Bitcoin Big Hit with Developers: Predicting the future with Github

This chart describes the number of Github projects in existance (y axis) throughout the last couple of years (x-axis) that reference selected keywords. It gives us a pretty good idea of how big a hit bitcoin is with developers. But let’s back up a little bit.

Bitcoin Pulse

My friend Tony and I (Flavio) recently launched Bitcoin Pulse to monitor how bitcoin is growing as a technology. We built this because we wanted this for ourselves. Trying to understand how bitcoin is growing as a technology and as a way to exchange actual goods versus just being a store of value or even a way to get rich quick speculation.

What is Developer Mindshare?

To us, one of the most important ideas that can be indicators predicting the success of a new technology platform is what we call Developer Mindshare.

“The best way to predict the future is to invent it.” – Alan Kay, 1971

Chris Dixon says: What the smartest people do on the weekend is what everyone else will do during the week in ten years

We believe that hackers are building the future. They are the ones that are building new technology everyday. By that virtue, they are the first ones to play around when new ideas come around and with their builder mindset, they are the first ones who can picture the myriad of ways a new technology can be used. So we believe that measuring Developer Mindshare is one of the best indicators of how successful technology platforms will be adopted in the market.

We define Developer Mindshare as the amount of attention and effort developers are devoting to using and improving certain technologies and platforms.

Now how can we measure Developer Mindshare?

We think that a good proxy for Developer Mindshare is developers’ activity on GitHub. These days, most developers (or at least the ones working with modern tools) have a GitHub account, with many publicly sharing their own projects or contributing to open source projects. GitHub is also the place where many startups host their own private source code.

GitHub then, can be a great place to start looking at what are the next big things. One way we can measure developer mindshare is to look at what languages, platforms and technologies devs are using for their open source projects.

For this specific case, we ran a simple query that tells us how many projects reference Bitcoin on GitHub. The growth chart is very interesting.

What are the limitations of this approach?

As with any approximation, analyzing GitHub data has its limits. An important one is that we only have access to the open source projects on GitHub. We don’t know what most developers are using in the close-source projects they have. But in a way, the open source contributions are even better: What technologies are they so excited about to use that they do it in their free time? Surely, those technologies must have some future promise?

It is worth noting that this simplistic approach does not gives us totally exact values due to the generic nature of the queries. As such, these values should be used as a rough way to see how things are moving.

Virality

The interesting thing about developer mindshare is that it is to some degree a viral phenomenon. When more developers start using a certain technology, they tend to build tools around that technology to make it easier to use – think of libraries to interface with more computer languages, UI/UX libraries, patches, integrations and so forth. And through that, they make the original technology even more useful, thus adding value to the entire ecosystem around that technology. This again makes it easier for new developers and entrepreneurs to get started using that technology.

Bitcoin vs Stripe vs Paypal

In order to be able to quantify the general level of interest around Bitcoin, we thought it would be interesting to compare Bitcoin with Stripe and Paypal. Obviously this is a bit of an apple to oranges comparison, since Stripe is a payment processor for credit cards, Paypal a wallet and a payment processor and Bitcoin a technology and a currency / value storage. But we think the relative growth of those platforms is something that can yield some insight into what is rising on mindshare.

So what have we found?

The chart above says it all, but here’s for people who want numbers:

In the 30 days from November 15th to December 15th, Paypal grew by 4.4%, Stripe by 6.3% and Bitcoin by 17.8%! In other words,

Bitcoin projects on Github are growing 4 times as fast as Paypal projects and almost 3 times as fast as Stripe projects.

For more interesting metrics, visit http://www.bitcoinpulse.com subscribe to our newsletter at the bottom for more reports, charts and other interesting stuff. You should probably also follow us on Twitter here.

Source: http://blog.bitcoinpulse.com/bitcoin-big-hit-with-developers-predicting-the-future-with-github/

Bitcoin is the Linux of payments. And its killer apps will be for US dollars.

29 December 2013, by StreetEYE

I was scanning the news the other day, and someone on Hacker News mentioned that half the items above the fold on StreetEYE were about Bitcoin. And I said to myself, I haven’t seen the neckbeards this excited since the early days of Linux.

And it hit me, Bitcoin is the new Linux.

Go back to 1998, the days of The Cathedral and the Bazaar and the ‘Halloween Document’, and open source zealots were gleefully foreseeing the day when freedom-loving hackers would take down the evil Microsoft empire.

Linux was how virtuous hackers were going to end the hegemony of robber barons who stifled freedom and innovation and extracted monopoly rents.

And a glorified screwdriver shop called VA Linux went public at $30 and hit $320 on its opening day.

And 15 or so years later, what happened? Well, VA Linux is now pretty much forgotten1.

And yet, Linux won the Internet. Microsoft has lost relevance. Linux underpins the Web, sites like Google and Amazon, devices like Android and Kindle. Apple is still (even more) proprietary, but everything they do is built on Unix foundations.

Where is the promised utopia? Isn’t it just “new boss, same as the old boss?” Sure, the world is a better place because the OS and the Web are commoditized, not Bill Gates’s private playground. There is more innovation because people don’t fear everything they invent will become a bundled Windows OS feature.

Linux is the ubiquitous plumbing of the Internet, but does it drive the tech agenda? The tech game is basically the same, isn’t it?

Two killer apps built around Linux are Android and Amazon Web Services (which has many of the network and platform effects of an OS). How different are they from the old Microsoft platform? Like the old Microsoft ecosystem, Android and AWS are open enough that people can build great software and services on top of them, and yet closely directed by a benevolent (we hope) dictator for life with a strong financial interest in their success.

And very closed, proprietary ecosystems are still around: only Apple can make an IOS device, and only Apple can decide what software can run on those devices. Not to mention Linux powering numerous completely closed devices and mostly closed social platforms like Facebook.

Linux ‘won,’ and its killer apps are not-totally-open platforms not all that different from Microsoft’s.

And so I predict, the killer app for Bitcoin is the US dollar.

The open payment API and public blockchain are innovative and have applications for things like property records, stock transfer agents, etc.

The money unit, on the other hand, seems like the biggest step backwards in money since the Rai Stones of Yap (pictures). Like the Rai stones, much greater resources have to be spent to manufacture Bitcoin than the bits are actually worth. And moving them around securely and conveniently is not as easy as it should be.

There are a lot of currencies one can exchange for goods and services: dollars, yen, euros, rubles, subway tokens/stored value cards, Club Med beads, frequent flier miles. And yet, 81% of international trade is settled in dollars, and 62% of central bank reserves are in dollars, both numbers which do not appear to be falling rapidly. The market has sort of spoken.

Thought experiment: What if a comic book supervillain (or superhero) decided to build a replica Fed across from the Eccles building and offer its own currency, payment system, and proposed to supplant dollars. What do you think would happen… would no one adopt it, would it co-exist in some way with dollars, or would it take over, and what would it take for it to do that? A cheaper payment system? A more open API? A system designed to maintain the currency’s value? What kind of value proposition improvement does it normally take to overcome an entrenched competitor?

And Bitcoin doesn’t have The Joker going “Who do you trust! … I’m giving away free money.” Just the opposite! There’s an inherent conflict between managing a currency to be liquid and flexible and support a growing economy, and being an asset which is a long-term store of value. Some currencies, such as the old Deutschemark, the Swiss franc were managed with a sharp focus on being stable stores of value; others, such as the yen, with more focus on supporting export economies. Being an attractive store of value has a downside for real economies using the currency, and Bitcoin is to the Swiss franc like Mr. Potter is to George Bailey.

As a medium of exchange, a store of value, and a unit of account, Bitcoins are a giant fail. There is no case they can or every will hit kind of 10x improvement you look for in disrupting an entrenched incumbent. And what if that competitor writes and enforces the laws, and has an NSA and nuclear aircraft carriers?

And there is also no chance a Bitcoin ecosystem can be tolerated at scale without imposing the exact same terms and conditions as dollars. If our supervillain gets everyone to adopt his currency, the end game is imposing all the same taxes, reporting, anti-money-laundering regs on Bitcoins as on USD. Otherwise, you know the last act is the Navy SEALs clambering down ropes into his replica Fed and blowing the place up.

Please. If Bitcoin is the future Linux, and not the future Segway, it has to lose the Bitcoins.

Just as people are creating Bitcoin-like Dogecoin, Ponzicoin2, etc., the future is Bitcoin-like blockchain APIs to transfer all manner of assets, stocks, real estate deeds, and above all, the most popular asset in the world, the US dollar.

Every super-amazing feat, new contracts, cheap international transfers, low transaction costs, etc. that can be accomplished with Bitcoin can also be accomplished with Bit-cents – dollars in an account at the Fed, or a bank, or in a vault, transferred using the Bitcoin API.

You want an international transfer, set up a pool of pesos tied to a Bitcoin API, and a pool of dollars, and an exchange where you offer to exchange one for the other, and any time someone buys pesos for dollars, they have to be paired with someone buying dollars for pesos at a market-clearing FX rate.

The only advantage of the Bitcoins themselves is that government is out of the loop, which is sort of a bug as far as the tax collector is concerned, never mind that seignorage goes toward burning electricity instead of building schools, roads, and the occasional aircraft carrier to keep that economy safe.

Like Linux, Bitcoin needs to become the plumbing, and start working within existing financial frameworks.

So, hackers, please. Stop designing mining ASICs, and burning up the planet. If it’s about better financial institutions, access to electronic payments for the unbanked, more efficient payments, financial services without too-big-to-fail financial institution rent-seeking, then start building the startups that will enable them. Show us how Bitcoin can make the world a better place. Stop trying to make fiat currency worthless, and unleash the kind of financial disruption and chaos Bitcoin is supposedly designed to prevent. Don’t try to ‘end the Fed’ Just build things people love, to do the things they need to do with the assets that already matter. Otherwise it’s just about disruption fetishism, geek privilege, and slightly harebrained ideology.

Bitcoins must die, in order that Bitcoin may live. RIP Bitcoins, long live Bitcoin.

Everything that disrupts at one level, must sustain at a different level.

And thus, the world must change, in order that it may remain the same.

1VA Linux is now Geeknet, with a market cap of $120 million or so. Their hardware is gone, GitHub has eclipsed VA Linux’s SourceForge, and Hacker News and TechMeme have displaced their SlashDot paleo-news-aggregator.

2Ponzicoin is not intended to be construed as an actual crytpocurrency.

Source: http://blog.streeteye.com/blog/2013/12/bitcoin-is-the-linux-of-payments-and-its-killer-app-is-the-us-dollar/

First time in the country, ED raids a Bitcoin seller in Ahmedabad

A couple of days after the Reserve Bank of India issued an advisory to public not to indulge in buying-selling of Bitcoins, the first raid in India was undertaken in Ahmedabad by Enforcement Directorate (ED) on an entity that provide platform to trade in this illegal but virtual currency.

On Thursday, ED raided the premises of Mahim Gupta in Bopal area of the city who provides trading platform through his website -‑ buysellbit.co.in. During the preliminary investigation, the ED found that it is in clear violation of Foreign Exchange Management Act (FEMA) rules of the country as central bank does not provide permission to indulge in such transactions.

“We have found that through the website 400 persons have recorded 1,000 transactions that amount to a few crores of rupees. We are gathering the data of the transactions, name of the people who have transacted in the virtual currency from Gupta’s server that is hired in the US. At present, we believe that this is a violation of foreign exchange regulations of the country. If we are able to establish money laundering aspect then he can be arrested,” said a top ED official.

As per sources, a separate raid was also conducted in Satellite area of the city, however, the person the investigation agency was looking for could not be found. “When we reached his office, he was not there. We have sealed the premises,” the official added.

The value of transactions is not known as each transaction will be verified by the investigating agency. However, it is likely to be around Rs20-30 crore. “Value of transaction is one aspect. Being a virtual currency its transfer and settlement is done online. No country has legalised Bitcoin as of now because of its opaque nature. The biggest threat is that without recording your transaction in official foreign currency platform money can be transferred like hawala with the use of this transaction. We are examining such instances, if any, here,” the official said.

Sources also added that there are a handful of entities that provide trading in the virtual currency in India. “I think there are only five entities. Of these, we believe two are operating from Ahmedabad. We believe that they have channel of agents or people who promote the use of such currency but entities that provide online platform are few,” official said.

Because of complex nature of transaction and high level information technology security involved ED is taking help of company called ECS Corporation that specialises in forensic audit and IT technology.

Virtual currency trade is 3-year-old
Bitcoin came into existence just 3-year ago. It is a virtual currency that can be generated through complex computer software systems with solutions shared on a network. Despite new in existence, Bitcoin has already become the world’s most expensive currency and its per unit value soared past USD 1,000 level or about Rs 63,000 recently, although the prices have now slipped to Rs46,600.

Source: http://www.dnaindia.com/india/report-first-time-in-the-country-ed-raids-a-bitcoin-seller-in-ahmedabad-1941187

21 Million Dogecoins Stolen

Take two of 2013's biggest Internet sensations -- bitcoins and the Shiba Inu puppy nicknamed "Doge" -- and smash them together. What you get is Dogecoin, a virtual currency that was hacked during the holidays.

Although 21 million dogecoins were lost in the heist, they only amounted to about $12,000 in value. In comparison, bitcoins are now valued at close to $750 a piece, and a bitcoin hack in Novemberlost 4,100 bitcoins, totaling $1.2 million.

The hack caught Jackson Palmer, a co-founder of the currency, by surprise. "It's interesting that there has been a focus [on dogecoins] in the short two or three weeks we've been up and running," he said. "I think it's crazy that it can happen, but maybe these hackers are trying to get in early."

He and the other co-founder of Dogecoin, Billy Markus, are looking to beef up security in the next month, Palmer added.

Even though the idea of dogecoins started as a joke, Palmer said, it has grown in popularity. "For the majority of their people, it's their first experience with cryptocurrency," he told ABC News. "It's a lot more accessible and the majority of people are having a lot of fun with it."

A single dogecoin might only be worth a fraction of a penny, but Palmer does see it being useful as a currency, though maybe not in the real world.

"People are trading coins for small purchases, like in an online game where you can purchase a different set of armor," he said. "I think that's a really good place [for Dogecoin]."

Source: http://abcnews.go.com/Technology/bitcoin-alternative-dogecoin-hacked-21-million-coins-stolen/t/story?id=21342612

Overstock.com Reportedly Plans To Accept Bitcoin In 2014

Overstock.com is moving to accept Bitcoin as payment in 2014, the CEO told The Financial Times. Apparently the retailer has the ambition to become the first major online retailer to accept the digital currency. And it very well could be. No other major retailer has announced a similar plan yet. However, put away your digital wallet for the time being. The retailer doesn’t expect to start accepting Bitcoin until the second half of 2014, by which time, Dogecoin could eclipse its popularity.

This announcement comes just days aftera major shakeup in the Bitcoin ecosystem as China’s largest BTC exchange stopped accepting deposits in Chinese yuan, causing Bitcoin’s monetary value to drop 50% in a few hours.

Overstock saw just over $1 billion in revenue last year. The company trades on NASDAQ and its stock price is up 109.29% on the year. The news about accepting Bitcoin caused the shares to jump 7.77% on the day.

Overstock CEO Patrick Byrne stated that a healthy monetary system isn’t based off of an upside pyramid or the whim of a government official. Bitcoin fits that bill. Byrne stated that when Overstock starts accepting Bitcoin, the retailer would bank the digital currency in the event derivatives (such as Dogecoin) are increasing in popularity. If offshoots fail to gain steam, Overstock would transfer the Bitcoins into dollars on a daily basis, essentially day trading the Bitcoin income.

In the latter half of 2013, a number of retailers have moved to accept Bitcoin as payment with OkCupid, Namecheap and Humble Bundle among the list. Charities are also latching onto the digital currency since it lacks fees usually associated with monetary donations. If Overstock follows through with its plan, it would be come the largest U.S.-based retailer to accept Bitcoins. That is, of course, if Amazon or the like doesn’t beat them to the punch.

Source: http://techcrunch.com/2013/12/21/overstock-com-reportedly-plans-to-accept-bitcoin-in-2014/

Bitcoin Is Evil

It’s always important, and always hard, to distinguish positive economics — how things work — from normative economics — how things should be. Indeed, on many of the macro issues I’ve written about it has been obvious that large numbers of economists can’t bring themselves to make that distinction; they dislike activist government on political grounds, and this leads them to make really bad arguments about why fiscal stimulus can’t work and monetary stimulus will be disastrous. I don’t, by the way, think that this effect is symmetric: although people like Robert Lucas were quick to accuse people like Christy Romer of fabricating macro arguments to support a big-government agenda, this didn’t actually happen.

But I come now to talk not about macro but about money — specifically, about Bitcoin and all that.

So far almost all of the Bitcoin discussion has been positive economics — can this actually work? And I have to say that I’m still deeply unconvinced. To be successful, money must be both a medium of exchange and a reasonably stable store of value. And it remains completely unclear why BitCoin should be a stable store of value. Brad DeLong puts it clearly:

Underpinning the value of gold is that if all else fails you can use it to make pretty things. Underpinning the value of the dollar is a combination of (a) the fact that you can use them to pay your taxes to the U.S. government, and (b) that the Federal Reserve is a potential dollar sink and has promised to buy them back and extinguish them if their real value starts to sink at (much) more than 2%/year (yes, I know).

Placing a ceiling on the value of gold is mining technology, and the prospect that if its price gets out of whack for long on the upside a great deal more of it will be created. Placing a ceiling on the value of the dollar is the Federal Reserve’s role as actual dollar source, and its commitment not to allow deflation to happen.

Placing a ceiling on the value of bitcoins is computer technology and the form of the hash function… until the limit of 21 million bitcoins is reached. Placing a floor on the value of bitcoins is… what, exactly?

I have had and am continuing to have a dialogue with smart technologists who are very high on BitCoin — but when I try to get them to explain to me why BitCoin is a reliable store of value, they always seem to come back with explanations about how it’s a terrific medium of exchange. Even if I buy this (which I don’t, entirely), it doesn’t solve my problem. And I haven’t been able to get my correspondents to recognize that these are different questions.

But as I said, this is a positive discussion. What about the normative economics? Well, you should read Charlie Stross:

BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind—to damage states ability to collect tax and monitor their citizens financial transactions.

Go read the whole thing.

Stross doesn’t like that agenda, and neither do I; but I am trying not to let that tilt my positive analysis of BitCoin one way or the other. One suspects, however, that many BitCoin enthusiasts are, in fact, enthusiastic because, as Stross says, “it pushes the same buttons as their gold fetish.”

So let’s talk both about whether BitCoin is a bubble and whether it’s a good thing — in part to make sure that we don’t confuse these questions with each other.

Source: krugman.blogs.nytimes.com

Into the Bitcoin Mines

Video | Mining for Bitcoins in Iceland At a secure facility that was once a NATO base, computer servers run around the clock mining bitcoins. The company behind the operation relies on cheap energy to turn processing power into cash.

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By NATHANIEL POPPER

December 21, 2013

On the flat lava plain of Reykjanesbaer, Iceland, near the Arctic Circle, you can find the mines of Bitcoin.
To get there, you pass through a fortified gate and enter a featureless yellow building. After checking in with a guard behind bulletproof glass, you face four more security checkpoints, including a so-called man trap that allows passage only after the door behind you has shut. This brings you to the center of the operation, a fluorescent-lit room with more than 100 whirring silver computers, each in a locked cabinet and each cooled by blasts of Arctic air shot up from vents in the floor.
These computers are the laborers of the virtual mines where Bitcoins are unearthed. Instead of swinging pickaxes, these custom-built machines, which are running an open-source Bitcoin program, perform complex algorithms 24 hours a day. If they come up with the right answers before competitors around the world do, they win a block of 25 new Bitcoins from the virtual currency’s decentralized network.
The network is programmed to release 21 million coins eventually. A little more than half are already out in the world, but because the system will release Bitcoins at a progressively slower rate, the work of mining could take more than 100 years.

The scarcity — along with a speculative mania that has grown up around digital money — has made each new Bitcoin worth as much as $1,100 in recent weeks.
Bitcoins are invisible money, backed by no government, useful only as a speculative investment or online currency, but creating them commands a surprisingly hefty real-world infrastructure.
“What we have here are money-printing machines,” said Emmanuel Abiodun, 31, founder of the company that built the Iceland installation, shouting above the din of the computers. “We cannot risk that anyone will get to them.”
Mr. Abiodun is one of a number of entrepreneurs who have rushed, gold-fever style, into large-scale Bitcoin mining operations in just the last few months. All of these people are making enormous bets that Bitcoin will not collapse, as it has threatened to do several times.

The energy required to run these computers is huge, and has led to criticism that Bitcoin mining is wasteful, not to mention socially useless.

RICHARD PERRY / THE NEW YORK TIMES

Just last week, moves by Chinese authorities caused the price of a Bitcoin to drop briefly below $500. If the system did crash, the new computers would be essentially useless because they are custom-built for Bitcoin mining.
Miners, though, are among the virtual-currency faithful, believing that Bitcoin will turn into a new, cheaper way of sending money around the world, leaving behind its current status as a largely speculative commodity.
Most of the new operations popping up guard their secrecy closely, but Mr. Abiodun agreed to show his installation for the first time. An earnest young Briton, with the casual fashion taste of the tech cognoscenti, he was a computer programmer at HSBC in London when he decided to invest in specialized computers that would carry out constant Bitcoin mining.
The computers that do the work eat up so much energy that electricity costs can be the deciding factor in profitability. There are Bitcoin mining installations in Hong Kong and Washington State, among other places, but Mr. Abiodun chose Iceland, where geothermal and hydroelectric energy are plentiful and cheap. And the arctic air is free and piped in to cool the machines, which often overheat when they are pushed to the outer limits of their computing capacity.

Inside a high-security facility in Iceland, one company’s powerful computers toil nonstop on the project.

RICHARD PERRY / THE NEW YORK TIMES

The operation can baffle even those entrusted with its care. Helgi Helgason, a burly, bald Icelandic man who oversees the data center that houses the machines, said that when he first heard that a Bitcoin mining operation was moving in he expected something very different. “I thought we’d bring in machines and put bags behind them and the coins would fall into them,” said Mr. Helgason, with a laugh.
Since then, the education he has received about Bitcoins has been enlightening, but only to a point.
“It’s a strange business,” he said, “and I can’t say that I understand it.”
Until just a few months ago, most Bitcoin mining was done on the home computers of digital-money fanatics. But as the value of a single Bitcoin skyrocketed over the last few months, the competition for new coins set off a race that quickly turned mining into an industrial enterprise.
“Even if you had hardware earlier this year, that is becoming obsolete,” said Greg Schvey, a co-founder of Genesis Block, a virtual-currency research firm. “You are talking about order-of-magnitude jumps.”
The work the computers do is akin to guessing at a lottery number. The faster the computers run, the better chance of guessing that right number and winning valuable coins. So mining entrepreneurs are buying chips and computers designed specifically — and only — for this work. The machines in Iceland are worth about $20,000 each on the open market.
The energy required to run these computers is huge, and has led to criticism that Bitcoin mining is wasteful, not to mention socially useless. But Mr. Abiodun prides himself on using renewable power, at least in Iceland.
When Mr. Abiodun first heard about Bitcoin mining in 2010, he thought it was a scam. Begun in 2009 as the imaginative creation of an anonymous programmer (or group of programmers) known as Satoshi Nakamoto, it was initially little more than a tech world curiosity. As early users connected their computers into the network, they became a part of the decentralized infrastructure that hosts Bitcoin’s open-source program. The computers joining the network immediately began capturing virtual coins. The network’s protocol was designed to release a new block of Bitcoins every 10 minutes until all 21 million were released, with the blocks getting smaller as time goes on. If the miners in the network take more than 10 minutes to guess the correct code, the Bitcoin program adapts to make the puzzle easier. If they solve the problems in less than 10 minutes, the code becomes harder.
Mr. Abiodun’s opinion of Bitcoin changed in January, when he saw the price rising. He installed a free application on his home computer that linked him into the Bitcoin network and set it to mining, harnessing the power of his graphics card, which is the part of a normal computer best suited to doing the code work.
Mr. Abiodun’s computer was in the guest room of his house in southeast London. Working at HSBC during the day and tinkering with his Bitcoin system at night, he realized if he wanted to make any money, his computer would have to run around the clock.
The constant computing, however, overheated the graphics card and pushed the computer’s exhaust fans into overdrive. When he added another graphics card, then a new computer, the room became too noisy for guests to sleep, and the windows had to be kept open to release the heat. That did not make his wife, Gloria, who was pregnant at the time, very happy.
“It just created a scenario where there was no way our parents would come over to stay,” he said. “I did offer to put her parents in a hotel, but that didn’t go down well.”
Mr. Abiodun’s wife finally gave him an ultimatum — either the computers had to go, or he did. At the same time, he was making money, and friends were asking if they could invest in his mining operation.
In February, Mr. Abiodun used the investors’ money to buy machines from a start-up dedicated solely to manufacturing specialized mining computers. The competition for those computers is so intense that he had to pay for them and wait for delivery.
When the delays became lengthy, however, he went on eBay and paid $130,000 for two high-powered machines, which he set up in June in a data center in Kansas City, Kan.
This was the beginning of Mr. Abiodun’s company, Cloud Hashing, which rents out computing power to people who want to mine without buying computers themselves. The term hashing refers to the repetitive code guessing that miners do.
Today, all of the machines dedicated to mining Bitcoin have a computing power about 4,500 times the capacity of the United States government’s mightiest supercomputer, the IBM Sequoia, according to calculations done by Michael B. Taylor, a professor at the University of California, San Diego. The computing capacity of the Bitcoin network has grown by around 30,000 percent since the beginning of the year.
“This whole new kind of machine has come into existence in the last 12 months,” said Professor Taylor, who is studying mining hardware. In the chase for the lucky code that will unlock new Bitcoins, mining computers are also verifying and assigning unique identifying tags to each Bitcoin transaction, acting as accountants for the virtual currency world.
“The network is providing the infrastructure for making sure the currency is being transferred between people according to the rules,” Professor Taylor said, “and making sure people aren’t creating currency illegally.”
Even before Mr. Abiodun’s machines in Kansas City were up and running, it was clear that they wouldn’t be enough. So he ordered about 100 machines from a start-up in Sweden and, in October, had them moved to the facility in Iceland. In just a few months, that installation has generated more than $4 million worth of Bitcoins, at the current value, according to the company’s account on the public Bitcoin network.
At the end of each day, the spoils are divided up and sent to Cloud Hashing’s customers. Last Wednesday, for example, the entire operation unlocked 225 Bitcoins, valued at around $160,000 at recent prices. Cloud Hashing keeps about 20 percent of the capacity for its own mining.
The unregulated Bitcoin-mining industry is ripe for abuse, and ventures that sound similar to Cloud Hashing have turned out to be scams. Mr. Abiodun’s company has proved itself real, but it is still unclear if it is a good deal for customers. Cloud Hashing charges $999 to rent a tiny portion of the company’s computing power for one year. That’s an expensive price for the computing capacity they are getting, but Mr. Abiodun argues that it’s a good value because individual miners would not be able to buy his modern machines outright. It’s a little like buying a fractional ownership in a private jet; you might not want responsibility for the jet itself, and it’s out of your price range anyway. He also says he provides the maintenance and keeps away thieves and hackers.
Some Cloud Hashing customers have also complained on Internet forums that it can be hard to get a response from the company when something goes wrong. But this has not stopped new contracts from pouring in. Cloud Hashing now has 4,500 customers, up from 1,000 in September.
Mr. Abiodun acknowledges that the company has not been prepared to deal with its rapid growth. He said he had used $4 million raised from two angel investors to add customer service representatives to offices in Austin, Tex., and London. Cloud Hashing is now preparing to open a mining facility in a data center near Dallas, which will hold more than $3 million worth of new machines being produced by CoinTerra, a Texas start-up run by a former Samsung chip designer.
The higher energy costs — and required air-conditioning — in Texas are worth it for Mr. Abiodun. He wants his operation to be widely distributed in case of power shortages or regulatory issues in one location. But he is also expanding his Icelandic operation, shipping in about 66 machines that have been running for the last few months near their manufacturer in Ukraine.
Mr. Abiodun said that by February, he hopes to have about 15 percent of the entire computing power of the Bitcoin network, significantly more than any other operation.
Inside the Iceland data center, which also hosts servers for large companies like BMW and is guarded and maintained by a company called Verne Global, strapping Icelandic men in black outfits were at work recently setting up the racks for the machines coming from Ukraine. Gazing over his creation, Mr. Abiodun had a look that was somewhere between pride and anxiety, and spoke about the virtues of this Icelandic facility where the power has not gone down once.
“We don’t want downtime — ever, never,” he said. “Not with what we paid. Not with Bitcoin.”
Source: http://mobile.nytimes.com/blogs/dealbook/2013/12/21/into-the-bitcoin-mines/?ref=technology&_r=0

China Just Popped the Bitcoin Bubble

By Alec Liu

Photo via Flickr/CC.

Chinese banking officials are clamping down on Bitcoin, sending the volatile cryptocurrency tumbling to prices not seen since November.

Regulators have banned domestic payment providers from offering clearing services to bitcoin exchanges, a major setback for the popular virtual money that still relies on its relative value to government-backed currencies like the US dollar and the Chinese yuan.

Chinese companies dealing in bitcoin now have until Chinese New Year to comply with new rules that will be “strictly enforced,” according to deputy director of payment clearance at the People’s Bank of China, as government officials followed through on their promise to ban financial institutions from conducting transactions in virtual currency.

“The PBOC statement on Dec. 5 was somewhat vague and there is more clarity now,” Zennon Kapron, managing director of financial consultancy Kapronasia, said in an interview in Shanghai. “The way it’s reading now is that after the Chinese New Year, you won’t be able to get your money off the platforms.”

That means customers have until January 31 if they want to cash out in fiat currency. Cashing out in bitcoin will still be an option, but it’s apparently little consolation for those rushing for the exits.

There goes bitcoin (again), via Bitcoinity

A single bitcoin is now worth 2150 yuan ($354) at the time of this writing on BTC China, the world’s largest exchange by volume, down nearly 70 percent from its high of over $1200.

The regulations also put a dampener on new demand since customers can no longer deposit further funds, as bitcoiners discovered early Wednesday morning. “Right now no way to deposit CNY [Chinese yuan] into BTCC [BTC China],” posted one Redditor, confirmed by an announcement made by the exchange on Weibo, China’s Twitter.

“Due to well known reasons, BTC China have to temporarily stop RMB deposit function,” the company wrote. “BTC deposits, withdrawal and RMB withdrawal function are unaffected. BTC China will continue operation. Please pay attention to our homepage. We will provide other ways to deposit soon in the future. We are sorry for the inconvenience.”

“RIP China,” mourned one user.

The swift and heavy-handed crackdown by China’s government appeared to be the final knockout punch for a movement beleaguered by a flurry of recent blows as countless countries weighed in on the controversial technology. Norway, Germany, and South Korea refuse to recognize bitcoin as a legitimate currency with the European Banking Authority warning of its speculative risks. Banking officials around the world are now rushing to follow China’s lead including Denmark, thelatest nation contemplating regulation that will likely come in the form of “amendment to existing financial legislation.”

The US of course is ahead of the game in this department. Despite a positive Senate hearing in mid-November that saw the Department of Homeland Security and the Treasury Department cautiously embrace what they viewed as technological innovation, the reality is a harsh regulatory environment where “saying bitcoin in a bank is like yelling fire in a theater," according to a Forbesreport. Some banks now classify bitcoin businesses in the same category as those who sell guns and fireworks while JP Morgan Chase has a strict policy of no bitcoin. Users believed to engage in the trading of bitcoin or related businesses have reported that their accounts have been flagged and promptly shut down. As such, there isn’t a single US-based virtual currency exchange in the top ten by volume.

It’s a major blow for what is fundamentally an ideological response to state-controlled money. Frustratingly for its believers, the decentralized virtual currency has never been able to fully sever its reliance on the global financial system. The use of centralized exchanges remain a frustrating point-of-failure, which serve as gateways for the digital into the fiat-denominated real world.

It’s a telling vulnerability that Chinese leaders have little issue exploiting as they look to crackdown on the once high-flying bitcoin. While observers have long tried to wrap their heads around Beijing’s apparent nonchalance toward a punkish protocol infamous for its money-laundering properties, the Party’s stance is now crystal clear. The flurry of companies to hop aboard the bandwagon and inflate this most recent bubble, including Baidu and China, were quick to fall in line, obediently announcing that they would no longer accept BTC for services rendered.

The rationale for such a hard-line attitude is much more obvious. After all, China is a country that obsessively controls its capital flows. Bitcoin’s disdain for national borders, which allows users to easily send money anywhere in the world in minutes, is a threat, one that the government will no longer take lightly. When the capital flows they’re worried about comes in the form of the yuan, blocking yuan-BTC convertibility instantly addresses the problem. And if you can’t buy stuff with bitcoin, which officials ruled against early this month, and you can’t trade it for real money, bitcoin becomes sort of irrelevant, at least for the Chinese, whose only option now is to sell before the window shuts for good next month.

All of which means that the value of anyone’s bitcoin stash is plummeting by the second, which predictably is bringing the entire altcoin ecosystem down with it. Well, all of them except Dogecoin, the irreverent peer-to-peer currency based on an internet meme. Since our coverage yesterday, it has increased its market capitalization by half a million dollars to $2,032,176, making it the 16th most valuable cryptocurrency in the world. Wow.

Bitcoin, however, has seen better days, though like its previous crashes, this could prove to be yet another temporary knockdown as it struggles with regulatory growing pains. In spite of crazy volatility, it continues to attract support from the onlooking establishment. Coinbase, one of the few US-based startups to successfully acquire necessary licenses, just announced a $25 million investment by Andreessen Horowitz. This latest injection from Silicon Valley’s elite came just a week after Bank of America provided a ringing endorsement for what the bank’s analysts believeto be a “serious competitor” to cash that will become a major player in electronic payments. The idea is that whatever eventually emerges from the regulatory rubble will be accompanied by an air of credibility and legitimacy.

So the jury’s still out. And those now celebrating bitcoin’s possible demise could end up just as foolish as the recent latecomers who believed they had discovered the secret to overnight riches. For the ones who have been around since the beginning, it’s simply yet another hiccup in the enduring movement’s march towards eventual mainstream relevance. Indeed, they might not even care.

“Price is the least interesting thing about bitcoin,” Roger Ver, popularly known as Bitcoin Jesus,told the Times over the weekend, reminding us that “almost everyone who got involved did so for philosophical reasons.”

If that may be true for early adopters, it’s little respite for the majority of late arrivals who joined with speculative interests, a notion supporters appear aware of, prompting a “suicide prevention post” to hit the bitcoin subreddit’s front page, which boasts 90,000 followers.

While it may be difficult for anyone who got in around the top of this latest bubble to accept, $400 for a string of ones and zeros created by some mysterious dude from the internet is, in the grand scheme of things, still a pretty penny. Such is the insane rollercoaster that is bitcoin. And as nausea-inducing as these fluctuations may be, there appears to be no end in sight for what is becoming an increasingly wild crypto-ride.

Source: http://motherboard.vice.com/blog/china-just-popped-the-bitcoin-bubble

Bitcoin, Magical Thinking, and Political Ideology

Last week, investor Chris Dixon posed a provocative dichotomy when introducing his employer’s USD $25M investment in Bitcoin service Coinbase:

“The press tends to portray Bitcoin as either a speculative bubble or a scheme for supporting criminal activity. In Silicon Valley, by contrast, Bitcoin is generally viewed as a profound technological breakthrough.”

Now working at vogue venture capital firm Andreessen Horowitz, Dixon is in a fine position to speak for Silicon Valley. But to the extent that the Valley is a placeholder for the technology industry at large, I beg to differ. Bitcoin is “generally viewed” quite differently.

Most charitably, Bitcoin is regarded as a flawed but nonetheless worthwhile experiment, one that has unfortunately attracted outsized attention and investment before correcting any number of glaring security issues.

To those less kind, Bitcoin has become synonymous with everything wrong with Silicon Valley: a marriage of dubious technology and questionableeconomics wrapped up in a crypto-libertarian political agenda that smacks of nerds-do-it-better paternalism. With its influx of finance mercenaries, the Bitcoin community is a grim illustration of greed running roughshod over meaningful progress.

Far from a “breakthrough”, Bitcoin is viewed by many technologists as an intellectual sinkhole. A person’s sincere interest in Bitcoin is evidence that they are disconnected from the financial problems most people face whilelacking a fundamental understanding of the role and function of central banking. The only thing “profound” about Bitcoin is its community’s near-total obliviousness to reality.

Regulation and Other Minor Details

Bitcoin owes its present flexibility to a lack of regulation (or, more accurately, a lack of understanding around existing regulations and/or unwillingness to comply with them). If the broader Bitcoin experiment doesn’t implode, the currency will be regulated just as any other. In this best-case scenario for Bitcoin, what of the benefits Dixon claims?

We’re told that Bitcoin “fixes serious problems with existing payment systems that depend on centralized services to verify the validity of transactions.” If by “fixes” you mean “ignores”, then yes: a Bitcoin transaction, like cash, comes with the certainty that a definite quantity of a store of value has changed hands, and little else. How this verifies any “validity” or cuts down on fraud I’m not sure; stolen Bitcoins are spent as easily as stolen cash, which is why theft of Bitcoins has been rampant.

With those risks in mind, are the fees that existing card networks and payment processors charge – Dixon’s “roughly a 2.5% tax on all transactions” – outrageous, or are we perhaps collectively subsidizing the cost of fraud prevention and regulatory compliance? In what plausible universe will legitimate Bitcoin transactions be allowed to take place without such protections, and thereby without the associated costs? (Incidentally, you can expect to pay a similar “tax” just to reclaim some semblance of the anonymity that Bitcoin fails to provide in the form ofmixers, a zingy term for money laundering.) To be sure, the credit card companies have fattened their margins beyond the raw cost of moving money around, but we have a miraculous salve for this called regulation.

If Bitcoin’s strength comes from decentralization, why pour millions into a single company? Ah, because Coinbase provides an “accessible interface to the Bitcoin protocol”, we’re told. We must centralize to decentralize, you see; such is the perverse logic of capital co-opting power. In order for Bitcoin to grow a thriving ecosystem, it apparently needs a US-based, VC-backed company that has “worked closely with banks and regulators to ensure that the service is safe and compliant”.

And Coinbase certainly feels, uh, compliant. It took me over a week to use the service to turn US dollars into a fraction of a Bitcoin, an experience that coupled the bureaucratic tedium of legacy consumer financial services with the cold mechanization of notoriously customer-hostile PayPal, but with the exciting twist that I have no idea from moment to moment how much my shiny new Internet money is actually worth.

Magical Thinking

While most of the claims around Bitcoin are merely wince-inducing, there is one that deserves particular attention: that Bitcoin is “a way to offer low-cost financial services to people who, because of financial or political constraints, don’t have them today.”

Economic inequality is perhaps the defining issue of our age, as trumpeted by everyone from the TED crowd to the Pope. Our culture is fixated on inequality, and rightly so. From science fiction futures to Woody Allen character sketches, we’re simultaneously alarmed and paralyzingly transfixed by the disappearance of our middle class. A story about young people dying in competition with one another just to continue lives of quiet desperation isn’t radical left-wing journalism, it’s the pop fiction on every teenager’s nightstand and in every cinema right now.

With this backdrop of looming poverty, nobody can reasonably deny that the euphemistically “underbanked” are in desperate need of financial services that empower them to participate fully in the global economy without fear of exploitation. What’s unclear is the role that Bitcoin or a similar cryptocurrency could play in rectifying this dire situation.

The push toward Bitcoin comes largely from the libertarian portion of the technology community who believe that regulation stands in the way of both progress and profit. Unfortunately, this alarmingly magical thinkinghas little basis in economic reality. The gradual dismantling of much of the US and international financial regulatory safety net is now regarded as a major catalyst for the Great Recession. The “financial or political constraints” many of the underbanked find themselves in are the result of unchecked predatory capitalism, not a symptom of a terminal lack of software.

Silicon Valley has a seemingly endless capacity to mistake social and political problems for technological ones, and Bitcoin is just the latest example of this selective blindness. The underbanked will not be lifted out of poverty by conducting their meager daily business in a cryptocurrency rather than a fiat currency, even if Bitcoin or its ilk manages to reduce marginal transaction costs (at scale and in full regulatory compliance, that is). But then, we should note that Dixon wasn’t talking about lifting anyone out of poverty, just “offer[ing them] low-cost financial services”. Also notable is that both Andreessen and Horowitz supported Mitt Romney’s failed presidential bid, giving us some insight into the likely level of concern for economic inequality around Dixon’s office.

In Bitcoin, the Valley sees another PayPal and the associated fat exit, but ideally without the annoying costs of policing fraud and handling chargebacks this time around. Bankers in New York and London see opportunities for cryptocurrency market-making. International investors see the potential for arbitrage and are taking advantage of cheap electricity, bringing the environmental destruction of real-world mining to the brave new world of digital money.

In other words: Bitcoin represents more of the same short-sighted hypercapitalism that got us into this mess, minus the accountability. No wonder that many of the same culprits are diving eagerly into the mining pool.

Moving Past The Failed Techno-Libertarian Agenda

For the past few months I’ve been giving a talk, informed largely by feedback on my post about the tradeoffs of joining startups earlier this year. The talk delves into the history of Silicon Valley and venture capital, tying past to present. Though I cover a lot of ground in a short sprint, I hope my message is clear: that the dominant socio-political ideology of Silicon Valley has failed to deliver sustainable profits to the broader investor class while technological innovation has slowed and jobs have dried up. It’s time for new thinking.

Bitcoin is not without its left-wing supporters, but I think it’s safe to say the currency has mostly proven to be a rallying point for those who see the state and central banks as little more than obstacles to a libertarian techno-utopia, a worldview perhaps best captured in The Californian Ideology. In this sense, Bitcoin is ready-made for a cultural moment when Silicon Valley ideologues are discussing plans for a new opt-in techno-centric society and sliding so far right that a return to monarchy is on their table.

Working in technology has an element of pioneering, and with new frontiers come those who would prefer to leave civilization behind. But in a time of growing inequality, we need technology that preserves and renews the civilization we already have. The first step in this direction is for technologists to engage with the experiences and struggles of those outside their industry and community. There’s a big, wide, increasingly poor world out there, and it doesn’t need 99% of what Silicon Valley is selling.

I’ve enjoyed the thought experiment of Bitcoin as much as the next nerd, but it’s time to dispense with the opportunism and adolescent fantasies of a crypto-powered stateless future and return to the work of building technology and social services that meaningfully and accountably improve our collective quality of life.

Disclaimers

First off, thanks to everyone who read an early draft of this post.

I wrote the vast majority of this post before today’s sizable Bitcoin crash, for what it’s worth (and, honestly, from moment to moment, who knows?).

At time of writing, I own a fraction of one Bitcoin. A portion of that was mined on a laptop several years ago as part of the Deepbit pool. More recently, I purchased some BTC with US dollars on Coinbase. I own this small amount of BTC because I’m largely in the “Bitcoin is a worthwhile but flawed experiment” camp, and I wanted to try using the currency for my personal edification. Several readers asked me to be harsher and more conclusive on the economic fundamentals of Bitcoin. I chose not to out of deference to the experimental potential I saw in the project, warts and all. Bitcoin’s, er, creative take on economics and monetary theory is well dealt-with elsewhere.

I was previously CTO at online banking service Simple. While that experience has informed my thinking on the role of technology in consumer finance, I am not aware of Simple’s strategy with regard to Bitcoin and this post should not be construed as representing the opinions or direction of that company.

I am on hiatus from Twitter through the winter holidays. If you would like a response to any comment about this post, please email me.

Source:  https://al3x.net/2013/12/18/bitcoin.html