TIME Security

Bitcoins Are Easier To Track Than You Think

Bitcoin
Bitcoin logo Ramón Espelt Photography—Getty Images/Flickr RF

The Silk Road trial shows how they can be tracked

Bitcoin is sometimes thought of as the prime anonymous cash of the Internet, believed to be as untraceable as an under-the-table payment to a babysitter or a drug dealer. But the dramatic trial of Ross Ulbricht, a 30-year-old man accused of running the contraband Silk Road marketplace, is finally putting those misconceptions to rest.

Federal agents said they were able to trace 3,760 bitcoin transactions over the course of a year to servers seized in the Silk Road investigation, Wired reports. A former FBI agent named Ilhwan Yum testified in court that he followed more than 700,000 bitcoins from the Silk Road marketplace to Ulbricht’s personal wallets.

How did Yum do it?

When federal agents arrested Ulbricht in San Francisco in Oct. 2013, they also seized his laptop before he could encrypt it. That machine gave Yum access to Ulbricht’s bitcoin address, which he then compared against what’s called the blockchain, a master list of bitcoin transactions kept to prevent counterfeiting. Comparing the two let Yum track bitcoin transfers from Silk Road servers near Philadelphia and Reykjavik, Iceland to Ulbricht’s bitcoin wallet.

In Ulbricht’s case, the transactions show Ulbricht was trading bitcoins during the same period that his defense attorney said he wasn’t involved with the website. But more generally, it shows that bitcoin isn’t always as anonymous as it’s made out to be.

[Wired]

MONEY Bitcoin

The First U.S. Bitcoin Exchange Is Now Open

Bitcoin coins in a row
Thomas Trutschel—Alamy

Coinbase's new exchange has regulatory approval in 24 states, including California and New York.

Coinbase, a startup backed by $106 million in investor funding, has opened the first bitcoin exchange inside U.S. borders, the Wall Street Journal reports. The new venture is to the first to let users buy and sell bitcoin with a company based in the United States.

Coinbase has previously found success as one of the more consumer friendly bitcoin wallets and payment platforms. Consumers could buy and sell bitcoins from Coinbase, which would in turn purchase the coins from other exchanges and store them on the customer’s behalf. The company has also partnered with companies like Dell (and MONEY’s parent company, Time Inc.) to facilitate bitcoin purchases by acting as a middleman and converting bitcoins to cash.

Now Coinbase is entering the exchange market as well, and hoping to provide legitimacy and security that foreign competitors have lacked. Mt. Gox, a Japanese exchange that once handled 70% of all bitcoin transactions, lost nearly $500 million in bitcoins in a hacking attack and closed in 2014. In January 2015, UK-based exchange Bitstamp announced it lost nearly $5 million when its wallet system was breached. These and similar incidents have inspired new bitcoin regulatory proposals, a warning from the Consumer Financial Protection Bureau, and the mistrust of non-enthusiasts.

Coinbase has tried to allay these fears by winning government support and advertising its safety features. The company has spent about year working to satisfy regulators, according to the journal, and Coinbase says its customers’ bitcoins are insured against theft.

But regulatory approval may soon become more difficult for bitcoin businesses like Coinbase. New York State Department of Financial Services superintendent Benjamin Lawsky has championed his BitLicense program as a new and more stringent way of regulating bitcoin businesses. That program is still under development and is expected to influence bitcoin regulation nationwide.

Coinbase is not the only company interested in starting a U.S. exchange. Earlier this week, the Winklevoss twins announced their own exchange, called Gemini, that would work with American banks and be “fully regulated.”

So far, the markets have responded favorably to Coinbase’s announcement. Bitcoin’s dollar price is up 7% at press time.

Correction: A previous version of this article reported the Wall Street Journal’s claim that Coinbase had achieved regulatory approval in 24 states, including New York and California. That article has been updated to reflect that Coinbase is working to receive regulatory approval and this article has been updated to reflect that change.

MONEY Bitcoin

First U.S. Bitcoin Exchange Goes Live

The debut of the Coinbase exchange caused a spike in Bitcoin’s value, from around $250 apiece to more than $300.

MONEY Bitcoin

Bitcoin’s Terrible, Horrible, No Good, Very Bad Month

The value of Bitcoin has dropped from $345 a month ago to $177, the lowest price the cryptocurrency has seen since April 2013.

TIME Currency

Bitcoin Continues to Plummet

Newest Innovations In Consumer Technology On Display At 2015 International CES
A general view of the Bitcoin booth at the 2015 International CES at the Las Vegas Convention Center on Jan. 8, 2015 in Las Vegas, Nevada. Ethan Miller — Getty Images

The digital currency is getting off to a poor start in 2015 after a rough ride last year

The price of Bitcoin dropped again this week, sliding to its lowest level since early 2013, suggesting that confidence in the contentious cryptocurrency may be shrinking.

On Tuesday, the price of Bitcoin dropped from $267 to about $224, sinking below its April 2013 value, which was before its popularity skyrocketed, according to the New York Times.

In the past year, the digital currency has been hit with myriad setbacks including market woes, fresh regulations and stagnation of usage even as transactions have increased, which in part resulted in a more than 50% drop in the price of bitcoin.

[NYT]

TIME Currency

How I Laundered Bitcoins On the Streets of New York

bitcoin-surrounding-many-coins
Getty Images

There are over 1,600 Bitcoin sellers in New York alone and thousands more across the country

This story was originally published at the The Kernel, the Daily Dot’s Sunday magazine.

As I stood on a Brooklyn street corner late at night with one hand gripping a wad of cash in my jacket and the other clutching the smartphone in my pocket, an old memory hit me. The place looked exactly like a street corner where I bought weed once (or maybe twice) in high school.

This time I was making another transaction, one that could also confuse bystanders and get a second look from local police. I was getting ready to buy bitcoins.

There are plenty of other ways to acquire the virtual currency. There are even Bitcoin ATMs in several cities in North America. But sites like LocalBitcoins.com—a Craigslist-inspired directory that brokers real-life transactions for a modest fee—serve a very specific type of clientele, those trying to cash-out their bitcoins or acquire them without tying the transaction to their actual identity, often with the intention of staying on the blindside of the law.

I remember feeling vulnerable back in high school, worrying about being robbed or arrested. A similar weight started to settle in as I waited for the stranger I found online. I knew nothing about him, not even his name or what to look for. He just instructed me to come to this intersection with my smartphone, ready to complete the transaction.

The $160 that I carried wouldn’t even buy me a single Bitcoin, but it’s always best to test the waters with small stakes. The dealer was willing to exchange as much as $5,000 per transaction, and others offer services that double that.

I leaned into a shadow on the gate of a shuttered bodega and checked the time. My seller was late.

Read the rest of the story at The Kernel.

MONEY Bitcoin

No, Big Companies Aren’t Really Accepting Bitcoin

Bitcoin on desk
Thomas Trutschel—Photothek via Getty Images

Businesses like Microsoft, Dell, and Expedia say they accept bitcoin as payment. But that's not quite accurate.

Bitcoin had a rough 2014, but there was one silver lining: Over the past year, a steady trickle of large companies have begun taking bitcoin as payment. Ever since Overstock.com announced it would start accepting bitcoin roughly one year ago, a number of major brands, including Microsoft, Dell, and MONEY’s own publisher, Time Inc., have done the same.

This has been a ray of light in an otherwise dismal period for bitcoin supporters, and few have missed the chance to trumpet such adoption as an indicator of bitcoin’s success. One WIRED article even used the currency’s recent adoption by a section of the Fortune 500 as the core piece of evidence for bitcoin’s importance.

“Irrespective of your opinion, the rise in popularity of cryptocurrencies cannot be ignored,” the post reads. “Today, there are a number of billion dollar businesses that accept Bitcoin as a form of payment. These include Dell, Reddit, Expedia, PayPal, and most recently, Microsoft. So for the uninitiated who have not yet grasped what Bitcoin and other cryptocurrencies are, you ought to catch up.”

In other words, Hey haters, look at all these huge companies that are accepting bitcoin! How can you ignore that kind of support?

Well, there’s just one problem there: Almost none of the businesses mentioned above technically accept bitcoin. Instead, they partner with a middleman—generally either Coinbase or BitPay—who takes a customer’s bitcoin, immediately converts it into cash, and then deposits the cash in the company’s bank account.

In other words, Dell, Expedia, Microsoft, and Time, Inc. don’t actually “accept” bitcoins, per se. They accept U.S. dollars. It’s their bitcoin processing partners who accept bitcoin. They, in turn, make money on transaction fees (in the case of Coinbase), or by selling their software and services as a subscription (in the case of BitPay).

BitPay, which has partnered with Microsoft, Newegg, and other merchants, confirmed to MONEY that the majority of its major clients ask that their bitcoins be instantly converted to cash. “I would say as a general trend most of our larger business do choose a settlement in 100% U.S. dollars because that’s how they do their accounting and finance,” said Tony Gallippi, co-founder and executive chairman of BitPay.

That’s a rather charitable explanation of why companies take fiat over bitcoin when given the choice. In reality, it’s probably because they simply don’t trust bitcoin as a stable store of value. Since Dell began accepting bitcoin through Coinbase in July 2014, bitcoin’s value has dropped by over 54 percent. If Dell had actually kept the cryptocurrency it received, its revenue from bitcoin sales would have essentially been cut in half.

Even Overstock.com CEO Patrick Byrne, one of bitcoin’s most outspoken supporters, doesn’t think bitcoin is worth embracing in full. His company, which also uses Coinbase, keeps 90% of bitcoin transaction revenue in dollars. Considering the magnitude of Bitcoin’s price drop, Overstock has likely still paid a heavy price for Byrne’s enthusiasm.

All of this is not to say more companies taking bitcoin—even through a middleman—is a bad thing for the currency. At the very least, it gives bitcoin holders something (legal) to spend their money on, and increases bitcoin’s utility, which, in the long run, could make it a more viable medium of exchange. Cryptocurrency fans should be naming their first born children after Coinbase and BitPay executives since there would probably still be no major businesses accepting bitcoin at all without these companies offering full conversion services.

But make no mistake, just because Dell and the like are letting their customers pay in bitcoin doesn’t mean they believe in the currency. It’s just that intermediary services have made it possible to accept bitcoin without really accepting it. If anything, that shows corporations still don’t trust bitcoin with the one thing a currency needs to do: hold its worth. That’s the metric we should be using to measure bitcoin’s success, not by counting the number of merchants with a Coinbase link on their checkout page.

TIME Currency

Hackers Steal $5 Million From Bitcoin Exchange

Breach follows massive hack of Mt. Gox in 2014

A European Bitcoin exchange had about $5 million worth of the cryptocurrency stolen by hackers over the weekend.

The Slovenia-based Bitstamp announced the breach on its website Monday and shut down services temporarily Tuesday in order to investigate the hack. The theft totaled about 19,000 Bitcoin, but hackers were only able to access a small portion of the exchange’s total assets. While some Bitcoins are stored online, many more are kept on local hard drives in what Bitcoin users call “cold storage.”

Bitstamp wrote on its website that it would ensure users’ account balances were “honored in full” despite the breach.

The hack comes less than a year after the collapse of Mt. Gox, the once-massive Bitcoin exchange that lost more than $450 million worth of Bitcoin and then filed for bankruptcy. Bitcoin lost half of its value after Mt. Gox imploded. So far, though, the Bitstamp breach doesn’t seem to have negatively influenced the price of the currency.

MONEY Tech

NYC May Soon Accept Bitcoin And Apple Pay For Parking Tickets

New York City is considering accepting alternative payment methods like Bitcoin and Apple Pay for parking tickets.

MONEY Bitcoin

Bitcoin Bulls Made the Worst Predictions of 2014

141224_INV_bitcoin_1
Alamy

Predictions of bitcoin domination may have been a little too optimistic...

The last 12 months have not been kind to bitcoin. After starting the year at $770, the digital currency has been hurt by the implosion of major exchanges, new regulations, that make it a less attractive vehicle for illicit activity, and a general stagnation in usage. As of Tuesday, one unit of bitcoin had fallen to $334, a drop of more than 56%. That’s a steeper plunge than the Russian ruble, which is down about 41% against the U.S. dollar since the beginning of 2014.

Bloomberg, Quartz, and others have been quick to brand the currency as the year’s worst investment—and do a little bit of I-told-you-so-ing in the process. (To be fair, Quartz actually did tell us so back in April.) But while the fall of bitcoin was foreseen by many, it’s worth remembering that plenty of people really did think 2014 was going to be this currency’s year. Over at CoinDesk, Jon Southurst recapped various bitcoin price predictions for 2014 and found that many were just a little too optimistic.

Let’s start with CoinDesk readers, a group largely made up of bitcoin enthusiasts. The majority of those polled last January predicted one bitcoin would reach $10,000 before the end of the year. That’s about 3,000% of its current price.

Okay, you’d expect bitcoin fans to be a little overenthusiastic about the currency’s future, but some professional analysts also published extremely inflated predictions. In a December 2013 report, analysts at Bank of America Merrill Lynch assessed bitcoin’s maximum fair market value at $1,300 per coin, which at the time was framed as a cautionary estimate. (That number looks silly now, but the prediction appears to be for the life of bitcoin, so it may still come to pass.)

Similarly, the India branch of Lightspeed Venture Partners, a venture capital firm that recently raised $1 billion for a new fund, saw bitcoin hitting between $4,000 and $5,000 by the end of this year.

Unsurprisingly, goldbugs were bullish on bitcoin as well. CoinDesk references a GoldStockBull list of 2014 predictions that included, among other things, the growth of the Russian economy, gold to return to $1,800 per ounce (gold is currently at $1,175 per ounce, down for the year), and bitcoin to hit $2,500. Those didn’t quite pan out.

That’s not to say bitcoin’s boosters were the only ones to make a wrong prediction. Southhurst writes that Mark T. Williams, finance lecturer at the Boston University School of Management and noted bitcoin bear, said bitcoin would hit $10 by the middle of 2014. He was wrong too, and by a larger factor than the bitcoin supporters at CoinDesk, so the currency’s believers can take some solace in knowing their detractors don’t have all the answers either.

Plus, bitcoin may be catching on in some new quarters. MONEY’s parent company, Time Inc., has recently begun accepting bitcoin payments for subscriptions to some of its publications.

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