What is LiteCoin?

Bitcoin isn’t the only cryptocurrency out there.

An alternative called Litecoin is starting to gain traction.


Bitcoin and Litecoin are incredibly similar. Both are decentralized electronic currency, meaning that they aren’t linked in any way to big banks. They’re independent. And where the money supply of US dollars is always fluctuating, both Bitcoin and Litecoin will reach eventually reach a gross sum and maintain a finite, unchanging supply.

Circulation of Bitcoins will be capped at 21 million, Litecoin at 84 million.

Think of Litecoin as the silver to Bitcoin’s gold. Just like in the physical silver and gold markets, Litecoin is trading at less than Bitcoin, but there’s more of it.

Litecoin is gaining popularity because of the ways it differs from Bitcoin; Litecoin transactions take only 2.5 minutes to process while Bitcoin transactions can take up to ten minutes to complete.

The way the currencies are secured is different too.

Litecoin utilizes something called “scrypt,” which is basically something built into Litecoins that make it really really hard to replicate or steal. The technology requires huge amounts of memory to infiltrate, which translates into a far more expensive process to virtually counterfeit.

At the time of writing, one Litecoin is worth $2.37 and one Bitcoin is worth $108, but with the extreme volatility observed in the Bitcoin market, it might be worth it to keep an eye on Litecoin.

What is Litecoin?

Litecoin is an alternative cryptocurrency based on Bitcoin. It differs from Bitcoin in that it targets a faster block rate (2.5 minutes) and uses scrypt for the primary hashing done in mining. MtGox announced in April 2013 that they would add support for Litecoin trading, a plan that was delayed due to recent DDOS attacks.

While scrypt was claimed to be resistant to GPU-based mining early on, GPUs are currently the most efficient hardware with which to mine Litecoins. One of the aims of Litecoin was to provide a mining algorithm that did not compete with Bitcoin.

In April 2013, Litecoin reached a market cap of $70 million and achieved a network strength above 12 gigahashes/second. This compares roughly to a network strength for Bitcoin of 12 terahashes/second.

Differences from Bitcoin

Scrypt Proof of Work

Litecoin uses scrypt as a proof-of-work scheme. Scrypt adds memory-intensive algorithms to reduce the efficiency of the kind of parallelization that GPUs offered in early Bitcoin mining. This led to Litecoin primarily being mined with CPUs at the beginning. CPU-based mining has been challenged by the appearance of more energy-efficient GPU-based mining around July/August of 2012 bringing a roughly ten-fold increase in network hashing strength. GPUs are currently the dominant Litecoin mining technology.

Scrypt has been less widely used and analyzed than the SHA2 hashing algorithm used in Bitcoin, so there is some concern about possible weaknesses in its cryptographic scheme being discovered in the future.

Faster Blocks

The Litecoin blockchain differs from Bitcoin in that it generates blocks every 2.5 minutes on average (four times Bitcoin’s rate). This means that merchants who accept transactions only 1 block deep get that confirmation quicker. However, it should be noted that more blocks are required to achieve the same amount of confirmation strength as Bitcoin (6 blocks of litecoin are not equivalent to 6 blocks of bitcoin). Unfortunately, this increases the number of hashes that are wasted in mining since miners will be working from the non-best block more of the time.

84 Million Litecoins

Litecoin started with miners generating 50 coins per block as with Bitcoin, but to maintain Bitcoin’s inflation rate chage schedule, the block reward gets halved every 840,000 blocks. As a result, the network is scheduled to produce a total of 84 million litecoins.

Different Addresses

Litecoin addresses start with L due to their version number. Otherwise, they are generated identically to Bitcoin addresses.

(Slight) Premining

Litecoin had two blocks premined, one more than the minimum single genesis block needed to start a block chain.

Redundancy

Besides a faster first confirmation, Litecoin does not provide any other features over what Bitcoin provides. Because of this lack of innovation, some believe Litecoin is unlikely to match or surpass Bitcoin’s value or user-base. It remains to be seen if the use of a different mining algorithm and faster block times add sufficient value for Litecoin’s long-term survival.

Not Silver to Gold

Some argue that Litecoin cannot make sense as “silver to bitcoin’s gold”, because Bitcoin itself is both gold and silver: While in the long-run, the BTC unit may be too valuable for everyday trade (“gold”), there are other, much smaller units that can just as well serve the purpose of “silver” while being naturally/automatically “converted” to/from BTC.

Vulnerability to mining monopoly

Similarly to Bitcoin, Litecoin can be attacked by an entity that can match or exceed the hashrate of the network. Such a “51% attack” becomes more difficult to launch and maintain as the hash rate of the network grows. However, this argument posits that Litecoin is designed to be inefficient on all common computer components (both CPUs and GPUs) meaning that a malicious entity need only produce a small batch of specialized/custom hardware to overtake all the commodity mining systems combined.

Memory bandwidth refutation

Some attempt to refute this by arguing that scrypt is not designed to be inefficient, but is instead designed to be highly dependent on memory bandwidth. Since the high-speed cache RAM on modern processors already takes up most of the die space, no sizeable improvement could then be made by creating custom chips. If we accept this argument we then estimate the cost of attack utilizing GPUs that are avilable today.

To do so we start with an estimated cost of hardware at $600 per megahashes per second and the March 14, 2013 Litecoin network hashrate of 2,500 megahashes per second. The total amount of equipment necessary to match and takeover the Litecoin network via 51% attack is then an estimated $1.5M USD (or about 5,000 AMD HD 5970s). There are tens of thousands of GPUs that are in the process of being made unprofitable for mining on the Bitcoin network ASICs. While these GPUs may be redeployed for Litecoin, a proportional and sustained rise of the Litecoin exchange rate would be required to support this additional GPU mining activity.

Pump and Dump Scheme

According to some, one or more of the aforementioned reasons imply that Litecoin has no future potential, and therefore effectively functions as a “pump and dump” scheme, rewarding those who get in sooner at the expense of those who adopt it just before it finally fails (and are left with nothing).

Additionally, people often complain that the Litecoin community misrepresents it in other ways, such as portraying “faster block times” as if it makes transactions faster, and scrypt as if it is resistant to ASIC or FPGA hardware, in order to pretend Litecoin has value and inflate its value.

It’s important to note, generally these critics do not think that Litecoin/Blockchain currencies are pump and dump schemes “per se”; but rather that the existing network effect of Bitcoin, combined with the lack of meaningful differentiation between Litecoin and Bitcoin and Litecoin’s adoption of a “designed to fail” proof-of-work algorithm; that Litecoin is bound to fail in the end. Bitcoin does not suffer from these “flaws” and therefore does not fall under the “pump and dump” scheme, according to this argument.

source: http://www.businessinsider.com/what-is-litecoin-2013-6 and https://en.bitcoin.it/wiki/Litecoin

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http://www.guugll.eu/what-is-litecoin/

What is BitCoin?

By now, you’ve probably heard all about Bitcoins.


And are people actually striking it rich “mining” these things? Today, we’ll find out with a first-hand look into the world of this crypto-currency, straight from a Bitcoin miner.

Satoshi Nakamoto, The Phantom

In 2009, a scientist calling himself Satoshi Nakamoto published an eight-page paper entitled Bitcoin: A Peer-To-Peer Electronic Cash System, along with working proof-of-concept source code. There was nothing unusual about this, except for the simple fact that there is no Satoshi Nakamoto. Stunningly, the author of a scientific paper had used a pseudonym.

The paper itself was not particularly revolutionary either; it built upon previous attempts at crypto-currencies, such as b-money and Hashcash. Satoshi’s true innovation was combining several known concepts like peer-to-peer networking and secure hashes with inventions of his own, namely a clever incentive system for the participants and an anti-inflation mechanism.

Silk Road and Illegal Drugs

Being an anonymous crypto-currency, Bitcoins (BTC) were soon adopted for payments on Silk Road, an online marketplace for illegal drugs. Silk Road lives inside TOR (The Onion Router) and sports a transaction feedback system similar to the one used by eBay, allowing customers to avoid dishonest sellers. It is unfortunate that Bitcoins are still stigmatized as being linked to Silk Road, and overzealous politicians have used this coincidental connection to call for a ban of the cyber currency. While it is a well-known fact that most dollar bills in circulation have traces of cocaine on them, nobody in their right mind would use this fact as pretext to stigmatize U.S. currency.

MtGox and Other Bitcoin Exchanges

So, how can you buy Bitcoins? First, create an account on MtGox.com (or any other Bitcoin exchange), and then wire money to that account. Once the funds arrive at the exchange and show up in your account, you can purchase Bitcoins at the current exchange rate. If desired, you can then send all or part of the Bitcoin balance to the Bitcoin wallet on your computer. Several different wallet programs are available for download, for instance Bitcoin-Qt or Multibit, and wallets are also available for mobile devices.

A Crisis in Cyprus and a Bitcoin Bubble

Economists have pointed out that a currency should not have an intrinsic value. For instance, it costs less than 10 cents to produce any U.S. banknote. However, there is a limited number of Bitcoins in circulation. In fact, only 21 million Bitcoins will ever exist. So, when demand exceeds supply, the price will rise.

Demand started to increase during the financial crisis in Cyprus, when a stunned public learned from the media that their bank deposits would be subject to a one-time 6.7% levy, or 10% for accounts valued more than 100,000 Euros. Even though the bank levy for small accounts was later rescinded, the mere suggestion that bank deposits are not safe from surprise retroactive taxation drove some people in EU member countries to look for ways to park their money anonymously. Due to this increased demand, Bitcoins began to appreciate against traditional currencies like the U.S. dollar and the Euro. As Bitcoins became ever more valuable, speculators jumped in, thus pouring gasoline on the fire.

The Burst of the Bitcoin Bubble and the Recovery

By mid-March, word had gotten out that by buying Bitcoins, one could double his investment within a week. By April 10th, a historical peak of $266 per Bitcoin had been reached. Speculators flooded MtGox (the major Bitcoin trading platform), overwhelming the server and causing trading to lag. At some point, a selling panic started. Finally, MtGox suspended trading in order to upgrade the trading server, and to exert a calming effect on the market. Once trading resumed, the Bitcoin’s price crashed to approximately $65 before recovery began. At the time of writing, one Bitcoin is valued slightly above US$120.

source: http://www.tomshardware.com/reviews/bitcoin-mining-make-money,3514.html

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http://www.guugll.eu/what-is-bitcoin/

Bitcoin exchange Mt. Gox

The largest Bitcoin exchange has filed key paperwork with the US Treasury’s anti-money laundering agency, but it may have come too late.


Mt. Gox, based in Tokyo, registered on Thursday with the Financial Crimes Enforcement Network (FinCEN) as a money services business (MSB), according to FinCEN’s website.

The adoption of Bitcoin, a virtual currency that can be transferred worldwide for free using peer-to-peer software, has been stymied by concerns over compliance with different countries’ anti-money laundering and financial regulations.

Mt. Gox’s registration comes just six weeks after one of its U.S. bank accounts was seized. The order alleged Mt. Gox failed to register as a money transmitting business, which is required by many states and the federal government.

The account was linked to Dwolla, a payments provider, and used by Mt. Gox to transmit funds to its exchange in Japan used to buy and sell bitcoins. Dwolla was not a target of order, issued on May 14 by the U.S. District Court in Maryland and didn’t have any funds seized.

One of FinCEN’s missions is to combat money laundering. Bitcoin’s semi-anonymous transaction system has led to concerns that it could be used to hide money and avoid taxes.

Mt. Gox’s registration may have come too late. According to FinCEN’s website, those running money services businesses are required to register with the agency within 180 days of when the business was established. Businesses must renew their registration every two years.

The seizure order from the federal court stated that Mt. Gox has used its U.S. account to distribute funds to Dwolla since at least December 2011.

Mt. Gox officials could not be immediately reached for comment. On June 21, the exchange stopped U.S. dollar international wire transfers. The exchange said the halt was due to its bank, which was struggling to cope with the volume of transfers over the last two months. Mt. Gox said it planned to resume transfers within a couple of weeks.

The decentralized nature of the Bitcoin system, managed by a small community of software developers, poses interesting issues for government regulators in how to apply laws and regulation, wrote Ed Felten, a professor of computer science and public affairs at Princeton University.

“The people who govern Bitcoin are an obvious point of leverage for regulators,” Felten wrote. “In principle, a regulator might try to compel the developers who govern the Bitcoin software to deploy certain rule changes, by compelling them to push software changes that implement the modified rules.”

Bitcoin will likely prove “to be more regulable than its initial advocates thought,” Felten wrote. The transition could be awkward due to Bitcoin’s complexity.

source: http://www.pcworld.com/article/2043360/bitcoin-exchange-files-with-us-treasury-regulatory-agency.html

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http://www.guugll.eu/bitcoin-exchange-mt-gox/

Bitcoin Millionaires

Every time you spend bitcoins to buy a drink at Evr, a swanky bar in midtown Manhattan that accepts the digital currency, you make its co-owner, Charlie Shrem, just a little bit richer.


And that’s not only because a chamomile sour costs $17 (or 0.16 bitcoins). It’s because whenever someone new uses bitcoins, the electronic currency’s value tends to increase. Shrem has bought thousands of bitcoins for about $20 each, starting in 2011. Since then, the digital coins have soared in value to $109.

That’s turned the 23-year-old into a millionaire and into one of a handful of early bitcoin investors who’ve decided to sink their windfalls back into the bitcoin economy, starting their own companies and investing in others.

“Infrastructure is what we need,” says Shrem. “We’ve gotta build, build, build–financial software, exchanges, and different payment products.” In addition to his investment in the bar, Shrem founded Bitinstant, a company that makes it possible to buy bitcoins at Kmart and 7-Eleven, and is a member of BitAngels, an investment group created this year to help Bitcoin startups evolve from garage operations into real companies.

Bitcoin angels like Shrem don’t have pockets nearly as deep as entrepreneur-turned-investors who’ve made it big in Silicon Valley—some of whom, like Steve Case and Vinod Khosla, have net worth in excess of $1 billion. But their influence is substantial. As conventional investors begin to show interest in Bitcoin startups, it is small-time tycoons like Shrem who are acting as gatekeepers and ambassadors.

“The early guys are the ones that run everything,” says Shrem. “In this space, how long you’ve been around matters.”

Bitcoin originated in 2009, when its source code was posted online by persons unknown. Despite its mysterious origins, the way it works is transparent: the currency is produced when people carry out difficult cryptographic operations on computers, and then it’s exchanged over an open-source peer-to-peer network. Bitcoins are immune to counterfeiting and don’t rely on any central authority.

Initially, Bitcoin was mostly a curiosity. Among the first businesses to accept it were gambling sites, narcotics delivery services, and a farm selling alpaca socks. Yet Shrem and others have been thinking strategically, creating companies that comply with the law with the intention of making Bitcoin a widely used form of money.

One reason to do so is that the number of bitcoins is limited: there’s a theoretical maximum of 21 million, of which 11.3 have been “mined” so far (see “Custom Chips Could Be Shovels in Bitcoin Gold Rush”). That means the more people buy and use bitcoins, the more they tend to be worth. Anthony Gallippi, CEO of Bitpay, an Atlanta company that helps online stores accept payment in bitcoins, says one reason early buyers are reinvesting in the technology is to “ensure future returns” on the currency’s value.

“You didn’t get that dynamic in the dot-com days,” says Gallippi, who claims that he and business partner Stephen Pair are sitting on “thousands” of bitcoins they purchased for $1 or $2. He reasons that anyone who now buys even one bitcoin is in effect betting “on the whole space.”

The easy windfalls earned by Bitcoin’s early promoters are attracting interest from mainstream venture capitalists. In May, Shrem’s company received $1.5 million from the investment firm of the Winklevoss twins (who famously sued Mark Zuckerberg over the idea behind Facebook). Also last month, the venture fund operated by Peter Thiel, Facebook’s first major investor, invested $3 million in Gallippi’s company.

Those deals have been important endorsements for the online currency (see “Big-Name Investors Back Effort to Build a Better Bitcoin”). Yet what they mean for the philosophy at the heart of Bitcoin isn’t as clear, says Roger Ver, an important early investor.The 34-year-old electronics entrepreneur says he sank his life savings into the currency and has used the gains to invest more than $1 million in more than a dozen Bitcoin startups, including Shrem’s. “The typical investment size has been around $100K USD,” Ver wrote in an e-mail from Tokyo, where he lives. “I’m motivated by the positive ways in which Bitcoin use being widespread will make the world a better place.”

Like many early enthusiasts, Ver, who once ran for the California senate and later spent 10 months in prison for selling fireworks on eBay, was attracted to Bitcoin because of his libertarian, antigovernment views. He believes such currencies, if they replaced national ones, could make it impossible for governments to “finance their wars” by printing money.

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http://www.guugll.eu/bitcoin-millionaires/

Bitcoin is on the money

Digital currencies are a threat to current financial systems, say Alec Ross and Jonathan Luff.


Around the world, governments everywhere are trying to come to terms with technology. Some are finding the pace of change too fast and the flow of information too free for their autocratic hierarchies, and they risk being swept away.

In the US and the UK, attempts to generate efficiencies and drive wider social benefits from digital technology have delivered uneven results. There is tension between the proponents of technology-driven change and those who seek to uphold long-established legal, economic and social structures, as witnessed in the arguments over intellectual property between the tech giants and the creative industries, and the heated debate over the surveillance of electronic communications. It is clear that policymakers and those who advise them do not have a satisfactory conceptual framework for dealing with the disruptive impact of technology on society.

At the G8 meeting in Northern Ireland last week, the focus was on three Ts: Trade, Tax and Transparency. The aim was to boost the global economy while responding to popular concern about the ways in which large corporations and wealthy individuals have used technology-driven globalisation to minimise taxes. This is an important agenda for taxpayers, and progress is being made.

Largely unnoticed, an interesting advert appeared in a handbook accompanying the G8, placed by a company that was until recently known only to a small number of technology entrepreneurs and early adopters. The advertiser was Mt Gox, a marketplace for trading BitCoin, a digital currency. The message was that with more than 7,500 legitimate businesses using a single BitCoin payment processor (BitPay), digital currencies have arrived, and existing currencies and regulators had better take note. And so they should, because the technology that powers digital currencies like BitCoin presents a challenge to those, such as the G8 governments, currently exercising sovereignty over our societies.

BitCoin itself is a peer-to-peer digital currency which, unlike the currencies found in virtual worlds such as Second Life’s “Linden Dollars”, can be used to purchase real-world as well as online goods and services. The people who created BitCoin remain something of a mystery, but its innovative peer-to-peer structure and the sophistication of its code has helped establish it as the leader in this field.

source: http://www.telegraph.co.uk/finance/currency/10139651/Why-Bitcoin-is-on-the-money.html

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http://www.guugll.eu/bitcoin-is-on-the-money/

Battle Over Bitcoin

Seven months ago, Fred Ehrsam pitched his bitcoin-based startup Coinbase to more than a dozen Silicon Valley investors.


Although those potential backers were known for being forward-thinking — and they had a lot of money to invest in high-tech ventures — Ehrsam got more than a few blank stares. He spent more of his time explaining the concept of peer-to-peer currency, which is emerging as the world’s default platform for digital money, than describing his plans for the company itself. So he and his co-founders turned to the Chinese, specifically, to IDG Ventures. To the Beijing-based venture capitalists, the PayPal-like service for buying, selling and accepting bitcoins was a perfect fit.

“They said, ‘We’re sold on digital currency; we just want to know if you’re the right people,’” Ehrsam told International Business Times as he paced a San Francisco rooftop terrace on a recent windy afternoon. “It was a very different starting point.”

Indeed, virtual currencies are nothing new to the Chinese. For example, more than 100 million people on the social platform QQ have used the Q coin for more than 10 years. And after China’s state-run China Central Television, or CCTV, ran a half-hour-long documentary on bitcoins, downloads of apps for processing and “mining” bitcoins soared in the world’s second-largest economy.

Bitcoin, long the plaything of the Western uber-nerd, now appears poised to grow substantially in China and other markets, like the euro zone, where government meddling in native currency valuations has left many distrustful of the money in their bank accounts.

Americans don’t have this problem — yet. And that may be a problem in itself. According to bitcoin proponents, if the U.S. tries to ignore the nascent currency, writing it off as a financial fad with less value than the seemingly stable dollar, Americans risk ceding to the Chinese and others control of the future of what could be the most disruptive force in monetary exchanges since the credit card. In turn, the dollar and the ability of the U.S. to navigate global currency conflicts could be seriously weakened.

“Here’s the bottom line: Bitcoin has much higher popularity outside the U.S. and much higher potential outside the U.S.,” observed Andreas M. Antonopoulos, of the Bitcoin Foundation. “If you go to an American and say, ‘Hey, there’s this new thing, bitcoin, they say, ‘Well, what’s wrong with the dollar?’ That question is different in other countries.”

Bitcoins are a finite, Web-based currency created in 2009 by a group of hackers working under the nom de Internet Satoshi Nakamoto. Exactly 10,952,975 bitcoins are in circulation, all of which have been purchased on exchange networks or mined. The currency is mined using software that processes transactions on the bitcoin network, adding groups of transactions, called blocks, to the chain. Miners are paid about 25 bitcoins per block. That digital money can then be used to purchase a variety of goods online, from legitimate software to heroin on the infamous virtual black-market Silk Road.

Bitcoin surged in value to $266 last month, thrusting the currency into the mainstream spotlight as investment poured in from sources as diverse as the hapless Brothers Winklevoss (of Facebook infamy) and Union Capital Ventures principal Fred Wilson (an early investor in Zynga, Twitter and Kickstarter). Suddenly, everyone was talking about buying bitcoins. But the bubble burst in late April, and in the U.S. at least, bitcoin faded from the news. That was not the case in China, where Antonopoulos said downloads of bitcoin clients have eclipsed those in the U.S.

Bitcoins are mined in several steps. After downloading a bitcoin client, such as Coinbase (which serves as a wallet in which to store the bits of code that constitute the digital money), miners often join pools where they share computing power to decode algorithms in which bitcoins are hidden. The concept of bitcoins and bitcoin mining is cryptic for many people, even some otherwise forward-thinking American investors. The irony is that, for now, American startups are leading the bitcoin charge, and the U.S. government was the first to issue guidance on using the currency as payment — a seemingly tacit recognition of bitcoin’s validity as legal tender.

Why China Poses A Threat

Feng Li, the IDG partner who chose to fund Coinbase, said the Chinese have yearned for access to a virtual currency since the central government cracked down on the use of Q coins.

Q coins were introduced in March 2002 by Tencent Holdings Ltd. (HKG:0700), the parent company of the country’s most popular instant-messaging service, QQ, and they currently average an annual transaction value of more than 1 billion yuan ($163 million). That value is growing at a rate of about 15 percent to 25 percent a year.

Q coins, purchased with yuan, are predominantly used to buy virtual products and services in QQ and its related online games and social media. Originally, Tencent regulations prevented Q coins from being traded between users or converted back to yuan but allowed users to trade points and purchase Q coins with their game accounts, then use the black market to convert them into cash. That caused concerns at the People’s Bank of China, China’s central bank. In January 2007, converting game points to Q coins was banned, and Tencent reiterated that Q coins constitute a product, not a currency, which seemed to satisfy the concerns.

“There has already been proof with the Q coin,” Feng said of the Chinese likeliness to start using bitcoin. “It’s been very well circulated and very well adopted.”

Already, shops on Taobao — the Chinese equivalent to eBay Inc. (Nasdaq:EBAY), owned by Alibaba.com Ltd. (HKG:1688) — accept bitcoins as payment for goods, as does the similar service, Tencent’s PaiPai.com.

The Chinese are embracing bitcoins in other ways. The first bitcoin fund began to raise money in June, with the goal of raising 20 million yuan. The fund’s investment threshold is 10,000 yuan, and it will mature in four years.

Q coin’s popularity isn’t the only reason bitcoin has appeal in China. As it turns out, China is the perfect place for bitcoin mining. While much of the developed world is well into the transition from personal computers to mobile devices, China’s PC market is still thriving, which provides the necessary computing power to run a successful business converting electricity into mined coins. Price caps on electricity already create wasteful use of energy in China, so running a code-crunching computer for hours on end isn’t as costly an investment as it would be in the U.S. And so-called gold-mining or gold-farming businesses already exist in China’s cybersphere. None of that will come as a surprise to any “World of Warcraft” player: Gamers in Chinese urban sweatshops are known to sit in front of glowing blue screens for hours, slaughtering players in the game for their spoils or mining gold deposits found in the sprawling milieu of Blizzard Entertainment’s international blockbuster. Those treasures are then sold to players in the game for real money.

China has a heavily controlled currency, which also makes bitcoin attractive.

“The more controlled the currency is, the harder the transactions are, the more friction there is in the national currency, the more appealing the coin is,” Antonopoulos said, noted that the most appealing place to use bitcoin would be a country whose economy is a veritable train wreck — like Zimbabwe, except that the southern African nation lacks the necessary technology. “I would say China is perfect,” he said. “It’s got the penetration, it’s got the smartphones, it’s got the Internet and the people are familiar with virtual currencies. And, it’s got the not-as-appealing national currency.”

Regulation In The U.S.

Guidance issued in March by the U.S. Treasury Department said that companies issuing or exchanging online cash, including bitcoin, would be subject to the same scrutiny as traditional firms such as the Western Union Co. (NYSE:WU) to prevent money laundering.

Less than two months later, the Department of Homeland Security proved that edict had teeth.

Federal officials obtained a warrant Tuesday to seize an account tied to Mt.Gox, the Tokyo-based exchange company that handles about 80 percent of all bitcoin trades. Authorities accused Mt.Gox’s U.S. subsidiary, Mutum Sigillum LLC, of failing to register as a money-services company with the Treasury’s Financial Crimes Enforcement Network. An account held by the online-payments firm Dwolla was subsequently seized.

Many feared the warrant execution could cast a chill over the bitcoin industry as a sector centered on a borderless, decentralized money came under the scrutiny of the federal government.

That proved not to be the case, Coinbase’s Ehrsam said. “For bitcoin to go mainstream, or as it goes mainstream, it will be used in a higher and higher amount of transactions,” he said, adding that Coinbase is registered as a money-services firm. “There’s no way there will be all this money flowing through an unregulated system.”

Chris Larsen — the CEO of OpenCoin, a fellow San Francisco-based payment platform that processes most national currencies as well as bitcoin and its own virtual cash, Ripple — agreed. “They definitely are regulating them, [and] we actually think that’s a really good thing for the industry,” he told IBTimes. “I thought the guidance was a good idea. One of the things the guidelines seem to make clear for the first time is that a virtual currency could be used for goods and services.”

The Price Of Regulation

But such regulation is a slippery slope, said Jerry Brito, a senior research fellow at the Mercatus Center at George Mason University.

Perhaps it begins with measures to prevent money-laundering, he said. But what measures would the government take to prevent the untraceable currency from being used for child pornography or human trafficking?

“Bitcoin has the potential to be a disruptive technology that would be beneficial to the economy, and we don’t want to kill off that potential to get at the other potential for bad stuff,” he observed. Brito, who plans to speak next month at a conference on virtual currencies organized by the National Center for Missing and Exploited Children, added: “We’re already the first country to enforce money-laundering laws against bitcoin. But the U.S. would be shooting itself in the foot if it went too far [with regulations] and either outlawed bitcoin or made the legal guidelines impossible to comply with.”

Will China Step In?

So far, Chinese bitcoin merchants have little to fear. For many, the CCTV segment on bitcoin seemed to be a signal from Beijing, which heavily controls the channel’s content, that the currency is worth exploring.

Some of those interviewed speculated that the Communist Party wants to see bitcoin stockpiled in China, allowing the government to invest in it if, or when, the dollar is shaken from its perch as the world’s reserve currency.

It remains to be seen whether — or, more likely, when — China will intervene in the trade of bitcoin in its own economy. But for the U.S. to experience widespread adoption of the currency, which is considered a necessary step for gaining a grasp on the bitcoin market, limited government control will have to allow the money, like the Internet that birthed it, to develop organically.

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http://www.guugll.eu/battle-over-bitcoin/

Bitcoin Exchange Makes Apparent Move

WASHINGTON—The world’s largest bitcoin trading exchange appears to have taken a key step to comply with U.S. anti-money-laundering rules and potentially avoid additional run-ins with authorities.

A company listed as Mt. Gox this week registered as a money services business with the Treasury Department’s Financial Crimes Enforcement Network, according to FinCen’s website. Tokyo-based Mt. Gox, which says it handles about 80% of all trading in the virtual currency, couldn’t immediately be reached for comment.

FinCen in March started applying traditional money-laundering rules to “virtual currencies” amid growing concern that new forms of digital cash are being used for illicit activities. Those rules mandate that exchanges register with FinCen, follow stricter bookkeeping requirements and report transactions of more than $10,000.

About a month after the edict, the Department of Homeland Security seized an account tied to Mt. Gox, alleging the company and a subsidiary were conducting transactions “as part of an unlicensed money service business.”

According to FinCen’s website, the agency received Mt. Gox’s registration on Thursday. The online form listed a street in Dover, Del., as the company’s address.

A spokesman for FinCen had no comment on the development. Earlier this month, FinCen’s director, Jennifer Shasky Calvery, said that “those offering virtual currencies must comply with…regulatory requirements, and if they do so, they have nothing to fear from Treasury.”

Mt. Gox’s move may bring the company in line with Treasury’s rules, but could also open the exchange to increased regulatory attention.

“It gives them the color of legitimacy,” said Mercedes Kelley Tunstall, a partner with the law firm Ballard Spahr LLP, who works on banking compliance issues. “It suggests that they get it, that they need to be careful in these areas. It also means that now they have put themselves on the radar screen and they need to have policies and procedures to watch out for fraudulent activity and illegal activity.”

Mt. Gox already had taken measures to beef up its identification procedures for users who deposit or withdraw traditional currencies, a central tenet of anti-money-laundering procedures. In May the company said all user accounts must be verified in order to perform any fiat currency deposits or withdrawals. Verification includes submission of a valid photo ID and proof of residence such as a utility bill or tax return, according to the website.

At the time, Mt. Gox said it had more than doubled its verification support staff.

More recently, Mt. Gox halted U.S. dollar withdrawals. The company said it needed to make systems improvements amid increased trading volume.

The recent regulatory attention paid to bitcoin-related companies has likely caused some banks to become leery of doing business with such companies, attorneys have said.

But becoming registered with FinCen or state agencies that have requirements for money transmitters may not make financial institutions more comfortable working with such firms, Ms. Tunstall said.

“I think that the virtual currency industry still needs to mature before banks will feel comfortable with them,” she said.

The rising popularity of virtual currencies, while no more than a drop in the bucket of global liquidity, is being fueled by Internet merchants, as well as user concerns about privacy and jitters about traditional currencies in Europe.

source: http://stream.wsj.com/story/latest-headlines/SS-2-63399/SS-2-265472/

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