What Could Kill the Bitcoin Boom

If you bought a Bitcoin in early 2017, when one cost less than $900, you could have a profit of more than 1,200 percent now. But you almost certainly didn’t do that. Perhaps you dipped in a toe in November or December, as the price hit headline-grabbing records—$10,000, then $15,000, then higher. If you were very unlucky and bought at the peak of about $20,000 on Dec. 17, you’d have lost more than 40 percent of your money as of Jan. 16, when the price was $11,200. More than $2,000 of that decline came in about 24 hours, after South Korean Finance Minister Kim Dong-yeon indicated the country may crack down on cryptocurrency trading to discourage speculation. It’s not every asset that can feel like it’s in a bubble and a crash at the same time.

But based on no other valuation metric than what it cost a year ago, the price of Bitcoin is still dizzyingly high. For the many doubters who can’t believe things have come this far—and for Bitcoin owners who can see how much they might lose—the big question is what it would take to knock the price back further.

In past episodes, “Bitcoin and digital currencies have been incredibly resilient to bad news,” says Meltem Demirors, director of development at Digital Currency Group, which invests in Bitcoin and related technologies. Cryptocurrency exchanges such as Mt. Gox, Bitfinex, and BTC-e have been hacked over the years, with hundreds of millions of dollars’ worth of Bitcoin stolen. China in September moved to shut down exchange trading of the cryptocurrency. None of these permanently stopped Bitcoin’s rise up the price charts, especially after it drew the attention of hedge fund traders and futures markets.

One doomsday scenario would be a successful hack of the blockchain. That’s the underlying technology that records and verifies every transaction, using exact copies of a database spread on computers all over the world. Those host computers, called miners, are rewarded with new Bitcoin for doing the work of verifying transactions. An attacker might be able to alter the blockchain’s history by marshaling more than half the computing power on the network. But that would be monumentally difficult; someone with the technology to do it could instead “opt into the game” and get paid to mine Bitcoin, says Tyler Winklevoss, co-founder of the Gemini digital asset exchange and one of the largest Bitcoin holders.

The likelier risks are far more pedestrian. The first is that while plenty of investors and speculators have piled into Bitcoin, it’s a difficult currency to use in the real world. The network is slow and expensive for small transactions. And who wants to spend $4 in Bitcoin for a coffee if next week that could be worth $8? “My big concern as a company is that digital currency doesn’t find its quote-unquote killer use cases, where people are saying, ‘Wow, we now have tens of millions of daily active users that are using it for payments,’ ” says Adam White, who runs GDAX, the exchange for institutional investors run by Coinbase. “That’s one of the largest existential threats to the company.”

BitPay's Singh Calls Bitcoin Selloff an Overreaction

There’s been a very public civil war among Bitcoin developers: One group favors changes to the network, the other doesn’t. “It’s got to have the developer community come together and figure out how to scale it properly and continuously,” says Sheri Kaiserman, a managing director at Wedbush Securities and an early Wall Street believer in Bitcoin’s potential. Meanwhile, Bitcoin faces competition from other digital currencies, from Bitcoin Cash to Litecoin to Ether, which have also seen big gains and wild swings.

You could spend weeks learning about the nuances of the various cryptocurrencies. But the main risk to Bitcoin is actually the easiest to understand. “The biggest factor in what’s driving the price up is potentially what will drive it down—a reversal of animal spirits,” says Adam Ludwin, chief executive officer of blockchain startup Chain. “There is essentially a belief this will continue to go up. If people believe it will continue to go down, that’s self-reinforcing.”

To explain that psychology, Ludwin invokes John Maynard Keynes. The economist likened investing to a newspaper contest where readers were asked to pick the picture of the person the majority of other people would find most attractive. To win, a reader would have to discard his own judgment and bet purely on a guess of what the average person would find beautiful. Or, maddeningly, even on what the other players would think the average player would like. Cryptocurrency in general is “really one of the most beautiful distillations of the Keynesian beauty contest that’s ever existed,” says Ludwin. All investments have some of this speculative element, but unlike, say, a stock, Bitcoin isn’t a claim on future earnings to which investors can hitch a valuation. To bet on Bitcoin is to believe simply that others will want it.

One read on the psychology of the Bitcoin boom is that it’s part of a broad bull market in all kinds of assets. Despite anxieties about politics, North Korea, and rising equity valuations, investors seem to be in a mood to embrace risk and are fearful of missing out on big gains. Or perhaps Bitcoin is the shadow side of that optimism: Many are drawn to cryptocurrency because they see it as a palliative to the system that came crashing down in 2008, and their belief in Bitcoin has been hard to shake. Market psychology is difficult to pin down—the one thing that’s reliable about it is its volatility.

    BOTTOM LINE – Despite its meteoric rise in the past few years, Bitcoin remains a wildly volatile investment, dropping more than $2,000 in a day when bad news hits.

    Read more: www.bloomberg.com

    Heres What the World’s Central Banks Really Think About Bitcoin

    Eight years since the birth of bitcoin, central banks around the world are increasingly recognizing the potential upsides and downsides of digital currencies.

    The guardians of the global economy have two sets of issues to address. First is what to do, if anything, about emergence and growth of the private cryptocurrencies that are grabbing more and more attention — with bitcoin now surging toward $10,000. The second question is whether to issue official versions.

    Following is an overview of how the world’s largest central banks (and some smaller ones) are approaching the subject:

    U.S.: Privacy Worry

    The Federal Reserve’s investigation into cryptocurrencies is in its early days, and it hasn’t been overtly enthusiastic about the idea of a central-bank issued answer to bitcoin. Jerome Powell, a board member and the chairman nominee, said earlier this year that technical issues remain with the technology and "governance and risk management will be critical." Powell said there are "meaningful" challenges to a central bank cryptocurrency, that privacy issues could be a problem, and private-sector alternatives may do the job.

    Euro Area: Tulip-Like

    The European Central Bank has repeatedly warned about the dangers of investing in digital currencies. Vice President Vitor Constancio said in September that bitcoin isn’t a currency, but a “tulip” — alluding to the 17th-century bubble in the Netherlands. Colleague Benoit Coeure has warned bitcoin’s unstable value and links to tax evasion and crime create major risks. President Mario Draghi said this month the impact of digital currencies on the euro-area economy was limited and they posed no threat to central banks’ monopoly on money. 

    China: Conditions ‘Ripe’

    China has made it clear: the central bank has full control over cryptocurrencies. With a research team set up in 2014 to develop digital fiat money, the People’s Bank of China believes "conditions are ripe" for it to embrace the technology. But it has cracked down on private digital issuers, banning exchange trading of bitcoin and others. While there’s no formal start date for introducing digital currencies, authorities say going digital could help improve payment efficiency and allow more accurate control of currencies.

    Japan: Study Mode

    Bank of Japan Governor Haruhiko Kuroda said in an October speech that the BOJ has no imminent plan to issue digital currencies, though it’s important to deepen knowledge about them. “Issuing CBDC (central bank digital currency) to the general public is as if a central bank extends the access to its accounts to anyone,” Kuroda said. “As such, discussion about CBDC revisits fundamental issues of central banking.”

    Germany: ‘Speculative Plaything’

    In a country where lot of citizens still prefer to pay in cash, the Bundesbank has been particularly wary of the emergence of bitcoin and other virtual currencies. Board member Carl-Ludwig Thiele said in September bitcoin was “more of a speculative plaything than a form of payment.” A shift of deposits into blockchain would disrupt banks’ business models and could upend monetary policy, Thiele said. At the same time, the Bundesbank has been actively studying the application of the technology in payment systems.

    U.K.: Potential ‘Revolution’

    Bank of England Governor Mark Carney has cited cryptocurrencies as part of a potential “revolution” in finance. The central bank started a financial technology accelerator last year, a Silicon Valley practice to incubate young companies. Carney says technology based on blockchain, the distributed accounting database, shows “great promise” in enabling central banks to strengthen their defenses against cyber attack and overhaul the way payments are made between institutions and consumers. He has nevertheless cautioned the BOE is still a long way from from creating a digital version of sterling.

    France: ‘Great Caution’

    Bank of France Governor Francois Villeroy de Galhau said in June that French officials "advise great caution with respect to bitcoin because there is no public institution behind it to provide confidence. In history all examples of private currencies ended badly. Bitcoin even has a dark side — there were this data attacks." He said "those who use Bitcoin today do so at their own risk."

    India: Not Allowed

    India’s central bank is opposed to cryptocurrencies given that they can be a channel for money laundering and terrorist financing. Nevertheless, the Reserve Bank of India has a group studying whether digital currencies backed by global central banks can be used as legal tender. Currently, the use of cryptocurrencies is a violation of foreign-exchange rules.

    Brazil: Support Innovation

    The Banco Central do Brasil sees “no immediate risk for the Brazilian financial system" but remains alert to the developments of the usage of those currencies, it said in a statement this month. The bank pledged “to support financial innovation, including new technologies that make the financial system safer and more efficient.”

    Canada: Asset-Like

    The Bank of Canada’s senior deputy governor, Carolyn Wilkins, who is leading research on cryptocurrencies, said in an interview this month that cryptocurrencies aren’t true forms of money. “This is really an asset, or a security, and so it should be treated that way,” Wilkins said. As others, she viewed distributed ledger technology as promising for making the financial system more efficient.

    South Korea: Crime Watch

    The Bank of Korea’s focus has been protecting consumers and preventing cryptocurrencies from being used as a tool of crime. Deputy Governor Shin Ho-soon said this month that more research and monitoring was needed.

    Russia: ‘Pyramid Schemes’

    Russia’s central bank has expressed concerns about potential risks from digital currencies, with Governor Elvira Nabiullina saying “we don’t legalize pyramid schemes” and “we are totally opposed to private money, no matter if it is in physical or virtual form.” For the moment, the Bank of Russia prefers to delay a decision on regulating the financial instruments unless President Vladimir Putin pushes for action sooner. The central bank will work with prosecutors to block websites that allow retail investors access to bitcoin exchanges, according to Sergey Shvetsov, a deputy governor.

    Australia: Monitoring Closely

    The Reserve Bank is closely monitoring the rise of digital currencies and recognizes the technology underpinning bitcoin has the "potential for widespread use in the financial sector and many other parts of the economy," head of payments policy Tony Richards said last month.

    Turkey: Important Element

    Digital currencies may contribute to financial stability if designed well, Turkish Central Bank Governor Murat Cetinkaya said in Istanbul earlier this month. Digital currencies pose new risks to central banks, including their control of money supply and price stability, and the transmission of monetary policy, Cetinkaya said. Even so, the Turkish central banker said that digital currencies may be an important element for a cashless economy, and the technologies used can help speed up and make payment systems more efficient.

    Netherlands: Most Daring

    The Dutch have been among the most daring when it comes to experimenting with digital currencies. Two years ago the central bank created its own cryptocurrency called DNBcoin — for internal circulation only — to better understand how it works. Presenting the results last year, Ron Berndsen, who was in charge of the project, said blockchain may be “naturally applicable” in the settlement of complex financial transactions.

    Scandinavia: Exploring Options

    Like the Dutch, some Nordic authorities have been at the forefront of exploring the idea of digital cash. Sweden’s Riksbank, the world’s oldest central bank, is probing options including a digital register-based e-krona, with balances in central-database accounts or with values stored in an app or on a card. The bank says the introduction of an e-krona poses "no major obstacles" to monetary policy.

    In an environment of decreasing use of cash, Norway’s Norges Bank is looking at  possibilities such as individual accounts at the central bank or plastic cards or an app to use for payments, it said in a May report. Denmark has backtracked somewhat from initial enthusiasm, with Deputy Governor Per Callesen last month cautioning against central banks offering digital currencies directly to consumers. One argument is that such direct access to central bank liquidity could contribute to runs on commercial banks in times of crisis.

    New Zealand: Considering Future

    The Reserve Bank of New Zealand, once a pioneer on the global stage with its early introduction of an inflation target, said Wednesday it’s considering its future plans for currency issuance, and how digital units may fit into those strategies. “Work is currently underway to assess the future demand for New Zealand fiat currency and to consider whether it would be feasible for the reserve bank to replace the physical currency that currently circulates with a digital alternative,” the RBNZ said in what it termed an analytical note.

    Morocco: Violating Law

    Representing one of the more stringent reactions, the country has deemed that all transactions involving virtual currencies as violating exchange regulations and punishable by law. Cryptocurrencies amount to a hidden payment system, not backed by any institution and involving significant risks for their users, authorities said in a statement this month.

    Bank for International Settlements: Can’t Ignore

    The central bank for central banks has said that policy makers can’t ignore the growth of cryptocurrencies and will likely have to consider whether it makes sense for them to issue their own digital currencies at some point. “Bitcoin has gone from being an obscure curiosity to a household name,” the BIS said in September. One option is a currency available to the public, with only the central bank able to issue units that would be directly convertible to cash and reserves. There might be a greater risk of bank runs, however, and commercial lenders might face a shortage of deposits. Privacy could also be a concern.

      Read more: www.bloomberg.com

      Youd Be Crazy to Actually Spend Bitcoin

      A little more than four years ago, Coupa Café, a caramel-macchiato joint in Palo Alto, began accepting bitcoin. This was shortly before the first big bitcoin rush briefly pushed the cryptocurrency’s price from about $100 to more than $1,000. At the time, two or three Coupa customers a week would pay their bills with bitcoin, says co-owner Camelia Coupal. Today, the number is … still two or three people a week. “It’s a really minimal part of our sales,” she says. “It’s really just a quirky thing for our customers.”

      That’s the story of bitcoin this past year: The cryptocurrency has made fortunes for speculators, but—for that reason and others—it hasn’t been much use as a medium of exchange. Except in countries such as Venezuela, where inflation makes the local money even more volatile than bitcoin prices, its use by online merchants is virtually zero and shrinking, according to Morgan Stanley. When businesses like Coupal’s started accepting bitcoin, advocates predicted it would eventually replace money. Those voices have grown quiet. “The value of bitcoin is really predicated on its being a useful means of transactions,” says Jacob Leshno, an assistant professor at Columbia Business School. “If you take that away, all you are left with is a bubble asset.”

      In 2017 bitcoin’s value rose from about $1,000 to as much as $19,000, often with swings of thousands of dollars a day. (As of publication, it’s trading at about $15,000.) Governments including China’s and Japan’s tightened the rules governing cryptocurrency businesses, and China has shut down its exchanges. Bitcoin’s popularity has also made its network much slower and sent transaction fees spiraling. In late December, sellers had to choose between waiting hours and sometimes days for their transactions to go through or paying an average $55 fee to jump the line. (In mid-2016 such fees topped out at about 15¢.) That’s made bitcoin impractical for everyday transactions, such as $3 cups of coffee.

      The eight-year-old bitcoin network is “really janky,” says John Quinn, co-founder of Storj Labs Inc., whose dozen employees worked 12-hour days for two months last spring to switch their data-storage startup from bitcoin to the rival cryptocurrency ethereum. Two-year-old ethereum has its own problems, including rising transaction fees, but it’s become the first choice for most startups seeking to use so-called smart contracts or raise money through initial coin offerings, which generated about $4 billion in 2017. While ethereum has added lots of features and uses, bitcoin looks almost the same as it always has, says Lucas Nuzzi, a senior analyst at Digital Asset Research.

      Bitcoin’s limitations are becoming bigger issues as banks and other financial institutions build out their own similar networks. “Cost, we expect that to be sub-1¢,” says Richard Brown, chief technology officer for industry consortium R3, which is helping companies build such networks. Completing a transaction, he says, “takes the speed of light, seconds at most.”

      Some bitcoin developers are trying to tweak the network software to speed transactions, but disagreements about the approach have led some groups to split off and create their own smaller networks. “Startups need to be aware that they are building a house on moving ground,” says Michael Dunworth, chief executive officer of Wyre Inc., a cross-border payment service using the bitcoin network.

      Because only 21 million bitcoins will ever be issued, there’s a case to be made that the currency is simply evolving from a transaction network to digital gold. Longtime advocates say different. “At the end of the day, it is bitcoin’s use in commerce that drives its price and further adoption,” says Roger Ver, the advocate known as Bitcoin Jesus, who spent bitcoin last year to cover his startup’s 60-person payroll and book hotels on Expedia. (He’s become a vocal champion for “bitcoin cash,” a cryptocurrency that’s facing an internal insider-trading investigation after having splintered from bitcoin last summer.)

      Amid the current fervor, Ver is the exception. “No one is spending bitcoin,” says Iqbal Gandham, managing director at EToro Ltd., a cryptocurrency exchange. “It could be the most expensive piece of pizza you ever bought.”

        BOTTOM LINE – There’s little sense in using bitcoin for its intended purpose as a medium of exchange when its value can fluctuate by thousands of dollars in a given trading day.

        Read more: www.bloomberg.com

        After 4,400% Surge, Bitcoins Fate Hinges on Huge Chinese Miners

        Wu Jihan still remembers the exhilaration he felt after learning about bitcoin in 2011.

        QuickTake Bitcoin and the Blockchain

        A self-described computer geek fresh out of Chinas top university, Wu soaked up everything he could about the digital currencys mysterious founder and its users ambitions to transform the global financial system. Within a year, he quit his job at a private equity firm to launch a bitcoin startup. Today, his company is one of the worlds biggest players in bitcoin mining, a computing process that makes transactions with the cryptocurrency possible.

        Wu Jihan
        Source: Bitmain Tech Ltd.

        Yet for Wu, and the rest of bitcoins online community, feelings of exhilaration have been replaced by apprehension over what could be the biggest hurdle to the cryptocurrencys growth since its emergence in 2009. Because of a pre-programmed cap on the amount of data bitcoins network is allowed to process, the current system for verifying payments needs to boost its capacity, or transaction times will balloon and undermine bitcoins 4,475 percent advance over the past five years.

        In theory, theres a simple fix: With some coding tweaks, transactions could continue apace. But the problem is that any change to bitcoins architecture will inevitably create losers, and the motley crew of miners, software developers, libertarians and entrepreneurs who comprise the bitcoin universe have yet to form a consensus. After at least five attempts in the past year, enthusiasts will try once again at a conference in Silicon Valley this month. Any solution will almost certainly need the support of attendees from China, now home to 70 percent of the worlds bitcoin mining power and 90 percent of trades.

        “This truly is one of the biggest tests to global collaboration,” said Wu, who runs AntPool, the worlds second-largest mining collective, and is also one of the largest manufacturers of mining hardware. “Theres a lot of money and emotions involved, and people have very different ideas on what they want bitcoin to be.”

        For a QuickTake explainer on bitcoin, click here.

        It could be the opinions of Wu and his compatriots that matter most. Chinese miners have leveraged their access to cheap labor, inexpensive electricity and local chipmaking factories to outmaneuver their global peers in performing the complex calculations needed to verify bitcoin transactions — a service for which theyre compensated in newly-minted bitcoin. When the cryptocurrencys price tumbled from about $1,000 in late 2013 to below $200 in early 2015, lower costs in China allowed them to stay afloat even as many Western operators folded.

        Bitcoins volatility, meanwhile, has attracted Chinas horde of speculative individual investors, who are keener than ever to diversify out of yuan-denominated assets after a shock devaluation in the nations currency last year.

        Mining Power

        The concentration of bitcoin activity in China has some worried that the system could become vulnerable to meddling by the ruling Communist Party, which restricts cross-border capital flows and has tight control over the Internet. Its of particular concern to libertarians who value the cryptocurrencys decentralized nature above all else. Unlike most major units of exchange, bitcoin has no single authority, such as a central bank, with control over the money supply. The maximum number of bitcoins is capped at 21 million.

        Having so much mining power in China is a very negative thing, Peter Todd, an active bitcoin code contributor based in Toronto, wrote in an e-mail interview. Itd be all too easy for the Chinese government to do a lot of harm.

        While Chinas central bank has said bitcoin isnt a real currency and has taken steps to prevent it from becoming entrenched in the domestic financial system, theres little evidence that policy makers are trying to gain control over its global development.

        Instead, the influence lies with privately-run Chinese miners. Because the current system is dominated by the software miners use most, any proposal to update bitcoins architecture will need their validation.

        Block Sizes

        The miners control the real voting power, said Wang Chun, co-owner and chief administrator of F2Pool, the worlds largest mining collective.

        The debate over how to resolve the digital currencys capacity problem is split primarily into two camps. One group, known as Bitcoin Classic, says the size of digital blocks that contain bitcoin transactions should be increased as soon as possible to ensure that processing times dont jump.

        The other, Bitcoin Core, argues that its too soon to make major changes because it will take time to ensure that the new software is secure. Theyre also worried that a major boost to block sizes will give too much power to the handful of miners with the processing capacity to handle the lengthy calculations associated with larger blocks.

        Core supporters have been primarily focused on introducing features to increase transaction efficiency, while some have agreed to a capped increase in block sizes. They place a priority on widespread adoption before big changes are made, fearing a split in the bitcoin community that could send prices tumbling. The cryptocurrency has gained about 56 percent this year and traded at $676.22 on Wednesday.

        Waiting Game

        Major Chinese miners and a group of Core developers agreed on a proposed fix at a meeting in Hong Kong in February. The new code is due to become available this month, and could be activated by July 2017 if it gains broad support.

        HaoBTCs mining data center in Sichuan, China.
        Source: HaoBTC

        “If the consensus is implemented successfully, it will set an example for future collaborations between all parties,” said Wu Gang, chief executive officer of HaoBTC, which accounts for about five percent of the computing power used to verify bitcoin transactions.

        If no agreement is reached, processing times could potentially climb to hours or even days, making the digital currency inconvenient for many users who can get almost instant confirmations on payments through their credit-card providers or online money-transfer services like PayPal. In its current iteration, the bitcoin network can handle about seven transactions per second. Visa Inc., the worlds largest payment processor, is capable of more than 24,000 per second.

        A surge in processing times would give credence to the views of bitcoin skeptics including JPMorgan Chase & Co. CEO Jamie Dimon, who says a digital currency without any central authority has no chance of survival in the $5.3 trillion-a-day foreign exchange market. Even after its surge over the past five years, the total market value of outstanding bitcoin is less than $11 billion, with a network that handles about $120 million of transactions daily.

        Despite the challenges, AntPools Wu is optimistic. Hes planning to attend the meeting of bitcoin enthusiasts in California this month and says miners from China are set to play a bigger role in driving the global community toward consensus.

        “Theres no way we will be at this impasse forever,” Wu said. “You have got to believe that with so many smart people in the industry, they will make the right decisions.”

        Read more: www.bloomberg.com

        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 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 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 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

        Stellar Emerges From Shadow of Bitcoin to Find a Home Overseas

        LeEco is like the Netflix of China—except it also sells phones, televisions, and cars. Now, it’s moving into the US after acquiring the stateside television maker Vizio. Unlike some Chinese tech giants that seem happy to focus on a domestic market approaching 1.4 billion, LeEco has international ambitions. And to make those ambitions a reality, it’s embracing a bitcoin-like creation that can quickly and inexpensively move any country’s currency across borders and around the world.

        This technology is called Stellar, an open source payments protocol that grew out of the bitcoin movement and is backed by marquee San Francisco startup Stripe. LeEco runs a dedicated online payments and banking company called LeFinance, and this subsidiary is now building services that will use Stellar to move money to and from businesses and customers abroad. Like bitcoin, Stellar provides a vast online ledger, or blockchain, designed to oversee the movement of money (and anything else of value) from one machine to another without the need for any kind of central authority or government to validate the transactions.

        “We’re aiming to reduce the cost of capital, improve the efficiency of our operations,” says Linhui Gao, senior operations Director at LeFinance and the founder of LeFinance Blockchain Lab, through an interpreter. “We’re widening our influence globally, so cross-border payments is what we need.”

        LeEco’s effort is still in the early stages—Stellar founder Jed McCaleb flew to China last week to help jumpstart the effort—but it shows where the blockchain idea may be most useful for businesses in the near-term. Bitcoin’s strongest proponents see the technology as a way to make money work just like the rest of the internet, freeing commerce from the grip of governments and banks. That dream isn’t exactly close to reality. But the blockchain idea may still have useful applications in the here-and-now. A blockchain offers a way of readily sending money between countries, which is still a difficult thing in a world where the borderless connections provided by the internet are only part of what’s needed.

        Cross-border Costs

        At the moment, sending and receiving money internationally is expensive. The average cost of an international payment is between $25 and $35, ten times more than domestic payments, according to a recent McKinsey report. What’s more, existing technology for moving money between banks varies from country to country. The application programming interfaces, or APIs, that move money between banks are poorly designed, if they exist at all. Sometimes, payments travel via one-off messages or file transfers. And in many cases, the existing system just isn’t very liquid, due to the number of parties involved. “It’s a bit of nightmare,” says Anthony Barker, chief technology officer of the Paris-based international money transfer company Tempo, who spent 15 years working in the foreign exchange for operations like BMO Capital Markets and National Bank of Canada.

        These are precisely the problems that Stellar is trying to solve. McCaleb was among the earliest bitcoin adopters, but he realizes that the digital currency idea has limited appeal in the West, which already enjoys a robust electronic infrastructure for moving money. At least for now, he believes the blockchain’s real power lies in its ability to move money in the developing world and across borders.

        ‘A network of one isn’t very useful.’

        Today, the San Francisco non-profit that oversees Stellar announced that its payments network has plugged into existing money transfer operations in Europe, Africa, and the Philippines, including Tempo and the Philippines-based Coins. For Stellar to work—to provide a truly global network—it needs these partners who operate money transfer hubs, or “nodes,” on this network. At the same time, these partners gain because they can potentially streamline their money transfers using Stellar.

        Stellar and similarly unified networks such as Ripple, Barker says, could help make moving money across borders easier and more reliable than the ad-hoc systems currently in use. A network like Stellar could also ultimately help money-movers cut costs, though this will only work if use of the protocol is widespread. “You need partners on the other side of the transaction,” Barker says. “A network of one isn’t very useful.”

        Presently, even that modest dream for international payments faces obstacles. Earlier this year, Stellar was working to create a money transfer network in Nigeria, where just 35 percent of the population has access to traditional banking services, according to a 2014 report. More than half of the 17.5 million Nigerian adults who need to send money use informal channels such as prepaid debit cards and friends and family members traveling from place to place. Even so, the Nigerian Central Bank put the breaks on the Stellar plan this summer, banning money transfers by all but three large and established companies. It’s only now starting to relax these restrictions.

        Barker says that governments still haven’t really woken up to the possibilities that technologies such as Stellar offer. “I don’t think the regulators understand,” he says. He and his company hope to change this. They’re among the advocates discussing blockchain technology with regulators in Europe, and they’re actively working to push Stellar into Philippines and China. According to the World Bank, only India receives more money in remittances from overseas each year than China ($64 billion) and the Philippines ($28 billion). Clearly, the demand for easier, cheaper ways to move money across borders is there. If big tech companies like LeEco can make blockchains work for money transfers, perhaps that momentum will start catalyze the technology for other uses too.

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