Bitcoin investors hoping to make billions may end up with a sack of fool’s gold

The cryptocurrency may not be a threat to the world economy, but that should not stop regulators from protecting investors from it

Sifting the Yukon river for gold was a waste of time for most of the 100,000 prospectors seeking to make themselves rich in the 1890s. The same can be said of the bitcoin miners who dream of striking it rich by getting their hands on some of the extremely lucrative and painfully elusive electronic currency.

Relatively few people have managed to decipher the codes needed to extract bitcoins from the 21 million locked inside the mathematical problems set by its creator, the software engineer whose true identity is unknown but who goes by the name Satoshi Nakamoto.

Those who have employed enough computer power and code-cracking know-how can consider themselves rich now that the value of one bitcoin has soared from $753 last December to around $10,000. The rest have deployed huge amounts of energy and time for no return.

Should anyone be worried about this turn of events? Or will it go down as a moment in history when an asset was mined, some people got rich and … that was it?

The ambitions of the bitcoin community mean the creation of a new currency must be taken more seriously. Its stellar rise in the last 18 months is likely to have sucked in thousands of speculators, many of them ordinary investors.

And with mainstream financial exchanges looking to host bitcoin as a tradeable asset, or list derivatives of bitcoin on their trading boards, thousands more will be sucked in over the next 18 months.

Where ordinary investors, hunting in large numbers, seek a return on their savings in a high-risk environment, governments are usually minded to regulate.

The idea behind bitcoin was that it should be like any commodity that, once discovered, became increasingly difficult to extract. Like gold, it would become a store of value and make those clever enough to find it and believe in it very rich.

JP
Jamie Dimon described bitcoin as only fit for use by drug dealers, murderers and people living in North Korea. Photograph: Eric Piermont/AFP/Getty Images

The distributed ledger designed to make each bitcoin account secure and accountable without the need for third parties, like banks, to be involved became for many participants a potential template for all future deposit saving and trading.

To that end, it was also viewed as a replacement currency to the dollar, euro or pound – one that could not be manipulated by central banks, which are only too keen to print extra notes, and thereby devalue the currency, in times of trouble. It is a seductive package that has led many in the banking industry – those most under threat – to call it a fraud.

Goldman Sachs boss Lloyd Blankfein said so last week, adding his voice to JP Morgan’s Jamie Dimon.

Dimon described it as fraud that would ultimately blow up and said the desire to hide funds from regulators and the police meant it was only fit for use by drug dealers, murderers and people living in places such as North Korea. Blankfein was more concerned that its volatile price, which dropped 20% in less than 24 hours after topping $11,000 last week, disqualified it from being a sensible currency.

Sir Jon Cunliffe, a deputy governor of the Bank of England, summed up the view of many in the City when he said calmly that bitcoin was a sideshow and too small to pose a systemic threat to the global economy.

To cover his flank against accusations that the Bank, which is the UK’s chief financial regulator, was too dismissive of the issue, he also cautioned that bitcoin investors needed “to do their homework”.

No doubt all bitcoin investors think they have done their homework. And regulators probably think they have enough work to do. But while it is easy to say that a fool and their money are soon parted, anyone who interacts with the financial services industry is a potential victim. And, with this in mind, regulators should be ready to impose all the usual tools of misselling rules and compensation schemes on this freshly minted industry.

At the moment, bitcoin is having a free ride. The tipping point is close. Regulators should be prepared.

Grayling mustn’t shunt true cost of rail network into the sidings

Another private operator on the east coast mainline, another bailout. History is repeating itself – again – and Chris Grayling is in the middle of the farce.

The transport secretary’s efforts to drum up a narrative of reversing Beeching cuts could not eventually conceal the small print in his rail strategy: a shabby face-saving deal with Stagecoach and Virgin, two firms who have richly profited from privatisation. Their Virgin Trains East Coast joint venture is to be curtailed, meaning that billions promised to the taxpayer by private-sector firms have again proved to be notional.

The government was in an invidious position: a delay to infrastructure upgrades by Network Rail and the shaky entry into service of Hitachi trains commissioned by the Department for Transport certainly gave the operators cause for complaint. Yet it will appear once again that private firms expect the downside to lie with the taxpayer.

Stagecoach/Virgin has a rich history of getting its way with the DfT, notably during the 2012 west coast franchise debacle, where it wrested back control of the contract from First Group. Since then, soul-searching reports have concluded that franchising does, indeed, work – but evidence has also accumulated to the contrary.

Competition has all but vanished: both parties in that west coast fiasco have been allowed to hang on to large franchises well into the next decade. The Thameslink megafranchise has turned Govia, which previously ran Southern services without much mishap, into a basket case. National Express has turned its back on rail and Stagecoach’s shares rocketed once news sank in that it was exiting East Coast early.

What franchising does offer the government is the fig-leaf of privately owned railways, even as it effectively dictates whether guards stay on trains, and by how much fares should rise.

Taking the flak directly, from commuters or unions, would not be for the fainthearted: Labour’s pledge to renationalise, slowly, is pragmatic. Yet an honest conversation about the true costs of the rail network, and who does and should invest, is long overdue. Grayling’s latest sleight of hand shows it is unlikely to be forthcoming soon.

No, Jeremy Corbyn – banker baiting’s bad for business

Picking a fight with a banker is still a good sport, 10 years after Northern Rock collapsed. Jeremy Corbyn knows it will provoke his supporters to chant his name to the tune of the White Stripes song Seven Nation Army once again. He knows it will earn the cheers of many beyond Labour’s membership ranks.

So there is probably little shock value in his response to Morgan Stanley last week after the US investment bank’s analysis that a Corbyn government would be bad for its clients and investors more generally. However, a prime-minister-in-waiting might want to be more circumspect about revolutionising an industry that accounts for more than 10% of GDP and makes a huge contribution to improving the UK’s balance of payments.

It’s an uncomfortable truth that Britain would find life difficult without the foreign banks in the Square Mile. Careful reforms are needed, not knee-jerk reactions.

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Read more: www.theguardian.com

How to Make Money Off Bitcoin Without Actually Owning It

It’s the equity investor’s conundrum: how to get access to the skyrocketing returns of bitcoin and blockchain without actually owning the tokens.

To Thomas Lee, a major bitcoin bull who heads research for Fundstrat Global Advisors, a dozen stocks should do the trick.

“We believe investors should have exposure to blockchain, particularly given bitcoin has essentially zero correlation to equities, bonds and commodities —- hence, as a portfolio strategy, bitcoin is a good diversification tool,” Lee wrote in a note to clients Friday. “But this is impractical for many equity managers, given the parameters of their mandate or because of practical issues (custody of tokens, etc.).”

Investors recently have sought ways to participate in the eye-popping bitcoin rally without having to purchase the cryptocurrency on the unregulated exchanges that have proven susceptible to hacks. Absent from Lee’s list are bitcoin futures, regulated derivative products that will debut on Cboe Global Markets Sunday and CME Group Dec. 18.

Lee has long been one of Wall Street’s biggest advocates of the cryptocurrency. Two weeks ago he doubled his price target on bitcoin to $11,500 by the middle of 2018. It went for $15,552 as of 10:31 a.m. in New York on Friday, according to Bloomberg composite pricing.

He suggests equity managers look to these ideas to leverage blockchain in their portfolios:

  • Bitcoin Investment Trust (GBTC)
  • MGT Capital Investments Inc. (MGTI)
  • HIVE Blockchain Technologies Ltd. (HIVE)
  • U.S. Global Investors Inc. (GROW)
  • DigitalX Ltd. (DCC)
  • NVIDIA Corp. (NVDA)
  • Advanced Micro Devices Inc. (AMD)
  • CME Group Inc. (CME)
  • Cboe Global Markets Inc. (CBOE)
  • Overstock.com Inc. (OSTK)
  • Goldman Sachs Group Inc. (GS)
  • Square Inc. (SQ)

The looming availability of futures weighed on these equity proxies this week, as speculators may be shifting away from stocks of companies that have benefited as bitcoin’s price rose more than 15-fold this year. Both HIVE Blockchain Technologies and U.S. Global Investors are down near 10 percent this week. Nvidia and Advanced Micro Devices have also suffered losses in the five days ending Dec. 8.

As for the totality of Lee’s picks, an equal weighted basket of these stocks is up 136 percent this year, according to the note. But as impressive as that may seem, he points out that it still lags bitcoin’s 1,685 rise in 2017.

    Read more: www.bloomberg.com

    Millennials, technology will not save your generation

    The second dotcom boom may seem like a way for money to flow from older, richer people to talented young entrepreneurs. But its not worked out that way

    Picture a startup founder.

    Chances are you went straight for a Mark Zuckerberg-type: male, white, nerdy and, above all, young. Zuckerberg founded Facebook in 2004, three years after the collapse of the dotcom bubble, at the age of 20.

    Twelve years later, the company he founded is worth $270bn, and the tech world is in the middle of a new boom. Valuations are going through the roof, and big money is flowing into every stage of the system: in 2015, almost $60bn of venture capital was invested in startups in the US alone.

    As a result, it is easy to see the second dotcom boom as a rare volley in favour of intergenerational equality: huge sums of money flowing from older, richer, people into the pockets of hungry young entrepreneurs with ideas, talent and motivation but no access to capital.

    In other words, the stronger the tech sector becomes, the more Mark Zuckerbergs there are, and the less millennials 18- to 34-year-olds, also known as Generation Y have to worry about their systematic economic disadvantage. Dont worry about a financial system tilted against your interests: just invent Facebook.

    If that does not sound too reassuring, it is with good reason. Technology will not save us. For every way in which the sector stands alone from the wider economy, there are two more in which it reinforces the same constraints.

    Go back and think about that stereotypical founder again: chances are you noted the other attributes that come alongside youth. White, male and nerdy is not the best recipe for a broad spread of wealth among a generation, and yet it remains sadly accurate for a large proportion of the industry.

    Y Combinator, a prestigious startup accelerator that provides seed money, advice and connections in exchange for 7% equity, revealed last year that 22% of the companies in its latest intake had a female co-founder. Thats the highest ever. The proportion of companies with a male co-founder, meanwhile, fluctuates between 98% and 100%. And for black and Hispanic co-founders, the situation was even worse: 8% and 5% respectively.

    There are definitely less girls in tech, and in science too, says Vivian Chan, 31, the co-founder of scientific search engine Sparrho. Theres only a few names that we can think of, globally, at the co-founder level. And being a female PhD science entrepreneur is a rarity.

    Vivian
    Vivian Chan, the co-founder and CEO of Sparrho. Photograph: Sarah Lee for the Guardian

    While the British startup scene, particularly in Cambridge and in London, where Chan lives, is quite international, she fears this may change as it becomes more difficult for people to get UK visas.

    Nerdy does not sound like quite such a barrier. But in practice, it can very quickly become a signifier of other demographic hurdles principally wealth. Bill Gates, for example, came from an upper-middle-class family and attended a private school where he was able to access a computer terminal on a time-share basis in 1968. Twenty-five years later, Mark Zuckerbergs nascent interest in computing was boosted by his father, who taught him how to code on an Atari, and then a private tutor, hired when his dad hit the limits of his ability.

    It is not that one cannot be nerdy and poor, but it is a lot easier to channel that nerdiness into the sort of avenues that will please investors a decade later if you have access to the right resources from an early age.

    And often, of course, wealth has a more direct effect. When asked how they could afford shiny new offices in Kings Cross, central London, for their startup, given their app had not launched, two affable posh graduates replied it was thanks to funding from private individuals. It is not a stretch to suggest that that opportunity is not offered to everyone.

    Tushar Agarwal, whose company Hubble offers a marketplace where startups can rent office space, says the biggest problem for poorer would-be entrepreneurs is simply staying solvent in their businesss early days. In order to become a founder, you have to be comfortable with living life with zero pay for the first 12 to 18 months, then receiving below market wage for the next couple of years so if you cant afford to live that way, thats a huge barrier.

    Worse still, without a pool of wealth to fall back on, Agarwal says, founders can be forced to take the first funding theyre offered, selling huge chunks of their company at a bad price just to stay fed and housed.

    Accelerators such as Entrepreneur First, which supported Agarwal, can provide bursaries to technical founders to let them scrape by until seed investment comes in, but spaces are limited and even that funding runs out eventually.

    But even for those founders who are lucky and connected enough to get funded, they are not quite striking a blow for their generation just by getting on the capital train. The reality of venture capital-backed entrepreneurship is long hours, low pay and no job security for a one in a million chance at striking it big. There is a reason why that world is dominated by young people, and it is not because they are naturally better at it: it is because that equation only sounds appealing when you have nothing to lose.

    But while millennials, also known as Generation Y, may be up for the startup game, they are not the ones winning it. The majority of European startups with a valuation above $1bn were founded by someone over 35, according to research from tech investment bank GP Bullhound. Less than a quarter were founded by people below 30, and almost as many were founded by over-40s.

    Startup
    Startup Alley at the TechCrunch Disrupt SF conference in San Francisco. Photograph: Bloomberg/Bloomberg via Getty Images

    But is it blinkered to focus on funding and founders, on profit and loss? Entrepreneurism could do more for this generation than help a few become rich, after all. Seizing control of the means of production is a time-honoured step to changing the world, so could not a few young entrepreneurs in the right place at the right time have a beneficial effect for generational squabbles, if not class ones?

    Joe Mambwe, the founder of Terrestrial, which provides a toolkit for startups to expand internationally, argues that setting up a company very young allows a different set of problems to be tackled. In the past, the barrier to starting a company would have been experience: you get a job, work that job for a long time, then start a new company, based on what you did in that job.

    Now, you have students coming out of university and building companies straightaway, and so in general you get companies that are solving the problems of that age.

    In theory, maybe. In practice, probably not. For every young entrepreneur tackling the problems of our age, be that anthropogenic climate change, geopolitical strife, or intergenerational conflict, there are plenty more focused on fluff.

    There are young people working on solving the great problems of the generation, but they are not the ones getting funded. Instead, they get financed to produce Uber for barbers, Facebook for dogs and endless Bitcoin startups.

    Modern tech entrepreneurship is less about restoring generational equilibrium and more about solving all the problems of being 20 years old, with cash on hand as George Parker put it in the New Yorker, or, as overheard by Aziz Shamin, an engineer at GitHub: Tech culture is focused on solving one problem: What is my mother no longer doing for me?

    Read more: www.theguardian.com

    Hackers claim to have looted some treasure from Disney’s ‘Magic Kingdom’

    At a town hall meeting in New York earlier today, Disney chief executive Bob Iger said hackers are claiming to havestolen an undisclosed new film from Disneys upcoming slate, according to a report in The Hollywood Reporter.

    Needless to say, the king of Disneys castle is refusing to pay the demanded ransom.

    Instead, the company is working with federal investigators and holding their breath to see if the online pirates will release their booty into the wild, according to the report.

    Citing multiple sources,The Hollywood Reporter wrote that the hackers were demanding a huge ransom in bitcoin be paid out or theyd release the film into the wild.

    Specifically, the hackers threatened to release the first five minutes of the film and then the rest of the film in 20-minute sections.

    Igers response? Basically Come at me.

    Read more:

    Meet the millennials making big money riding China’s bitcoin wave

    The cryptocurrency may have no physical form but the returns from trading it can be very real and for some theyre worth giving up your job for

    On a sunny afternoon in west Beijing, on the auspicious eighth floor of a nondescript concrete high-rise, Huai Yang sits with the curtains drawn in his apartment, making his own luck.

    For the past six months, 27-year-old Yang has worked mainly from home, mainly from his sofa, tracking and trading bitcoin, and watching the money roll in. The flat itself is modestly sized; Yang moved in in his pre-bitcoin days when he worked variously for a crowdfunder start-up, a branding consultancy and dabbled in hedge-fund management, all of which he describes as creative financial work. Now, though, his main focus is bitcoin, which is much younger, more fun, and much more money. Yang claims to make up to 1m yuan (116,000) a month, under the radar of the taxman, purely from trading the online cryptocurrency.

    Bitcoin has no physical form but the rewards are very tangible; Yangs home is packed full of expensive gadgetry, most prominently a mega-sized flat screen smart board, over a metre wide, which Yang uses to chart bitcoins rise and fall in HD.

    Normally, the graphs on Yangs screen show bitcoins and his own fortunes going up and up. At the time of writing, one bitcoin is worth 6,600 yuan (768) recent months have seen the value hover well above 8,000 yuan. The global worth of bitcoin is over $14bn USD (11.3bn), of which over 90% is in yuan, and Yang and his peers are cashing in. I want a more splendid life, he says.

    Huai
    Huai Yang, who trades bitcoin from his sofa Photograph: Naomi Goddard for the Guardian

    Theres certainly big money to be made in bitcoin, but it comes at a high risk. Bitcoin was designed to be a peer-to-peer currency, free from interference from government and central banks. Since the currency was launched in 2009, however, the Chinese market, where government interventions are common, has come to dwarf all others.

    One such intervention took place in February this year, when the government warned that there would be serious violations for trading platforms that failed to abide by strict money-laundering regulations. In line with this, OKCoin and Huobi.com, the two biggest exchanges in China, announced that they would be suspending bitcoin withdrawals for one month.

    Incidents like these, which Yang sees as not convenient, but not [a] problem, give Chenxing (who asked that I only use his first name) pause for thought. Chenxing, a boyish, skittish 35, has been trading bitcoin for the past four months, after giving up his too comfortable job as a geo-information engineer for the government. The governments pressure on bitcoin platforms is not so easy to understand, he tells me. Im not sure its really about money laundering they try to control [bitcoin], but they cannot.

    For Chenxing, its the system itself that is vulnerable: Technology changes every day, he explains. Maybe tomorrow a hacker can find a way to crack bitcoin the security is from mathematics. If you can crack the mathematics, bitcoin is nothing. Thats why, even though Chenxing describes himself as a believer in bitcoin, he doesnt plan to stay involved for the long term.

    Its really not a stable thing, he says, both in terms of fluctuating prices and the uncertain technological future of the cryptocurrency. That said, hes still making more money than in his previous government job. In a good month, Chenxing will pocket the cash value of around five bitcoin, which is close to 40,000 yuan, and which Chenxing prefers to have in cold, hard cash.

    Chenxing is something of an anomaly in Chinese bitcoin circles, where the general mood is one of evangelical faith in the currencys potential, especially in an economy where the government often devalues the national currency.

    Brendan Gibson, 32, is a United States national who has been in China for six years, trading bitcoin for three. Weve barely sat down to talk when Gibson takes my phone and downloads the BTC Wallet app onto it, before transferring me the seeds of my cryptocurrency fortune: 0.0027 bitcoin, worth 2.50, which is the amount that everyone in the world would have if the 21m bitcoin in existence were equally divided up between all 7.8 billion of us. He believes that everybodys aunt or grandma should be using bitcoin.

    Brendan
    Brendan Gibson: Im just kind of fed up with the system. Photograph: Naomi Goddard for the Guardian

    For Gibson, bitcoin is a way of life. He hopes to be completely bank free in the near future. Hailing from the shady mortgage industry of corporate America, Gibson shares Chenxings distrustful attitude, but is more concerned about private banks than bitcoins technological vulnerability. Im just kind of fed up with the system, he tells me over coffee in a slick caf and co-working space from where Gibson does most of his work remotely.

    I dont think economies should be built on inflated numbers, and I think its kind of ridiculous that everybody relies on this inflated number in their bank account when its definitely not there bitcoin and other cryptocurrencies are making it so that we are our own banks, and thats one less things we have to worry about. Gibson owns two companies in China, and as far as possible uses bitcoin for all his daily expenses, converting the personal profits he makes into bitcoin to avoid using banks.

    One of the commonly cited weaknesses in the bitcoin system is that if you lose your private key to access your bitcoin wallet, the bitcoin within are lost forever. In 2015, it was estimated that up to 30% of all mined bitcoins had been lost, with a value of 625m. Unsurprisingly, plenty of people see this as an opportunity to make some money.

    Sun Zeyu, 27, works at a tech start-up based near Beijings university district that specialises in bitcoin. His latest project is Coldlar, an offline, physical wallet that stores users bitcoin and can be accessed by scanning a QR code. Bitcoin security is a tough question, Sun tells me, which is why he and his colleagues designed a product that allows people to circumvent bitcoin platforms and have even greater control over their bitcoin. Now that the value [of bitcoin] is going up, he explains, people really realise the importance of security.

    Before, when we just traded one or two coins, people didnt mind, [but] now the value of bitcoin is much bigger. Sun got involved with bitcoin while at university after attending a seminar run by Huobi, one of the biggest trading platforms in China. Like his flashier friend Yang, Sun wanted money, and lots of it. He wont tell me exactly how much he earns, but assures me that its hundreds or thousands times more than the 10,000 yuan per month he was earning when he first dabbled in bitcoin three years ago.

    His money comes from both his trading activity and his company salary. With the growth of bitcoin and related products like his Coldlar wallet, Sun believes that in 10 years time, the value of the cryptocurrency will be one bitcoin, one house in Beijing. Minor shocks to the system, like the recent suspension of bitcoin withdrawals in China, are just like breathing, he insists, and the inhalations of profit dwarf any other bumps in the road.

    Sun
    Sun Zeyu at work. Photograph: Naomi Goddard for the Guardian

    Despite the solitary nature of their work, Yang, Sun, Gibson and Chenxing are all sociable creatures. Gibson is connected to hundreds of bitcoin aficionados in China, and has introduced close to 1,000 new people to the technology (although how many are like me, with 2.50 lying dormant in an unused wallet, is unknown), such is his enthusiasm for the cryptocurrency. Chenxing cites the social side of the bitcoin scene in Beijing as one of the main attractions of staying in the industry and the city.

    I can meet some fun people who really love bitcoin I think most of the people who like bitcoin are people who like freedom he says. Yang, however, takes a slightly harder-edged approach. He has little patience for sceptics: Yes, bitcoin is a risk. Why should I have to discuss these things with [people concerned about the security]? I earn my money, thats enough. I dont waste my time explaining bitcoin [if] youre not my client. In some ways, Yang concedes, the less people understand bitcoin, the better it is for him. At the moment, the industry is like an ATM for him and his peers, and hes perfectly happy for things to stay that way.

    In the fast-changing world of the crypto-currency, nothing seems to stay the same for long. Whether its unpredictable government interventions, or debates within the community about how the industry can and should be scaled, general growth in value thus fair doesnt necessarily suggest anything about the future of bitcoin, despite the faith of its adherents. Gibson makes the point that bitcoin has only been around for nine years; it took PayPal at least 10 to properly catch on.

    In Japan it has recently been recognised as legal tender. Its unlikely that the same could ever happen in China, no matter how much its popularity continues to balloon. Chenxing, who has years of insider experience, is sure that [the government] will never accept a thing thats not built by themselves. Many bitcoin traders in China are in it for the long haul, confident that they can ride out any governmental interferences, as long as they have access to the internet. Chenxing, however, is more paranoid. His final thoughts on bitcoin are: I never feel secure.

    Read more: www.theguardian.com

    Diary of an African Cryptocurrency Miner

    Eugene Mutai’s Nairobi apartment is filled with the sound of money: That would be the hum of a phalanx of fans cooling the computers he’s programmed to mine cryptocurrencies around the clock.

    The 28-year-old has given up a chunk of his living quarters to the enterprise. What’s more, he invests every spare cent in initial-coin offerings: fundraising tools some startups are using to crowdsource capital. He’s a proud citizen of a strange and controversial new world — and a rather rare breed, with just a high-school education and no formal training as a coder. That’s one thing he holds up as proof that cryptofinance isn’t the scam that a diversity of critics, from Jamie Dimon of JPMorgan Chase & Co. to Saudi Arabian Prince Alwaleed bin Talal, have suggested it is.

    “The entire ecosystem could be the biggest wealth-distribution system ever,” Mutai said as his 2-year old daughter, Xena, named after the warrior princess, played with a tablet, swiping from app to app. In the world of internet-based currencies traded without interference from banks or regulators, “big players can’t deny anyone from participating in the financial system.”

    Cables and electronics components that make up one of Mutai’s mining machines.
    Photographer: Luis Tato/Bloomberg

    For Mutai, the appeal is simple: It levels the playing field in global markets that don’t give people like him many breaks.

    An opposing view is that what this young man is doing is wrong or stupid, sucking up massive amounts of electricity to create a software-fabricated asset that’s traded anonymously in a lottery criminals find irresistible.

    So Mutai is either in the middle of a fraud, or a revolution. Whichever, the market has exploded — growing to $190 billion from just $17 billion at the start of the year. Hundreds of new digital tokens have sprung up as entrepreneurs started projects based on blockchain, the public bookkeeping technology that supports digital currencies, raising millions and even hundreds of millions of dollars in minutes. The value of bitcoin, the biggest of them all, has increased six-fold. And it’s about to go mainstream, with CME Group Inc. in Chicago planning to introduce bitcoin-futures trading contracts by the end of the year.

    Eugene Mutai and his daughter Xena.
    Photographer: Luis Tato/Bloomberg

    Cryptocurrencies are especially attractive in economies where there are restrictions on taking cash abroad, or people don’t have bank accounts, or the local currency is being trampled by inflation. That’s the case in Zimbabwe, for example, which is facing a liquidity crisis as inflation spirals: Bitcoin in the local Golix exchange has soared to more than $10,000, a 75 percent premium on global prices, as locals rush to it to protect savings.

    In six of the largest African nations for which there is trading data in the online exchange Local Bitcoins, the average premium to the Bloomberg bitcoin index is 7 percent; the gap in major bitcoin trading hubs such as China, South Korea, Germany and the U.K. doesn’t surpass 3 percent. Mutai said he sees cryptocurrencies as safe because “local political issues don’t affect them” — something of note in Kenya, where after two elections within three months there’s still a stalemate over who is the rightful leader.

    A bitcoin web trading screen.
    Photographer: Luis Tato/Bloomberg

    Just last year, Mutai hadn’t heard of bitcoin, which hardly makes him unusual. Neither does the fact that a decade ago he didn’t have access to a computer. He was interested in technology, though, and borrowed a friend’s Nokia Symbian S40, one of the first non-smartphones that could download apps. In between odd jobs in farming, herding sheep and ferrying people on his motorcycle, he taught himself the basics of HTML and CSS coding languages.

    He was living at the time in his mother’s home village — they moved there from the city for his last year of high school, after his twin brother died and his mom lost her job — and was barely earning enough to survive. So he decided to move in with his uncle in Nairobi, who happened to have a desktop computer and a WiFi connection. “It was do or die,” he said.

    Mutai spent four months glued to the computer, worrying his uncle, who at one point took the machine away. After mastering the mysteries of code, he landed a job as a programmer. He also became a consultant for the technology incubator iHub and for the Nairobi County government. By 2016, he was named Kenya’s top-ranked software developer by Git Awards, which bases its rankings on data from GitHub, a site where coders store and share their work.

    Mutai arranges a rack of cryptocurrency mining machines at his home in Nairobi, Kenya.
    Photographer: Luis Tato/Bloomberg

    Now Mutai works for Andela, which trains developers and engineers throughout Africa and connects them with companies including Microsoft Corp. His current contract is with Restaurant Brands International Inc., building an ordering app for Tim Hortons. He’s in the Kenyan middle class, a feat for a guy without a college degree.

    But his opportunity for real wealth, Mutai figures, is in cryptocurrencies, which he can exchange for dollars or hold as an investment. His mining rig runs six 1080 Ti graphics cards. Maintenance is pretty low, as he wrote on his Facebook page: “It sits in my living room doing its thing all day every day with little or no supervision.”

    At the moment, the rig churns out mainly digital coins called Zcash and LBRY Credits. Mutai said he’d like to increase production by plugging in two more graphics cards, but that will have to wait until he can upgrade the power supply to his apartment. As it is, his monthly electric bill is about $200, steep for a residence in Nairobi.

    His initial-coin offerings investing takes more personal energy. “I do a lot of research,” Mutai said. “I feel like a small VC.”

    Is he treading dangerous waters? Possibly, but he’s up for the gamble. “They say no-risk, no-return, and I’m willing to take the risk.”

      Read more: www.bloomberg.com

      Ripple: cryptocurrency enjoys end-of-year surge – but will it endure?

      Ripple, also known as XRP, peaks at more than $100bn and surpasses Ethereum to become second most valuable cryptocurrency after bitcoin

      If 2017 was the year of bitcoin, the pioneering cryptocurrency that neared $20,000 in December, will 2018 be the year of Ripple?

      The market value of Ripple, also known as XRP, rose more than 50% on Friday, to a record $85bn. Ripple continued to climb over the weekend, peaking at over $100bn, and now surpasses Ethereum ($72bn) as the second most valuable cryptocurrency after bitcoin ($237bn).

      Friday’s sharp run-up puts the currency on track to have risen in value by more than 35,000% over the course of 2017. It began the year trading at around $0.006 and now sits at $2.25, according to coinmarketcap.com. Just three weeks ago, the currency was trading at 25¢.

      According to Bloomberg, Ripple’s gains in 2017 have far outpaced the gains of Ethereum and bitcoin, which have gained roughly 9,000 and 1,400% year-to-date, respectively.

      Ripple’s CEO, Brad Garlinghouse, said on Twitter on Sunday: “Proud to be ending 2017 with incredible momentum on a number of fronts! A huge, heartfelt thank you to the amazing @Ripple team, our great partners and an incredibly supportive $XRP community.”

      The gains come as Ripple has made steps to establish itself as a coherent currency used by institutions. Established in 2012 and designed for interbank payments and settlements, Ripple has articulated a vision to ease the intense volatility experienced by other cryptocurrencies by establishing the structured sale and use of its currency.

      The company has more than 100 banks signed on to its platform, RippleNet, and was recently accepted for testing by a consortium of Japanese banks. Global banks including Bank of America, RBC and UBS are also customers.

      The company initially created 99bn XRP, and has released around 38bn. In May, Garlinghouse announced the company would place 55bn of its XRP into escrow and will unleash up to 1bn into the market each month.

      Garlinghouse, formerly a senior executive at Yahoo and AOL, and CEO of the file transfer site Hightail (formerly YouSendIt), told the Wall Street Journal that the recent gains are a reflection of confidence in the coin’s development.

      “We have real customers, really in production using this,” Garlinghouse, 46, said, “not science experiments. Science experiments are not a business model.”

      Read more: www.theguardian.com

      Man buys $27 of bitcoin, forgets about them, finds they’re now worth $886k

      Bought in 2009, currency's rise in value saw $27 turn into enough to buy an apartment in a wealthy area of Oslo. By Samuel Gibbs

      The meteoric rise in bitcoin has meant that within the space of four years, one Norwegian mans $27 investment turned into a forgotten $886,000 windfall.

      Kristoffer Koch invested 150 kroner ($26.60) in 5,000 bitcoins in 2009, after discovering them during the course of writing a thesis on encryption. He promptly forgot about them until widespread media coverage of the anonymous, decentralised, peer-to-peer digital currency in April 2013 jogged his memory.

      Bitcoins are stored in encrypted wallets secured with a private key, something Koch had forgotten. After eventually working out what the password could be, Koch got a pleasant surprise: 

      “It said I had 5,000 bitcoins in there. Measuring that in today’s rates it’s about NOK5m ($886,000),” Koch told NRK.

      Silk Road fluctuations

      In April 2013, the value of bitcoin peaked at $266 before crashing to a low of $50 soon after. Since then, bitcoin has seen large fluctuations in its value, most recently following the seizure of online drugs marketplace Silk Road, plummeting before jumping $30 in one day to a high of $197 in October.

      Koch exchanged one fifth of his 5,000 bitcoins, generating enough kroner to buy an apartment in Toyen, one of the Norwegian capitals wealthier areas.

      Two ways to acquire bitcoins

      Customers line-up to use the world’s first ever permanent bitcoin ATM at a coffee shop in Vancouver, British Columbia. Photograph: Andy Clark/Reuters

      Typically bitcoins are bought using traditional currency from a bitcoin “exchanger”, although due to strict anti-money laundering controls, the process can can be tricky. A user can then withdraw those bitcoins by sending them back to an exchanger like Mt Gox, the best known bitcoin exchange, in return for cash.

      However, bitcoin is gaining more and more traction within the physical world too. It is now possible to actually spend bitcoins without exchanging them for traditional currency first in a few British pubs, including the Pembury Tavern in Hackney, London, for instance. On 29 October, the world’s first bitcoin ATM also went online in Vancouver, Canada, which scans a user’s palm before letting them buy or sell bitcoins for cash. 

      A small group of hardcore users also generate extra bitcoins by “mining” for them a process that requires computers to perform the calculations needed to make the digital currency work, in exchange for a share of the built-in inflation.

      Mining is a time-consuming and expensive endeavour due to the way the currency is designed. Each subsequent bitcoin mined is more complex than the previous one, requiring more computational time and therefore investment through the electricity and computer hardware required.

      In August, Germany recognised bitcoin as a “unit of account“, allowing the country to tax users or creators of the digital currency

      Read more: www.theguardian.com

      Bitcoin price soars above $5,000 to record high

      Rising price of the cryptocurrency, now worth four times as much as an ounce of gold, has led to warnings of a bubble

      The price of bitcoin has smashed through $5,000 to an all-time high.

      The cryptocurrency rose by more than 8% to $5,243 having started the year at $966. Bitcoin has soared by more than 750% in the past year and is worth four times as much as an ounce of gold.

      But the price has been volatile. The digital currency plunged below $3,000 in mid-September after the Chinese authorities announced a crackdown. Beijing ordered cryptocurrency exchanges to stop trading and block new registrations, due to fears that increasing numbers of consumers piling into the bitcoin market could prompt wider financial problems.

      Price of bitcoin

      Jordan Hiscott, the chief trader at Ayondo Markets, said: “The returns are truly remarkable, especially given the recent ban on bitcoin trading in China, where demand had previously accounted for at least 10% of all global volumes.”

      Vladimir Putin, the Russian president, called this week for regulation of cryptocurrencies, saying their use “bears serious risks” such as money laundering, tax evasion and funding for terrorism. But he also warned against imposing “too many barriers,” which appears to have given bitcoin a boost.

      Despite warnings over a bubble, bitcoin is gaining in acceptance. Last month, a London property developer, The Collective, said it would allow its tenants to pay their deposits in bitcoin and accept rent payments in the cryptocurrency by the end of the year.

      Two weeks ago, Japan’s government implemented rules that recognise bitcoin as a payment method. Celebrities have also got involved, with the boxer Floyd Mayweather, the socialite Paris Hilton and the actor Jamie Foxx promoting coin offerings.

      Using bitcoin allows people to bypass banks and traditional payment processes to pay for goods and services directly. Banks and other financial institutions have been concerned about bitcoin’s associations with money laundering and online crime because transactions take place anonymously.

      The soaring value of bitcoin and other cryptocurrencies comes despite growing warnings over a price bubble.

      The starkest warning came from the JP Morgan chief executive, Jamie Dimon, who said bitcoin was a fraud that would ultimately blow up. Speaking last month, he said there was a limited market for the digital currency, arguing that it was only fit for use by drug dealers, murderers and people living in countries such as North Korea. He pledged to sack any JP Morgan trader investing in Bitcoin, but also admitted he had not been able to dissuade his daughter from investing.

      Dimon declined to comment on the surge in bitcoin during an earnings call on Thursday. “I’m not going to talk about bitcoin any more,” he said.

      Kenneth Rogoff, a professor of economics and public policy at Harvard University and a former IMF chief economist, has predicted that the technology behind cryptocurrencies will thrive, but the price of bitcoin will collapse.

      “It is folly to think that bitcoin will ever be allowed to supplant central bank-issued money,” he wrote in the Guardian this week.

      “It is one thing for governments to allow small anonymous transactions with virtual currencies; indeed, this would be desirable. But it is an entirely different matter for governments to allow large-scale anonymous payments, which would make it extremely difficult to collect taxes or counter criminal activity.”

      Daniel Murray, global head of research at EFG Asset Management, noted that in 2013, bitcoin soared twelvefold in just four months but within a month had lost a third of its value and four months after its peak had lost 60% of its value.

      “Investors buy [an] asset because they are seduced by the prospect of further rapid gains without necessarily thinking about intrinsic value,” he said. He noted that historically currencies were backed by precious metals, and these days most currencies were based on macroeconomic fundamentals such as inflation, interest rates and growth, and were backed by a central bank and government. None of this applied to bitcoin, although the supply is carefully controlled.

      “It is hard to argue that bitcoin does anything better than existing currency arrangements whilst it does some things to a lower standard,” Murray added. “Individuals are already able to transact electronically using a plastic card.”

      Read more: www.theguardian.com

      Amazon founder Jeff Bezos tops Warren Buffett, becomes the third richest person in the world

      Jeff Bezos speaks during the 32nd Space Symposium on April 12, 2016 in Colorado Springs, Colorado. Bezos, founder and CEO of Amazon, spoke to the crowd about the business and future of commercial space travel.
      Image: Brent Lewis/Denver Post via Getty Images

      Jeff Bezos just snuck pastWarren Buffett to become the third-richest person on Earth.

      TheAmazon.com Inc. founders net worth was $65.05 billion Thursday, topping Buffett by $32 million on the Bloomberg Billionaires Index. With the gain, Bezoss wealth has increased by $5.4 billion this year, marking a resurgence after it fell to as low as $43 billion in February amid turbulent global markets.

      Image: Bloomberg

      Most of Bezoss wealth is tied to Amazon, which has benefited from robust demand for quick-turnaround delivery, cloud services and gadgets like the Kindle and Echo.

      In April, the Seattle-based company posted its biggest-ever net income and said first-quarter sales climbed 28 percent, including a 64 percent rise at its cloud-computing division. The shares are up 54 percent since hitting a low of $482.07 on Feb. 9.

      Image: bloomberg

      Bezoss rise in the billionaire ranking has been helped by Buffetts philanthropy. The Berkshire Hathaway Inc. chairman donated about $2.2 billion worth of stock this month in his annual gift to the Bill & Melinda Gates Foundation. Even so, the 85-year-old has still seen his net worth rise by $2.7 billion in 2016, with Berkshires Class A shares up 9.4 percent.

      Bezos, 52, now lags only Spains Amancio Ortega, the Inditex SA founder who has a $73 billion fortune, and Microsoft Inc.s Bill Gates, the worlds richest person, with $89 billion.

      Bezoss rank could climb higher. Carlos Kirjner of Sanford C. Bernstein & Co. set his Amazon price target at $1,000 in May, 34 percent above Thursdays close of $744.43. With the stock at that price, Bezoss fortune would be about $86 billion, just under Gatess current level.

      This article originally published at Bloomberg here

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