payment systems."

But while bitcoins may appeal to money launderers and arms dealers, its attractiveness goes beyond that.

One aspect of its appeal is that it is not controlled by any government.

It's a sentiment that seems to resonate with the anti-government sentiment that's fashionable in some circles these days.

But it's right at this point that bitcoin fails the currency test.

At school and at university we are told a plausible story that currencies exist because they are a "store of value" that make trade convenient and allow societies to move beyond bartering one commodity directly for another.

But why do we in Australia use Australian dollars rather than, say, US dollars or clam shells.

The answer is simple.

When we earn an income, in whatever currency, we have to pay tax.

And we have to pay tax in Australian dollars.

If we don't, we go to jail.

That's why the Australian dollar is a currency and bitcoin is just a commodity.

The other aspect of the bitcoin's appeal is its limited supply.

The system is designed so that the supply of bitcoins rises at a predetermined rate, currently 25 bitcoins every 10 minutes.

That pace will slow, step by step, until supply reaches 21 million, a little less than twice its current level, in 2140.

That's a powerful attraction for those filled with libertarian zeal, who see the recent expansion of bank reserves by central banks like the US Federal Reserve as just more evidence of the malign nature of government.

Fiat money - money which is money simply because the government says it is - is routinely held up as a fraud or a scam, with governments debasing their money by expanding its supply willy-nilly, setting the scene for hyper-inflation.

But, to the rescue, here comes bitcoin, whose supply is fixed.

What better way to circumvent the fraudulent, money-debasing ways of the bureaucrats in (insert your nation's capital here)?

The problem - one that economists will spot right way - is that the idea that rapid growth in bank reserves inevitably causes inflation, even if it were true, applies to economies.

Economies, with governments and a real currency.

And bitcoins aren't tied to any economy.

Their value rises and falls according to the whims and fancies of those who might speculate in the market for them.

They are more like a precious metal than a currency, except even then, precious metals often have real uses.

Bitcoins, as University of Queensland professor John Quiggin put it recently, "are the most demonstrably valueless financial asset ever created".

Their fixed supply may give them the allure of "hard currencies", like the Deutschemark or Swiss franc of old.

But if no-one wants them, and no-one has to own them, their fixed supply will still be way too much and their value will fall to zero.

They will have become completely debased, without the involvement of any government.

Yahoo! Finance

When you discover Bitcoin has its' own subforum on one of the "usual suspect" HYIP ponzi forums, you just KNOW it's unlikely to be taken seriously by anyone in the real world:

Originally Posted by littleroundman

When you discover Bitcoin has its' own subforum on one of the "usual suspect" HYIP ponzi forums, you just KNOW it's unlikely to be taken seriously by anyone in the real world:

Believe JimParis of ChristianMoney.com likes them
James L. Paris Christian Financial Advice: Bitcoins: The Hot New Digital Currency

"Jim Paris Discusses His New Book – How To Pray For A Financial Miracle" is his top video. Pretty far from Jesus teaching, is not it?

On May 14 U.S. District Court - District of Maryland issued a seizure warrant on a Dwolla account of Mt.Gox - the biggest exchanger of BitCoins.

Mt Gox Dwolla Warrant 5-14-13



Articles:
Feds Seize Assets of World's Largest Bitcoin Exchange
Mt. Gox Bitcoin Exchange Assets Seized - Business Insider

On March 18, FinCEN released a guidance that defines virtual and crypto currencies exchangers and administrators as Money Service Businesses (MSB),
which makes them a subject of required registration:
http://www.fincen.gov/statutes_regs/...-2013-G001.pdf

REMARKS OF JENNIFER SHASKY CALVERY - FINCEN DIRECTOR: Prepared Remarks of FinCEN Director Shasky Calvery: National Cyber-Forensics Training Alliance CyFin 2013 Conference

This bitcoin excitement appears to becoming a trend. I am not sure I understand it all. Can someone explain the pros and cons as well as the risks and rewards? Thanks.

It is definitely a scam.

Very good chance this person is a troll!

Originally Posted by Tank

This bitcoin excitement appears to becoming a trend. I am not sure I understand it all. Can someone explain the pros and cons as well as the risks and rewards? Thanks.

This is probably a good place to start, you can lose yourself for hours in the treads if you choose. https://bitcointalk.org/index.php

Personally, I believe that it would need the same regulation, guarantees, and transparent markets as any other currency to become used in mass commerce. And at that point hasn't it lost a lot of the mystery behind it? I am sure you will always be able to buy water bongs and music downloads with these types of currencies. But in its current form I don't see many businesses that would enter into a ten year multimillion dollar contract payable in bitcoin.

Cease and Desist, California Warns the Bitcoin Foundation

Although the nonprofit Bitcoin Foundation doesn't serve as a Bitcoin exchange, it recently received a letter from the state of California warning that it "may be engaged in the business of money transmission without having obtained the license or proper authorization."

Said Jon Matoris of the foundation's board of directors, "the Bitcoin Foundation is not engaged in money transmission."

There's no denying that Bitcoins have caused considerable controversy since their appearance on the financial scene back in 2009, but recently the virtual currency encountered a new kind of obstacle.

Specifically, the nonprofit Bitcoin Foundation -- which was created last year to help develop the currency's software -- received a letter from the California Department of Financial Institutions warning the group that it is a violation of state and federal law to be involved in money transmission without registering with the U.S. Treasury or California's Commissioner of Financial Institutions.

"It has come to the attention of the Commissioner that Bitcoin Foundation may be engaged in the business of money transmission without having obtained the license or proper authorization required by the California Financial Code," began the May 30 letter, which was posted Sunday on Forbes.

"YOU ARE HEREBY WARNED TO CEASE AND DESIST FROM CONDUCTING THE BUSINESS OF MONEY TRANSMISSION IN THIS STATE," added the letter, signed by State of California Senior Counsel Paul T. Crayton and copied to Department of Financial Institutions Deputy Commissioner Robert Venchiarutti.

If found to be in actual violation of the California Financial Code, the Bitcoin Foundation could be fined up to US$2,500 a day per violation and even face criminal prosecution.

'Meant to Be a Warning'

The Department of Financial Institutions downplayed the severity of the message, however.
"I want to clarify, the letter that is circulating is not a C&D," DFI spokesperson Alana Golden told the E-Commerce Times. "Some articles are calling it a C&D, which may be causing some confusion."

Rather, "it's a letter meant to be a warning to businesses or representatives that are unlicensed," Golden added. "The letters -- and C&Ds -- are communication between DFI and the recipient, and the goal is safety and soundness and compliance with the laws that DFI enforces."

Recipients of such letters "can contact DFI to discuss if the law applies to them or not," Golden added.
'An Opportunity to Educate'

Unlike Tokyo-based Mt. Gox, which was just recently the target of a seizure order issued by the U.S. District Court in Maryland for failing to register as a money transmitting business, the Seattle-based Bitcoin Foundation is not actually a Bitcoin exchange.

"I can say that the Bitcoin Foundation is not engaged in money transmission," Jon Matoris, a member of the foundation's board of directors, told the E-Commerce Times. "We should view this as an opportunity to educate state regulators on issues related to the Bitcoin industry."

The group's official response is expected to be sent out this week by its law firm, he added.
"It would be premature for us to provide the press with an official position prior to our law firm's official response to California DFI," Matoris said.

A Revenue Gap

While the U.S. Treasury Department's Financial Crimes Enforcement Network branch, which is responsible for monitoring electronic transactions involving currencies, has emphasized that companies in this market must be registered, individual users of virtual currencies remain exempt.

So, those buying and selling the currency needn't worry about receiving a similar warning letter. Regulators may, however, be looking to close the gap on those businesses involved in currency transmissions.

"Bitcoin is currency that is currently used as an alternative to cash and bypasses taxes," noted Rob Enderle, principal analyst at the Enderle Group. "It is also heavily used by those versed in technology, and California has an inordinate amount of these folks.

"As a result, the traffic, or the adverse impact on taxes, became material and the state is attempting to close this revenue gap," Enderle told the E-Commerce Times.
'Too Successful'

"This won't be easy because of the very convoluted way in which Bitcoins are minted and controlled," Enderle added. "It is a very decentralized structure, and the laws and remedies were built around more traditional centrally controlled methods. This suggests laws will likely need to be changed and litigation methods refined to address this new currency model."

Either way, it's often said that as California goes, so goes the country, so if California pursues its warning further, other states will likely follow suit.

"I doubt California will be a lone player here, and once any cash alternative gets to critical mass, it is likely one or more governments will move to wrap them with process and taxes to protect revenues and citizens," Enderle predicted.
"Bitcoin's problem is it became too successful," he concluded. "That is what made it a target."

ECommerce Times.com

A BitCoin ETF seems to call the top, but who knows in this saga. I actually found the discussion of the diamond ETF more interesting just based on valuation of a portfolio of diamonds.

Diamonds and Kazakhs and Bitcoins, Oh My: An ETF Parade Diamonds and Kazakhs and Bitcoins, Oh My: An ETF Parade - Bloomberg
By Eric Balchunas - Jul 12, 2013 2:06 PM ET

There are 982 exchange-traded funds waiting to be approved by the Securities and Exchange Commission, according to Index Universe. In other words, there are nearly as many ETFs in registration as there are in existence. The good news for investors who shudder at the thought of yet more ETFs to sort through: only some of these will become reality.

The bulk of these filings are plain-vanilla ‘me-too’ products. Others, such as the Guggenheim Small-Mid Cap BRIC ETF, offer a slight variation on products currently on the market. Then there are a few that stand out like peacocks in a flock of crows. Here are some of the more intriguing ETFs awaiting SEC approval, along with ticker suggestions from yours truly.

1. Winklevoss Bitcoin ETF

The Winklevoss Twins propose to create an ETF that tracks the bitcoin, the crypto-currency, the same way that the SPDR Gold Trust (GLD) tracks gold. There has never been a more highly publicized ETF launch. The reason for the buzz are the three forces of nature coming together: the bitcoin, the ETF and the Winklevoss Twins.

Unfortunately for the Winklevii, most of those articles panned the filing, citing the dozens of risks outlined in 18 pages of the prospectus, such as possibility of government regulation, security concerns and the twin's lack of experience managing a trust.

Ticker possibilities: WINK, COIN, WTF

2. IndexIQ Physical Diamond Trust

This ETF would store diamonds in a small vault in Antwerp, Belgium, similar to the way gold is stored in a very large vault in London for GLD. There’s nothing like this fund on the market. The closest thing out there is the PureFunds Diamond/Gemstone ETF (GEMS), which tracks companies involved in the diamond business.

The biggest question here: How to value diamonds and make a net asset value investors can believe in? If the ETF can answer that question and establish a logical system, it could be attractive to commodity investors looking for an alternative to gold.

Ticker possibilities: ROCK, IDO

did not those Winklevoss clowns claim they own 1% of all Bitcoins ?

And I believe they bought them when bitcoin was in high $260 :)

trying to save your ass and pimp it up with ETF ? heh :)
or just to make publicity news to pump it up ?

Who would be a dumb underwriter to consider it a good idea ?

Man charged in alleged Bitcoin scam

SEC warns of Bitcoin scams, accuses Texas man of Ponzi scheme

(Reuters) - A Texas man ran a Ponzi scheme through the virtual online money system called Bitcoin, pocketing some of his investors' proceeds for his personal expenses and gambling, securities regulators charged on Tuesday, warning that the rise of such digital currencies could lead to more frauds.

The Securities and Exchange Commission said in a statement that Trendon Shavers, 30, of McKinney, Texas, and his company Bitcoin Savings & Trust used money from new investors to cover withdrawals by other investors and his own expenses.

He raised at least 700,000 Bitcoin, or $4.5 million, from investors in multiple states, the SEC said.

Attempts to reach Shavers or find a representative were unsuccessful. The agency is moving to freeze Shavers' assets and seeking other relief, including financial penalties.

Bitcoin, which is not managed by any one company or government, is a relatively new phenomenon that exists through an open-source software program. Users can buy Bitcoin through exchanges that convert real money into the virtual currency.

In its statement about the Shavers case, the SEC on Tuesday also said it issued an alert warning investors to be on the lookout for scams involving virtual currencies.

"We are concerned that the rising use of virtual currencies in the global marketplace may entice fraudsters to lure investors into Ponzi and other schemes," the SEC said.

Less regulatory oversight and supposed greater privacy of virtual currencies compared with conventional ones could make virtual currencies more attractive to scammers, the agency said.

The U.S. government in May seized two accounts linked to a large Bitcoin operator, Tokyo-based exchange Mt. Gox.

Also in May, U.S. prosecutors filed an indictment against the operators of digital currency exchange Liberty Reserve, accusing the Costa Rica-based company of helping criminals around the world to launder more than $6 billion in illicit funds.

Bitcoin grabbed headlines in early July when Cameron and Tyler Winklevoss, the twins famous for having alleged that Mark Zuckerberg stole the idea that became Facebook Inc, applied to the SEC to launch a Bitcoin-tracking exchange-traded product (ETP) called the Winklevoss Bitcoin Trust.

It is unclear whether the SEC's concerns about Bitcoin laid out in its investor alert on Tuesday could pose a problem for that offering.

The application is currently being reviewed by the SEC's Corporation Finance Division. That division reviews applications to ensure they meet SEC filing guidelines but cannot reject one based on the offering's merits.

However, once an exchange applies to list the ETP, another division in the SEC that oversees trading and markets can explore whether a Bitcoin product is viable or potentially vulnerable to manipulation.

The price of Bitcoin rose slightly to $96.50 during early Tuesday afternoon trading, after ending Monday at midnight at $93.

Reuters.com

I will go on a limb and say Ponzi. I would buy that in an inefficient market like Bitcoin was that skilled traders could grind out nice returns. What I don't buy is they have been using their "system" for two years and are now taking in investors AND making the system public. That seems almost laughable, then throw in the whole unlicensed securities thing and it ends one way.


Looking inside BitEnsure: Bitcoin savings account or Ponzi scheme? Looking inside BitEnsure: Bitcoin savings account or Ponzi scheme?
Published On August 5, 2013 at 11:12 BST | By David Gilson | Companies, Investors, News, Trading

Recently launched BitEnsure claims to be a new “bitcoin savings account”. In the wake of the SEC’s recent charging of Trendon Shavers for operating a bitcoin Ponzi scheme, it’s a contentious claim. CoinDesk interviewed the founder to find out more.

BitEnsure promises guaranteed returns on set-term deposits of ten bitcoins or more. The new company is backed by a team of traders and programmers who have been developing the Metaneural trading system for a number of years. We spoke to Metaneural’s John Jones to find out how this bitcoin savings account works.

The people behind BitEnsure are primarily traders. BitEnsure is their attempt at branching out into the bitcoin world by offering a traditional savings account. The thought that may occur to many bitcoin enthusiasts is that a savings account is so far the preserve of fiat banks which operate on a fractional reserve system.

For those who don’t know, fractional reserve banking is the process by where fiat banks do not hold sufficient funds to cover all of the deposits made by its customers. This is why the nightmare scenario for any bank is the classic “run on the banks” where nearly all the customers decide (usually in a state of panic) to withdraw their funds at once.

Jones stated that the company will not be using such a system, and customers effectively have a certificate of deposit and that the company has a cache of bitcoin to back up customer deposits. Jones also stated that in the event that the company has a catastrophic drain on its main bitcoin account, it has a backup of all customer deposits too.

BitEnsure also serves as a bitcoin mixing service. Jones told us the company never uses the same address twice, so it’s almost impossible to track bitcoin through its system, given that bitcoins leave BitEnsure to fund the group’s trading activities elsewhere. This provides an interesting option considering that BitEnsure charges no fees, compared to the Blockchain.info’s mixing service that takes 0.5%.

To elaborate on the trading activities of the BitEnsure team, their other company is called Metaneural, which is (so I’m told) a neural network automated trading system. While other exchanges allow users to automate trades by placing buy and sell orders on an “if this then that” basis, Jones explained to me that Metaneural’s system searches for patterns in the market and makes decisions on its own as to when it should enter and exit a market and with what volume. This software is sold to third-party clients. Metaneural’s forex performance can be seen over on MyFXBook.com.

“We have been using it for a few years now, but only made it public earlier this year. We like to test everything, obviously, just to make sure that it actually works and gives the profits that we profess. It’s been in the works for a while and we’re very proud of it.”

He went on to tell us: “We’re doing a little over 30% a year, which in the forex world doesn’t sound like much, but when you get into the 140% or 1000% that a lot of other people are promising, it’s probably not real. If you’re being very safe and you’re not over leveraging yourself, 30% is a very good profit margin for a year.”

investmentAs for what customers can expect, there is a minimum investment of 1 BTC. I asked Jones if this minimum would change, and he said that it would only change if bitcoin became super inflated, so as to not lock people out of the service.

The BitEnsure website shows that there are several saving plans, each with their own minimum fixed term. I asked Jones what would happen if a customer needed to urgently withdraw their funds. He answered that there is an emergency withdrawal system, where funds will be released during an active term, but will be subject to a penalty charge.

Understandably, there has been a somewhat negative reception to BitEnsure on the bitcoin forums, with several users suggesting that it is merely another scam.

Jones was quick to emphasise his company’s transparency in response: “I’d say it’s really a trust sort of business that we’re in. If we cheat our customers we can’t continue to do business. I know the current news about the Ponzi scheme, which was called Bitcoin Savings and Trust, has made a lot of people very sceptical, which is totally understandable. But the difference between what he was doing and what we’re doing is that we’re a lot more transparent. We’re telling you how much profit you’re going to make, where it’s coming from and we are an established business with a reputation. I’d say it comes down to giving it a try and trusting that we wouldn’t put all this effort into something that we want to fail.”

As for customers “giving it a try”, I asked Jones how many customers had signed up so far in the week since BitEnsure’s launch and he replied “over a hundred”.

U.S. judge says SEC can pursue Bitcoin-related lawsuit

(Reuters) - U.S. regulators got the green light from a federal judge to proceed with their lawsuit against a Texas man accused of running a Ponzi scheme using Bitcoin, the virtual online money system.

Trendon Shavers of Bitcoin Savings & Trust had challenged the Securities and Exchange Commission's case against him, saying the regulator had no jurisdiction to sue him because the Bitcoin investments he offered are not securities or subject to any U.S. regulation.

But U.S. Magistrate Judge Amos L. Mazzant in the Eastern District of Texas ruled on Tuesday that his Bitcoin investments "meet the definition of investment contract, and as such, are securities."

Bitcoin exists through an open-source software program. It is not managed by any one company, it is not regulated by any central bank, and its supply is controlled through a computer algorithm. Users can buy bitcoins through exchanges that convert real money into the virtual currency.

The SEC warned investors against the dangers of potential scams involving virtual currencies like Bitcoin in an alert on July 23, the same day it filed the charges against Shavers.

Tuesday's ruling could have important implications for the still murky legal world surrounding digital currencies, which is not regulated by the United States.

Bitcoin has come under greater scrutiny after U.S. authorities in May seized two accounts linked to a major operator in the Bitcoin digital market.

The judge's decision could be important for Cameron and Tyler Winklevoss, the twins who became famous after alleging that Facebook Inc founder Mark Zuckerberg stole their website idea.

In early July, they applied to the SEC for approval to launch a Bitcoin-tracking exchange-traded product known as the Winklevoss Bitcoin Trust.

The SEC alleges that Shavers essentially used money from new investors in his Bitcoin endeavor to cover withdrawals by older investors and his own personal expenses.

The agency said he raised at least 700,000 bitcoins, or $4.5 million, from investors in multiple states.

Shavers had asserted that his Bitcoin investments are not securities because Bitcoin is not money, but the SEC countered that they constituted both investment contracts and notes.

"It is clear that Bitcoin can be used as money," the judge wrote. "It can be used to purchase goods or services."

Shavers could not be immediately reached for comment.

Read the original article on REUTERS.com

Bitcoin comes under scrutiny from New York regulators Bitcoin comes under scrutiny from New York regulators | Internet & Media - CNET News

The state's Department of Financial Services issues several subpoenas to companies and people associated with virtual currencies, including Marc Andreessen and the Winklevoss twins.
Dara Kerr
by Dara Kerr
August 12, 2013 4:52 PM PDT

(Credit: CNET)

New York state regulators are seeking more information on Bitcoin and other virtual currencies to both regulate and add extra safeguards to the nascent industry. The state's Department of Financial Services issued subpoenas to about 12 people and companies that have been associated with virtual currencies, according to The Wall Street Journal.

The subpoenas, which legally require people or companies to hand over information, were issued to venture capitalist Marc Andreessen, the Cameron and Tyler Winklevoss twins, Coinbase, BitInstant, Coinsetter, and others. According to the Journal, the DFS is especially looking for information on antimony-laundering programs, consumer-protection measures, and investment strategies.

Of all virtual currencies, Bitcoin is probably the most well-known. While it's been around since 2009, it didn't really get going until 2011 when it was worth $2 per coin. By 2013, the currency had climbed to $20 per coin, and then jumped to $266 in April. Now it's hovering around $100.

Digital currencies aren't regulated, which is what worries federal and state regulators. The virtual money can be manipulated or used to launder other types of money. Also, an all-digital currency allows people to evade various countries' currency controls with ease. It also, in at least some ways, is far more anonymous than moving cash through the legacy banking system.

In addition to the subpoenas, the DFS issued a public memo on Monday that detailed the state's concern with the growth of virtual currencies.

"We have also seen instances where the cloak of anonymity provided by virtual currencies has helped support dangerous criminal activity, such as drug smuggling, money laundering, gun running, and child pornography," department head Benjamin Lawsky wrote in the memo. "If virtual currencies remain a virtual Wild West for narcotraffickers and other criminals, that would not only threaten our country's national security, but also the very existence of the virtual currency industry as a legitimate business enterprise."

Related stories

Android-based Bitcoin digital wallets vulnerable to theft
Bitcoin is a legitimate form of 'currency,' a federal judge rules
SEC accuses Texas man of running Bitcoin Ponzi scheme
Winklevoss twins work to make Bitcoin more legit with SEC filing
Bitcoin Foundation ordered to cease operations in California

Lawsky says the DFS is considering the creation of new regulatory guidelines specifically for virtual currencies, which would include requiring safety and soundness for prompt transactions, taking measures to "root out illegal activity," and creating procedures for greater transparency and accountability.

When Bitcoin first began to gain traction, U.S. federal regulators issued their own set of guidelines for virtual currencies. Since then, several of the virtual currency exchanges have registered with the U.S. Treasury Department's Financial Crimes Enforcement Network. Giving even more legitimacy to the currencies, a federal judge ruled in a fraud case last week that Bitcoins are "a currency or form of money" and are subject to U.S. laws.

But it's a different process for virtual currencies to get a license in individual states, according to the Journal. So far, states are making different decisions on how they want to go about regulating Bitcoin and other virtual currencies. New York has been on the forefront of taking a closer look at the industry.

"It is in the common interest of both the public and the virtual currency industry to bring virtual currencies out of the darkness and into the light of day through enhanced transparency," Lawsky wrote. "It is vital to put in place appropriate safeguards for consumers and law-abiding citizens."

Some scumbag trying to jump on the Bitcoin Bandwagon.

Little Jamie Waters

Screen Shot 2013-08-20 at 23.16.54.jpg

Bitcoin sinks in value after FBI busts Silk Road drug market

SAN FRANCISCO (Reuters) - The price of the bitcoin digital currency dropped on Wednesday, after U.S. law enforcement authorities shut down Silk Road, an online marketplace used to buy and sell illegal drugs.

The bitcoin, valued by many for its anonymity, fell to $129 from over $140 a day before, according to a website for trading bitcoins, Mt.Gox.

Earlier, the currency traded as low as $110.

Supporters say using bitcoins offers benefits including lower fraud risk and increased privacy, though critics argue the anonymity it offers makes the currency a magnet for drug transactions, money-laundering and other illegal activities.

The digital currency's drop came after the FBI arrested alleged Silk Road owner Ross William Ulbricht, 29, known as "Dread Pirate Roberts," on Tuesday in San Francisco.

Silk Road allowed tech-savvy sellers to post ads for drugs and other illegal products, which they sold for bitcoins and shipped to customers through the mail, according to the federal criminal charges filed against Ulbricht.

As well as Silk Road shoppers, drug traffickers who worried about the FBI tracking them down with data confiscated from Ulbricht may account for some of Wednesday's bitcoin selloff, said Garth Bruen, a security expert at Internet consumer group Digital Citizens Alliance.

"They're going to be pouring all over his records, getting subpoenas for every piece of data and account he has ever used and trying to figure out who all these different dealers are," said Bruen. "People are jumping ship."

While bitcoins, which are not backed by a government or central bank, have begun to gain a footing among some businesses and consumers, they have yet to become an accepted form of payment on the websites of major retailers such as Amazon.com.

The charges against Ulbricht said that Silk Road generated sales of more than 9.5 million bitcoins, roughly equivalent to $1.2 billion. There are currently about 11.8 million bitcoins in circulation.

With Ulbricht's arrest, authorities said they seized $3.6 million worth of bitcoins.

Bitcoin?

Indulge me a moment.

Bitcoin are created by an anonymous source, backed by nothing (except the next bigger fool theory, see Tulip Bulbs) and the actual act of creation follows the completion of mind boggling hard mathematical problems on decentralized servers.

Now, just exactly what purpose does solving these math problems serve? Who could use this data that otherwise couldn't generate it?

One theory is that the whole thing is created and run by the NSA as a back door into an underground economy, and if you think about it, that is right up their alley. Who knows?

But what I think is a much more interesting idea is that a nation, like North Korea perhaps, or a terrorist organization, that does not have access to a high end Cray Supercomputer, has parceled out the modelling and simulation involved in the design and testing of thermonuclear weapons and is using bitcoin mining to do the work for them.

The fact is we just don't know.

Originally Posted by Gregg

Bitcoin?

Indulge me a moment.

Bitcoin are created by an anonymous source, backed by nothing (except the next bigger fool theory, see Tulip Bulbs) and the actual act of creation follows the completion of mind boggling hard mathematical problems on decentralized servers.

Now, just exactly what purpose does solving these math problems serve? Who could use this data that otherwise couldn't generate it?

One theory is that the whole thing is created and run by the NSA as a back door into an underground economy, and if you think about it, that is right up their alley. Who knows?

But what I think is a much more interesting idea is that a nation, like North Korea perhaps, or a terrorist organization, that does not have access to a high end Cray Supercomputer, has parceled out the modelling and simulation involved in the design and testing of thermonuclear weapons and is using bitcoin mining to do the work for them.

The fact is we just don't know.

Perhaps you should give us a tinfoil alert for that.

$28 million in BitCoin digital currency seized by US authorities

Australian Bitcoin bank hacked: $1m+ stolen

A four-month-old Australian Bitcoin bank holding more than $1 million has been hacked, leaving thousands of customers in the lurch including a man who claims he was holding the virtual currency to buy a house with his girlfriend.The alleged hacking happened on both October 23 and 26, with the service's operator, known only as "Tradefortress", saying hackers stole all 4100 Bitcoins held by the wallet service, or $1.3 million at the time of writing.

The Bitcoins were stored on servers in the US and it wasn't until this week that he decided to notify customers.

The incident again raises questions as to whether Bitcoin is a viable, stable and secure currency.

Bitcoin is a decentralised, crypto-currency, free from any government or central bank control. Electronic transactions can be virtually anonymous, with the currency bought and sold at online exchanges.

Tradefortress, a young Sydney man who told ABC News he was over 18, but only just, refused to give his real name to Fairfax Media.

He offered the wallet service through a website called Inputs.io. The Inputs.io domain is registered to a person with a landline based at a block of flats in Water Street, Hornsby, NSW, according to Fairfax searches.

The site claimed to be "one of the most secure web wallets on the market" and charged customers a small fee to store their coins.
As well as utilising two-factor authentication and location-based email confirmation, it claimed it was set-up to prevent "the hack of Bitcoins even if the web server was compromised".

It now seems that claim has been proven untrue, with Tradefortress telling users on the site: "I don't recommend storing any Bitcoins accessible on computers connected to the internet."

In an email interview with Fairfax, he said he would try to refund some of the hacked money using more than 1000 Bitcoins he personally owned and some not taken by hackers.

"Users are being repaid up to 100 per cent depending on the amount (sliding scale), generally 40-75 per cent," Tradefortress said.

"I won't have any Bitcoins left after this, except for a small amount of commemorative physical coins."

He said the hackers who made off with his customers' coins were able to bypass the two-factor authentication securing the server hosting them "due to a flaw".

"The attacker compromised the hosting account through compromising email accounts (some very old, and without phone numbers attached, so it was easy to reset)," Tradefortress said.

Because of the hacking incident, he said some users would probably lose trust in Bitcoin.

"I think that's likely - we haven't seen any extremely sophisticated Bitcoin malware, however advanced malware that infects the computer you use to send [Bitcoins] can steal [them] from external hard drives [and the] browser."

He said he won't be reporting the incident to law enforcement because there were "extremely limited actions" it could undertake considering the currency can't be easily traced.

Many of Input.io's users were "quite understanding" of what had happened, Tradefortress said.

"I've received a lot of comforting support, but there's also ugly responses. It's quite different from the reactions of non-customers."

The ugly responses were from users who accused Tradefortress of making up the hacking story.

"Some people think I have their money. I don't and I'm using my personal coins to compensate users, yet there's some ugly messages I'm receiving."

A sad face emoticon now sits at the top of the Inputs.io site, with text telling users that the hacking has "left Inputs.io unable to pay all user balances".

"I know this doesn't mean much, but I'm sorry, and saying that I'm very sad that this happened is an understatement," the notice says.

A customer wrote on Twitter that they had lost four Bitcoins as part of the heist, worth about $1216 today.

"I was the victim of part of a $1.2 million Bitcoin hack of an online wallet, inputs.io. If I'm lucky I'll get my principal back in a refund," wrote Marco Martoccia (@sheet_metal).

"I still have one ninth of my Bitcoin. I dunno how to feel," he added.

Martoccia told Fairfax he was planning on using the Bitcoins as a deposit for a house.

"I hope to get my Bitcoins back some day," he said. "I was [going to] use [them] to buy a house and start a family with my girlfriend in six years.

"Four Bitcoins isn't a lot, but it was everything to me."

Martoccia said he stored his Bitcoins on Inputs.io because he believed it would be safer than storing them on his own computer.

"On the surface it seems safer to keep Bitcoins in a bank [like Inputs.io]. I know people can just hack my computer, so I guess they're still vulnerable, even in that case. And paper wallets can be plain lost!'

Ty Miller, director of Australian IT security firm Threat Intelligence, said the underlying problem with online Bitcoin wallets was lack of regulation.

"The users of Inputs.io were trusting a random person with their money rather than in the real world when you're dealing with cash, where you trust banks to look after your money," he said.

"They're more likely to become compromised because they're not being audited in the same way that those financial organisations are."

The Reserve Bank of Australia declined to comment.

Miller said there were ways to secure Bitcoins to try to avoid fraud or theft.

"But it's really at this stage a personal effort to do that."

He recommended storing coins with a strong password on a device not connected to the internet, using hard-drive encryption and anti-virus.

For extra protection, storing the device in a secure room or safe was also recommended. When it came time to using the Bitcoins online, the amount needed could be transferred to an internet-connected computer, he said.

At the time of writing, one Bitcoin was worth $A309 or $US292.9 - up from around $US50 in mid-March. There are 11,925,700 million Bitcoins in circulation.

New Silk Road drug bazaar opens a month after FBI bust

Reuters) - A new anonymous Internet marketplace for illegal drugs debuted on Wednesday, with the same name and appearance as the Silk Road website shut down by U.S. law enforcement authorities a month ago.

Like its predecessor, the new Silk Road listed hundreds of advertisements for marijuana, cocaine, ecstasy and other illegal drugs available for purchase from independent sellers using the anonymous Bitcoin digital currency.

On October 1, the Federal Bureau of Investigation shut down the original Silk Road and arrested its alleged mastermind, Ross William Ulbricht, 29, known online as "Dread Pirate Roberts," in San Francisco.

"It took the FBI two-and-a-half years to do what they did ... but four weeks of temporary silence is all they got," a site administrator wrote, also using the "Dread Pirate Roberts" moniker.

The FBI declined to comment on the new version of the Silk Road. For more than two years, the original site acted like an eBay of vice, allowing users to buy and sell illegal goods and services on the assumption that they were safe from the law. Deliveries were made through the mail in discrete packages.

U.S. authorities also say Ulbricht had tried to call out a hit on a user who had threatened to expose the identities of thousands of Silk Road users.

Ulbricht's lawyer on Wednesday said his client would plead not guilty to drug trafficking, hacking and money laundering charges.

The charges against Ulbricht said his website generated sales of more than 9.5 million Bitcoins, roughly equivalent to $1.2 billion.

The new website improves on technology from the previous Silk Road meant to keep identities secret, including measures to keep users from losing their Bitcoins in case the site shuts down, according to the new Dread Pirate Roberts.

Senator Tom Carper, a top lawmaker on the Homeland Security committee, who plans to hold a hearing on digital currencies this month, said the new Silk Road site shows that government needs to adapt to fast-moving technology.

"Rather than play 'whack-a-mole' with the latest website, currency, or other method criminals are using in an effort to evade the law, we need to develop thoughtful, nimble and sensible federal policies that protect the public without stifling innovation and economic growth," Carper said in a statement.

A week after authorities shut down the Silk Road, British police said they arrested four men accused of being significant users of the site.

Two weeks ago, federal prosecutors said 144,336 Bitcoins were discovered on Ulbricht's confiscated computer, adding to more than 30,000 Bitcoins previously seized.

With the digital currency trading at an all-time high on Wednesday, those Bitcoins were worth close to $50 million, according to the Mt Gox trading website.

Like the original Silk Road, users access the new site using a no-cost, anti-surveillance service known as the Tor network instead of traditional web browsers.

The relaunched Silk Road will soon hire staff to handle marketing for the site, the administrator mentioned in his post.

"The Silk Road has risen once more. ... Open communication with your old suppliers and customers, let this wonderful news be taken to all corners of the Tor Network and beyond," the person wrote.

Reuters.com