Monthly Archives: March 2017

You may not know it by looking at bitcoins recent price surge, but the infrastructure underpinning the worlds most popular virtual currency is teetering.

While speculators continue to push the value of the digital money to record highs against the U.S. dollar, the system that verifies bitcoin transactions -- known as the blockchain -- is more backlogged than at any point in the currencys eight-year history. The number of transactions awaiting verification is up more than fivefold from a year ago, and the jam is forcing users to pay increasingly high fees to speed up confirmations, which in some cases is making bitcoin more expensive to use than Visa Inc. or PayPal Holdings Inc.

Now, after more than two years of bitter infighting among the global bitcoin community about how to fix the problem, some of its most influential members are giving up on reaching consensus. Instead, theyve begun backing a controversial solution known as Bitcoin Unlimited. If the gamble pays off, it could ease congestion and may help bring the community back together. If it fails, the digital currency could face a hard fork into separate variants, effectively splitting bitcoin into two currencies.

We will switch our entire pool to Bitcoin Unlimited, Wu Jihan, founder of the worlds largest mining organization Antpool, said in an interview on Mar. 10.His group accounts for 15 percent of blockchain activity and is hugely influential in the community. We cant tell how the hard fork will play out. We will only know by the time we get there.

Wu is joining Roger Ver, an early evangelist who amassed a fortune and got to be known as Bitcoin Jesus. He opened his own mining collective to the publiclast week. Relying on his high profile in the community and an aggressive pricing scheme, Ver said hes already attracted about 3 percent of global miners and convinced them to back Unlimited.

Photographer: Chris Ratcliffe/Bloomberg

We need to get to 60 or 70 percent of miners on board to activate Bitcoin Unlimited, Ver said in an interview at his office in Tokyo on Mar. 9. Combined with others, Id say were already close to halfway to our goal at this point.

Bitcoin Unlimited is essentially a software upgrade to the blockchain. Years ago, bitcoins early developers imposed a cap on the amount of data it could process. While that slowed down the network, it was seen as a necessary safety measure against potential attackers who could overload the system. Now, Unlimited supporters say the blockchain is robust enough that it doesnt need any limit at all.

While most agree the blockchain is stronger, critics such as Peter Todd, a key coding contributor to bitcoin, say that removing the data cap is a risky move which will leave bitcoin vulnerable to governments and global banks. Without a limit, large organizations would use their resources to out-muscle smaller miners and effectively take control of the blockchain and bitcoin itself.

Bitcoin Unlimited is simply irredeemably broken, Todd said in an interview on Mar. 11. Large miners have every reason to vote the size up to push their competition out of business.

Todd contends that a better approach to easing the congestion is to make the blockchain more efficient. Last fall, the group released their own solution, called SegWit, which uses a different method to verify transactions. Todd says adoption has been slow due to resistance from Unlimited supporters.

Ver said the lack of support is evidence that SegWit doesnt address the actual problem: Say you havent had any water to drink for a day and a half, and you also need a haircut. Do you drink some water or go to the barber shop? SegWit is like going to the barber shop.

Wu added that miners like him have refused to adopt SegWit because he doesnt see his economic interests aligning with what is proposed by the technology.

While the rift over bitcoins future has gone on for more than two years, Todds group have mostly held the upper hand and received support from the majority of miners who prefer to wait for a consensus-based solution instead of rocking the boat. Thats helped pave the way for speculators to bid the digital currency higher, to total market value of about $20 billion.

But with Wu and Ver last week striking out in support of Unlimited, the question now is whether other major miners will follow suit. Ver says he plans to step up lobbying efforts, especially in China which is home to the majority of bitcoin mining.

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Further adoption of Unlimited wont necessarily lead to a hard fork, though the likelihoods could increase if it gains more traction. What happens after that is unclear, but a precedent exists in ethereum, the worlds second-most popular digital currency. Last year, a disagreement caused one side of the ethereum community to back one version of the software, and the other side to adopt another version. That resulted in ethereum being divided in to two different currencies, each with its own individual price. Both versions tumbled in the months after the split.

Samson Mow, former chief operating officer at exchange BTCC, said even in the event of a hard fork, it would be up to the market to decide which version would hold the upper hand and that many wouldnt deem the new currency as bitcoin.

"Bitcoin Unlimited is not bitcoin because its rules are different," said Mow. "If BU splintered, it would create an altcoin and there are hundreds of altcoins. Those altcoins have little value."

Ver says its worth taking the risk because inaction will only worsen the crippling backlog: If bitcoin is more expensive or slower than traditional financial systems, people arent going to use it.

Continued here:
Bitcoin Miners Signal Revolt Amid Sluggish Blockchain

BEIJING--China's central bank is moving to regulate its domestic bitcoin industry, circulating new guidelines that, if enacted, would require exchanges to identify clients and adhere to banking regulations.

Recent scrutiny by the central bank has already led exchanges to impose trading fees and suspend withdrawals of bitcoin from their platforms. Chinese investors have fled the market.

A draft of the guidelines says Chinese bitcoin exchanges would be subject to current banking and anti-money-laundering laws, and required to collect information to identify their clients, according to people familiar with the matter. They say the rules, if implemented, would require exchanges to install systems for collecting and reporting suspicious trading activity to authorities. The People's Bank of China would be in charge of handling violations by the exchanges.

The people said officials could still revise the guidelines, which were given to exchanges in recent days.

The PBOC didn't immediately respond to a request for comment.

The move to regulate bitcoin exchanges brings assurance that authorities will tolerate some level of trading after months of uncertainty. The central bank opened up investigations in January at the country's three largest bitcoin exchanges, Huobi, OkCoin and BTCC, and delivered a terse warning last month that platforms risk being shut down if they skirt rules on money laundering and foreign exchange.

In the past 30 days, yuan-denominated bitcoin trades accounted for 17% of global volume, down from 97% in the past six months, according to data tracker Bitcoinity.

But regulation also means Chinese exchanges would face a tighter operating environment.

Since the scrutiny started, Huobi, OkCoin and BTCC have said they are working with authorities. An OkCoin spokeswoman said in an email on Friday that the firm continues to work with the PBOC and welcomes a balanced, risk-based regulatory framework.

Analysts say a major reason the central bank started probing the exchanges this year was concern that Chinese investors were using bitcoin to get money out of the country, albeit in small amounts. China has been struggling with a depreciating yuan and waning confidence in its economy. The bitcoin network flies under the radar of authorities, who have allowed holders to move bitcoin from an exchange based on the Chinese mainland to a foreign location.

When Chinese investors first snapped up bitcoin and drove up prices in 2013, the central bank banned banks and third-party payment platforms from engaging in the industry and defined bitcoin as a virtual good, not a financial asset. They stopped short of issuing direct regulations on bitcoin exchanges, which flourished in the following years.

Authorities continue to regard bitcoin as a virtual good, according to people familiar with the matter. The latest guidelines apply to any "trading platform for virtual internet goods," these people say.

Write to Chao Deng at Chao.Deng@wsj.com

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China's new bitcoin rules call for identity check - MarketWatch

Stock drops, rebounds after SEC rejects first exchange-traded fund that tracks Bitcoin.

Late on Friday, the SEC rejectedan application from Winklevoss Bitcoin Trust for what would have been the first exchange-traded fund that tracks Bitcoin. The highly anticipated announcement ended plans to list and trade shares on the Bats BZX Exchange Inc. The SEC was worried about the currencys vulnerability to manipulation and the feasibility of surveillance. Bitcoin dropped12.3 percent to $1,069 following the news from the SEC. It seems, however, to have no trouble recovering from the stumble. This rejection denies many investment institutions the opportunity for more direct exposure to the dynamic currency.

Specifically, the SEC expressed concerns that the proposed activity of the ETF would have fallen short of compliance with Section 6(b)(5) of the Exchange Act and rejected a proposed rule change. The SEC was worried about the currencys vulnerability to manipulation. The regulatory commission specifically called out two major, interrelated drawbacks about oversight and fraud prevention:

The planned ETF classified Bitcoin as a commodity, rather than a currency, with shares representing 0.01 BTC. The shares would have tracked the price of bitcoins on the Gemini Exchange, owned by Gemini Trust LLC. Bats BZX was set to collaborate with the Gemini Exchange to monitor the Winklevoss Bitcoin ETF in the same way the exchange keeps an eye on derivatives trading. The Gemini Exchange has been authorized to trade digital currency for two years by the NY State Department of Financial Services (NYSDFS). Also, last May, the NYSDFS gave its approvalfor the Gemini Exchange to trade Ether, a new and promising cryptocurrency.

Multiple companies submitted Bitcoin ETFs proposals to the regulatory approval process, including one from SolidX Bitcoin Trust, from SolidX Partners Inc, a blockchain technology services company. Tyler and Cameron Winklevoss, famous for their lawsuit against Mark Zuckerberg, which alleges he stole their idea for Facebook, were the first to submita proposal for an ETF. Their plan for The Winklevoss Bitcoin ETF [Winklevoss Bitcoin Trust (COIN)] had been pending three and half years ago, and experienced more than one decision delay. In the interim, the SEC noted and avowed tighter regulatory surveillance to keep abreast of the burgeoningETF market, now valued over US$3 trillion in net assets.

The recent trend to increase transparency for Bitcoin has grown in accordance with interest in trading. Chicago Mercantile Exchange, the leading derivatives marketplace, successfullylaunched two new tools last November, the CF Bitcoin Reference Rate (BRR) and CME CF Bitcoin Real Time Index (BRTI). The BRR aggregates the trade flow of the major bitcoin spot exchanges during a specific calculation window into a once-a-day, transparent reference rate of the US dollar price of bitcoin. To do this, CME works with several bitcoin exchanges and trading platforms such as Bitfinex, GDAX, itBit, Kraken, and Bitstamp.

Bitcoins future faces other challenges, including piracy and liquidity risk. Uniquepartnerships, such as the one between Polychain Capital and venture capital players, Andreessen Horowitz and Union Square Ventures, are forming to seek the rewards in the risk. Also, Blockchain, the technology behind Bitcoin, is making inroads in other areas of business, including shipping logistics, manufacturing and more.

Cryptocurrencies are decentralized global digital currencies that provide relatively more secure and efficient means of payment and offer. The underlying technology makes tracking assets and transactions more secure. These advantages are attractive, of course, to banks and other financial institutions. But will major industry players continue to race to prepare for a future defined by this new asset class? Only time will tell.

By Tasha Williams

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Bitcoin: ETF Dream Deferred - Chief Investment Officer

Bitcoin price broke below the rising trend line support, indicating that bears may be taking the upper hand from here.

Bitcoin Price Key Highlights

Bitcoin price broke below the rising trend line support, indicating that bears may be taking the upper hand from here.

Technical Indicators Signals

The 100 SMA is still above the longer-term 200 SMA so the path of least resistance might still be to the upside and this might prove to be a fakeout. Bitcoin price is testing the line in the sand at the 200 SMA dynamic support and a break below this level could confirm that a reversal is in the cards.

Stochastic is on the move down, also indicating that bearish pressure is in play. RSI is heading south as well so bitcoin price might follow suit. Once both indicators reach oversold levels, though, buyers could return and either spur a pullback or a continuation of the climb.

Price is also testing the resistance turned support level at the $1100 mark, which means that there may be a lot of buy orders located at this area. But if it gets breached, the next floor could be at $965.

Market Events

Dollar demand is slowly returning as traders are pricing in expectations of more Fed rate hikes in the coming months. Even though the FOMC statement wasnt as hawkish as many wouldve wanted, it doesnt change the fact that the US economy is on stable footing and that further tightening moves are likely.

Reports showing that Canada and India are issuing warnings on bitcoin Ponzi schemes are starting to remind traders of the incidence of fraud and manipulation that has plagued the cryptocurrency before. This follows the SEC denial of the bitcoin ETF last week, citing that the unregulated nature of bitcoin could expose investors to more risk.

Charts from SimpleFX

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Bitcoin Price Technical Analysis for 03/17/2017 Trendline Break, Reversal Due? - newsBTC