Darkcoin. Real Financial Privacy. Digital Cash. Unofficial Promo Video Crypto-Currency Bitcoin 2015 – Video

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Darkcoin. Real Financial Privacy. Digital Cash. Unofficial Promo Video Crypto-Currency Bitcoin 2015
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Darkcoin. Real Financial Privacy. Digital Cash. Unofficial Promo Video Crypto-Currency Bitcoin 2015 - Video

Gold rush days of Bitcoin mining are over, and not because of price

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Provided by Quartz Nice costume, but bitcoin's days as a fad are up.

For all the volatility in bitcoin pricing, 2014 may be looked back on as a year when Bitcoin began to move past the proof-of-concept stage and toward a mainstream market. Some 6.6 million Bitcoin wallets have been set up so far this year, according to Coindesk, a fivefold increase over 2013. And 75,000 merchants now accept the digital currency, including giants like Dell, Expedia and Overstock.

But one area of the Bitcoin economy is maturing much faster than the others, to the point where profits are increasingly harder to come by and consolidation and diversification are already happening: the mining of bitcoins. For years, bitcoins were mined largely by a far-flung network of desktop hobbyists. But increasingly, a smaller group of companies building large data centers set up for the sole task of mining new bitcoins.

Although mining is a throwback to pre-digital era of pickaxes and gold pans, bitcoins are mined in a unique way, by harnessing computing power to confirm transactions on a public ledger and increase security on the network. Miners compete not only to confirm transactions but to solve calculations that typically grow more difficult over time. The details of the process can be arcane, but the end result for miners is clear: rewards in transaction fees and freshly minted bitcoins.

In Bitcoins earliest years, mining could easily be handled by desktop computers running a CPU or a powerful graphics chip. As more would-be miners emerged, companies like BitFury, KnCMiners and Cointerra began to sell ASIC chips designed for a single task: running mining software. Bitcoin developers, hobbyists and speculators found mining to be an easy and often profitable way to get involved in the Bitcoin economy.

Quickly enough, that began to change. By design, the bitcoin reward offered for each block mined decreases over time. Currently, about 3,600 bitcoins are mined each day but the competition for them has surged over the past year. As economies of scale began to kick in, some miners found they needed to constantly spend the bitcoins they were earning on the latest, fastest hardware just to stay in the game. The hobbyist became sidelined, and the typical bitcoin miner became the industrial operator of data centers that could consume 10 or 20 megawatts of energy.

The Bitcoin mining industry is on its way to consolidation, as a few highly-skilled and well-capitalized vendors drive the industry, says Valery Vavilov, CEO of BitFury, which sells mining gear, operates 40 megawatts of bitcoin data centers around the world and plans to boost its capacity to 100 megawatts.

Only market players that can deliver the most energy-efficient equipment with the most cost-efficient capital and operating costs will thrive, says Vavilov, while small players with limited capability will struggle or drop out of the Bitcoin race, which will result in a narrowing of the field over time.

Several factors determine who profits the most from Bitcoin miningpower consumption, data-center speed and cost, electricity rates and the current price of bitcoin. Each month, it becomes harder for a small player to keep up. The costs of new ASIC miners alone are steep: The price of current cutting-edge processors can run $5,000 or more apiece, while cheaper offerings can be unreliable in quality or even fraudulent.

The higher-priced mining equipment can employ 20-nanometer chipsrivaling speeds from Intel and AMDand even faster 16-nanometer chips are on the way. Ever-powerful processors are necessary because the difficulty of the math calculations required to mine Bitcoins is designed to increase as competition grows. That level of difficulty can rise substantially in a matter of weeks, rendering mining equipment outdated between the time its ordered and the time it finally arrives.

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Gold rush days of Bitcoin mining are over, and not because of price

The Startup Meant to Reinvent What Bitcoin Can Do

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A company given $21 million by leading Silicon Valley investors aims to extend Bitcoins functionality so it can power much more than just payments.

LinkedIn founder Reid Hoffman announced an unusual new investment late last month. He and other Silicon Valley luminaries, including Sun Microsystems founder Vinod Khosla, sunk $21 million into a company that may never have to make a profit to be successful.

That company is called Blockstream. Hoffman and others backed it in an effort to give a technological shot in the arm to Bitcoin, a digital currency built upon software that uses cryptographic transactions to prevent counterfeiting without the need for any central authority (see What Bitcoin Is and Why it Matters).

Blockstream is working on technology that will use the code that underpins Bitcoin to secure other kinds of assets, such as contracts or ownership of stock. The companys technology could also provide workarounds to shortcomings in the design of Bitcoin.

Bitcoin has come a long way since its obscure debut in 2009, and the 13.5 million bitcoins in circulation are worth $4.7 billion. But the currency has yet to become widely used, and Blockstreams founders and investors say significant technical improvements are needed for that to happen.

Blockstream will play a huge role in helping it maintain its momentum, Hoffman wrote in a blog post on his investment. He said that the company will operate in a similar way to Mozilla Corporation, which produces the Firefox Web browser and related technology but is owned by a nonprofit foundation. However, if Blockstream is successful in helping Bitcoin catch on, other Bitcoin companies that Hoffman and his fellow investors have backed stand to benefit.

Bitcoin startups have received hundreds of millions from investors in the past few years (see Bitcoin Hits the Big Time). But few resources have trickled down to support work on the core technology that makes Bitcoin work. Startups have focused on building products on top of Bitcoin, such as online payments services. It has fallen mostly to a band of unpaid coders to maintain the core technology that underpins how Bitcoin operates (see The Man Who Really Built Bitcoin).

That community has been unable to work on improvements to Bitcoins design, says Adam Back, a cryptographer and cofounder of Blockstream. Core development has been quite conservative and focused on security and stability, he says.

Blockstream wont be helping out with the core Bitcoin code, though. Instead it is building on top of it using what are known as sidechains.

At the heart of Bitcoins design is what is known as the blockchain, a digital file maintained by computers around the world that records every Bitcoin transaction. Bitcoins most novel feature is that everyone can trust the blockchains record, even if they dont trust every individual contributing to its upkeep or using Bitcoin.

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The Startup Meant to Reinvent What Bitcoin Can Do

Why the banks should stop shunning bitcoin

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The U.K. government, led by chancellor George Osborne, wants London to become the world's bitcoin hub. Meanwhile, the Bank of England has released a study detailing the digital currency's virtues. So why, under the surface, is there a "chilling effect" threatening to derail a sector that could bring millions to the economy?

Around the world, mainstream banks afraid of fines and regulatory controls are shutting out firms that provide bitcoin-related services or even associate with the cryptocurrency.

Any bitcoin business can tell you how hard it is to set up a U.K. bank account. Global Advisors (Jersey) Limited (GAJL), advisors to the Global Advisors Bitcoin Investment Fund (GABI), has claimed that HSBC shut down its account recently. Danny Masters, the director of the company - which is fully regulated in Jersey - told CNBC that the excuse given was that in HSBC's opinion GAJL no longer met the "risk reward" profile of the bank and was a "potential money laundering risk."

Read More Bitcoin set to take over the financial world: Book

Reports from industry website CoinDesk in September said that Wells Fargo in the U.S. have done similar with San Francisco-based startup called QuickCoin. In the Isle of Man, Capital Treasury Services (CTS), which provides financial services to bitcoin businesses, announced September that it was no longer working with bitcoin firms, citing the "highly regulated environment."

Meanwhile, the not-for-profit Bitcoin Foundation - which aims to promote and protect the cryptocurrency - has told CNBC that it has been repeatedly turned down for a U.K. bank account because "bitcoin" was in its name. Meanwhile in China, government pressure on state-lenders has even managed to roil the price of the digital currency.

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Why the banks should stop shunning bitcoin

Why the world's banks should stop shunning bitcoin

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The U.K. government, led by chancellor George Osborne, wants London to become the world's bitcoin hub. Meanwhile, the Bank of England has released a study detailing the digital currency's virtues. So why, under the surface, is there a "chilling effect" threatening to derail a sector that could bring millions to the economy?

Around the world, mainstream banks afraid of fines and regulatory controls are shutting out firms that provide bitcoin-related services or even associate with the cryptocurrency.

Any bitcoin business can tell you how hard it is to set up a U.K. bank account. Global Advisors (Jersey) Limited (GAJL), advisors to the Global Advisors Bitcoin Investment Fund (GABI), has claimed that HSBC shut down its account recently. Danny Masters, the director of the company - which is fully regulated in Jersey - told CNBC that the excuse given was that in HSBC's opinion GAJL no longer met the "risk reward" profile of the bank and was a "potential money laundering risk."

Read More Bitcoin set to take over the financial world: Book

Reports from industry website CoinDesk in September said that Wells Fargo in the U.S. have done similar with San Francisco-based startup called QuickCoin. In the Isle of Man, Capital Treasury Services (CTS), which provides financial services to bitcoin businesses, announced September that it was no longer working with bitcoin firms, citing the "highly regulated environment."

Meanwhile, the not-for-profit Bitcoin Foundation - which aims to promote and protect the cryptocurrency - has told CNBC that it has been repeatedly turned down for a U.K. bank account because "bitcoin" was in its name. Meanwhile in China, government pressure on state-lenders has even managed to roil the price of the digital currency.

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Why the world's banks should stop shunning bitcoin

Bitcoin's Main Stumbling Block: Navigating The Law

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Bitcoin was created in the wake of the 2008 global financial crisis to operate outside of central governments, banks, and financial institutions. Other digital and virtual currencies, also called cryptocurrencies, appeared soon afterwards. Because Bitcoin is so new, government regulations are still minimal. However, users can expect greater government oversight in the coming years.

In 2009, a programmer going by the pseudonym Satoshi Nakamoto introduced Bitcoin, partially in response to the financial crisis. Nakamoto wanted a currency that governments and banks could not easily manipulate. Bitcoin is defined by code and has no physical form or intrinsic value. It is completely decentralized and can be exchanged anonymously without incurring any financial service fees. These same traits have made Bitcoin attractive for criminal activities and a challenge to regulators, enforcement agencies, and tax authorities.

Prone to Cybercrime

Because Bitcoin can be used anonymously, it is attractive for illegal financial transactions such as money laundering and buying narcotic drugs online. In 2013, the FBI shut down Silk Road, an online black market best known for illegal drug trade that used Bitcoin as currency. The government seized millions of dollars worth of Bitcoins in the process. The U.S. Marshal later auctioned off a portion of these confiscated Bitcoins. In a 2014 Forbes magazine article, then Executive Director of the Bitcoin Foundation, Jon Matonis, said the auction proves that Bitcoin isfungible and possesses a market-based legitimacy.

As a currency with no physical presence that is stored online, Bitcoin is also attractive to hackers and thieves. Several Bitcoin storage and exchange companies have suffered major thefts. In early 2014, Japan-based Mt. Gox, then the largest digital currency exchange in the world, was forced to declare bankruptcy when it discovered hackers had stolen $477million work of Bitcoins. In March 2014, a Canadian Bitcoin storage company called Flexcoin lost approximately $650,000 worth of Bitcoins.

Current Bitcoin Legal Framework

Because it is still so new, there are no international laws regulating Bitcoin. Each country regards Bitcoin differently and regulations are constantly evolving. This article focuses on the stance of U.S. financial authorities as other governments may look to the United States for precedent.

The U.S. Department of Treasurys Financial Crimes Enforcement Network (FinCEN) issued its first guidance about digital currency in March 2013 (document) followed by another in January 2014 (document). These guidance discussed Bitcoin participants, categorizing them as users, exchangers, and administrators. FinCEN further defined exchangers and payment processors as money transmitters whose actions fall under the laws governing money services business (MSB) within the Bank Secrecy Act (document). Once any business or individual falls under FinCENs definition of money services business, the entity must meet registration requirements and adhere to a range of anti-money laundering, recordkeeping, and reporting responsibilities. BitPay is one of the Bitcoin-related companies already registered with FinCEN.

The number of businesses and merchants (like Overstock (OSTK), Dish Network (DISH), and Dell) accepting Bitcoin is increasing. Many merchants have expressed interest in a derivative products (and derivative markets) through which their exposure to Bitcoin price fluctuations could be hedged. Derivatives are a popular way to hedge risk through products such as futures, forwards, options and swap. Many registered trading platforms are ready to list Bitcoin derivative products. The Tera Exchange, a registered SEF (swap execution facility) with the U.S. Commodity Futures Trading Commissions (CFTC) already has a CFTC-regulated product called USD/XBT Swap. The product protects the value of Bitcoin by locking in a dollar price.

The U.S. Commodity Futures Trading Commissions held their Global Markets Advisory Committee meeting in October where it discussed various aspects of Bitcoin (though it made no formal announcement afterwards). In a December 2014 speech, CFTC Chairman Timothy Massad said that some aspects of virtual currencies will fall under the agencys jurisdiction.

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Bitcoin's Main Stumbling Block: Navigating The Law

Bitcoin: 4 Factors Holding the Banks at Bay

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For a number of reasons, major banks haven't seized the opportunity to get involved with bitcoin. Banks like to participate in size, compliance has restrictions, and bosses don't understand it. But these hurdles will be overcome in 2015.

While the world took notice of Bitcoin in 2014, the banks-- normally jumping out of their seats at opportunities to make a profit -- have sat on their hands. Individual financial advisors are eager to take part in the burgeoning opportuinity-- as made clear by the hundreds of such professionals that have taken courses on Bitcoin at the Digital Currency Council. But the firms writing their paychecks are more conservative.

In December 2013, Bank of America's David Woo wrote the first report on Bitcoin by a major financial institution, with many of its peer firms following suit in the 12 months since. The Bank of England, in a quarter four 2014 report, noted that Bitcoin is "a significant innovation" with "far reaching implications." The most senior executives at the financial giants are discussing Bitcoin and many have launched internal Bitcoin task forces to give due consideration to the opportunity and the risks.

What's holding the banks at bay? No question the banks see an opportunity to profit. So why are they sitting on their hands? Here are four reasons:

1. Banks are in denial about Bitcoin's impact on their existing businesses The banks have been capitalizing on the inefficiencies in the current monetary system for years. They've developed businesses that charge high rents for use of their infrastructure. The heads of those businesses aren't going down without a fight. I would imagine there was a similar reaction from the managers of Blockbuster Video's retail stores when Netflix arrived on the scene. At some stage, assuming they don't want to join Blockbuster, Kodak, and other incumbents who took denial to the grave, these banks will have no choice but to stop denying and start adopting.

2. The bosses don't yet understand it Bitcoin is a new technology, financial instrument, and network protocol and requires time (a scarce resource at banks) to learn and understand. Recent statements by the CIO of UBS suggest a belief that the benefits of the Blockchain can be de-coupled from the use of bitcoin the currency -- a suggestion that has been compared to separating the world wide web from the internet, a virtual impossibility. Executives are seeking out training that will ensure a full and complete understanding of the technology and its applications to their respective businesses, along with the opportunities and risks of participation.

3. There are not yet ways to put institutional capital to work in size The total value of the bitcoin asset class has fluctuated greatly, but currently stands at about $5 billion and just over $250 million of venture capital has entered the ecosystem companies in 2014. Compared to other asset classes, there simply hasn't been an opportunity to write checks of the size to which the major financial institutions are accustomed. But that won't last, with regulated investment vehicles now available and at least one and perhaps two ETF's likely to be listed in 2015. Forward thinking financial entrepreneurs are developing products suitable for inclusion on private banking and asset management platforms.

4. Compliance departments are blocking participation Compliance departments across Wall Street are charged with keeping their institutions out of trouble. Understandably, given the Bank Secrecy Act and the Patriot Act, which require that banks undertake a "know your client" process and implement "anti-money laundering"procedures, the executives in these departments are throwing up their hands at the first mention of Bitcoin. Yet, encouraged by the business lines, these same compliance officers, supported by their government relations team and the entrepreneurs building new financial products for their banks, are having discussions with regulators. They are seeking clarification of existing regulations -- which simply never envisioned instruments like Bitcoin -- and considering new asset class specific regulation that will govern their dealings in Bitcoin.

How to overcome the obstacles? Each of these factors are holding the banks at bay... for now. But each of these factors is also likely to be overcome in 2015.

Executives will find ways to utilize the technology to bring efficiencies to their legacy businesses, either passing that savings on to consumers or more likely keeping it for themselves. Bank executives will take the time to get educated and come to a fuller understanding. Financial products will be developed that will be suitable for the sizeable investments that move the needle for institutional investors. And compliance departments -- in conjunction with regulators and entrepreneurs -- will develop best practices that will allow for their institutions to participate and comply with the law.

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Bitcoin: 4 Factors Holding the Banks at Bay

Bitcoin's software gets security fixes, new features

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The software driving Bitcoin's network was upgraded Wednesday, with security fixes addressing a problem that defunct bitcoin exchange Mt. Gox blamed for losing nearly half a billion dollars worth of bitcoins.

The open-source software, known as Bitcoin-QT, has also been rebranded as "Bitcoin Core" to highlight that it runs the core infrastructure of the virtual currency's transaction and verification network.

Upgrading Bitcoin's software is a delicate operation, and many of the changes have been under discussion for months. The market capitalization of all bitcoins in circulation is roughly US$8 billion, according to figures from Blockchain.info, and a mistake could be costly.

But the virtual currency has weathered innumerable negative events over the past five years and is still seeing growing adoption by businesses and retailers as an alternative payment platform.

The value of a bitcoin wobbled only slightly after Mt. Gox, at one time the largest bitcoin exchange, filed for bankruptcy protection in Tokyo District Court on Feb. 28 and in U.S. Bankruptcy Court for the Northern District of Texas on March 9.

In early February, Mt. Gox said it was investigating a long-known security problem called "transaction malleability," which in some cases can allow attackers to make it falsely appear they haven't received a bitcoin payment if an exchange isn't properly validating transactions.

Other exchanges briefly halted trading while inspecting their code, but bitcoin experts said highly customized software written by Mt. Gox likely exacerbated the problem.

After filing for bankruptcy, Mt.Gox said the bug was possibly responsible for the missing bitcoins, valued at US$474 million at the time. It has not yet provided a clearer explanation for the losses.

The latest version of bitcoin's software, 0.9.0, contains more than a half dozen fixes for transaction malleability, according to the release notes for the software.

Bitcoin Core also contains a new feature for payment requests. Previously, merchants couldn't attach a note describing an invoice, and people also could not supply a refund address to a merchant.

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Bitcoin's software gets security fixes, new features