TIME robotics

A Drug-Buying Robot Has Been Freed From Police Custody

!Mediengrupppe Bitnik Items purchased on the darknet by the Random Darknet Shopper

The bot, programmed to buy illegal goods online, was part of an art exhibition

A robot programmed to buy drugs from illegal online markets has been freed by Swiss police. The shopping bot, called the “Random Darknet Shopper,” was created last fall by a Swiss art group called !Mediengruppe Bitnik to purchase illicit goods online using a weekly allowance of $100 worth of Bitcoin. The various items the bot bought at random, including counterfeit sneakers and ecstasy, would be delivered to the art group’s gallery for an exhibition.

Swiss police captured the robot back in January and confiscated its purchases. However, last week, the art group announced that the police had returned Random Darknet Shopper as well as all of the goods it bought, except for the ecstasy. A Swiss police official told CNBC that the makers of the robot wouldn’t be charged for programming the robot to buy illegal items.

“This is a great day for the bot, for us and for freedom of art!” the art group wrote in a blog post.

[CNBC]

TIME Innovation

Five Best Ideas of the Day: April 15

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. The U.S. is safer than we’ve been in generations. So why do we see threats around every corner?

By Stephen Kinzer in the Boston Globe

2. Is college worth it? There’s a checklist for that.

By Brandon Busteed at Gallup

3. Life is teaching your kid the value of white lies.

By Melissa Dahl in the Science of Us

4. The secret to success for unregulated currencies like Bitcoin might be more regulation.

By Larry Greenemeier in Scientific American

5. Scotland’s new drunk-driving law works so well, it’s hurting their economy.

By Chris Green in the Independent

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

MONEY stocks

Can You Really Beat the Market?

Campbell Harvey, Professor of Finance at Duke's Fuqua School of Business
Jeff Brown Don't assume everything you read in financial journals is true, says Duke University finance professor Campbell Harvey.

Turns out the smart money isn't always so.

We put the question to Duke University finance professor Campbell Harvey, 56, former editor of the Journal of Finance and president-elect of the American Finance Association. Harvey is known for taking unorthodox positions when it comes to academic research, portfolio rebalancing, and Bitcoin.

MONEY writer Taylor Tepper interviewed Campbell for the March 2015 issue of the magazine, where this edited interview originally appeared.

Q: Can you really beat the market?

A: There’s all this academic research out there that attempts to explain why stocks do well or poorly by focusing on investment factors, such as momentum or low price/earnings ratios. In all, 316 different factors were identified in the papers I studied, including things like the amount of media attention a company gets or how much it spends on advertising. My research found that of all the published papers in finance, over half are likely false. The problem is the researchers were applying the tools of statistics as if there was only one test going on when there are multiple variables. Some factors are going to look statistically significant just by chance.

Q: Can you help us understand?

A: There’s a cartoon that explains this well. Let’s say somebody has a hypothesis that jelly beans cause acne. So researchers conduct a controlled experiment where some people get jelly beans and some don’t. It turns out that there’s no significant difference. Then somebody says, “Well, maybe we’re looking at this incorrectly. We should look at this by the color of the jelly bean. So then 20 new experiments are undertaken. Again, some people get jelly beans and others don’t. But the jelly beans are just red. A separate experiment uses just yellow beans. Then all purple. Each time there’s no effect. On the 20th try, which happens to test green jelly beans, they find there’s a difference that is statistically significant by the usual rules. And then in the newspaper the next day, there’s this headline: GREEN JELLY BEANS CAUSE ACNE.

Q: What should the standard be?

A: Usually you’re looking for 95% confidence, which means there’s a 5% chance the result was a fluke. But that’s true only if you’re conducting a single test. As soon as you go to multiple tests, it’s like the jelly bean problem. You do 20 experiments and you’re likely to get a hit by chance.

Q: To be fair, you’ve made this mistake yourself.

A: Some of the papers we analyzed are my own. This actually gives me a bit of a pass when I’m talking to my colleagues and saying, “Half of what you guys published is false.” And they kind of push back: “How could you say that?” And I say, “Well, it also holds for me, okay?”

Q: What does this mean for the average investor?

A: For individual investors the best thing to do is to just go with an index fund. Don’t believe these claims of using this or that “factor” to beat the market. Invest in the broad market, and go with the lowest possible fee.

Q: But so-called smart beta index funds claim to capitalize on these “factors.”

A: Imagine there are 316 of these “smart” beta index funds, each chasing one of the factors that I detail. It is likely that more than 50% of them are destined to disappoint.

Suppose there’s an ETF investing only in stocks beginning with the letter “H.” The managers claim historical outperformance for H stocks based on simulations going back to 1926. They claim their results are “significant.” They’re likely using the wrong statistical method to declare their strategy “true.” They might have tried 26 letters and “H” worked by chance.

“Don’t believe these claims of using this or that ‘factor’ to beat the market. Invest in the broad market, and go with the lowest possible fee.”The insight is the same for 316 factors. If you try enough strategies, some will work by luck. In many cases it’s not about being “smart.”

Q: Speaking of smart, rebalancing has been recommended as a prudent approach. You’ve done research on this topic, right?

A: Rebalancing is like mom-and-apple-pie sort of finance, in that we just assume it’s a good idea. We don’t think through what it involves. In my research I detail the risk that is induced by a rebalancing strategy.

Q: Don’t you rebalance to reduce risk?

A: Let’s say you’ve got a portfolio of 60% stocks and 40% bonds. Now, imagine stocks drop and you’re in a prolonged bear market. If you’re rebalancing, you have to buy equities to get that proportion back up to 60%. So as stocks are falling, you’re buying more and more. Your portfolio is going to have a bigger drawdown than another portfolio where you didn’t rebalance.

It works in bull markets too. If equities are going up and up and you’re rebalancing, you’re dumping stocks. The market goes up. You dump more. All of a sudden your portfolio has done worse than if you had just let it run.

Q: So how should investors think about rebalancing then?

A: It is not smart to rebalance the last day of the year or the last day of the quarter by rote. It means you’re ignoring all of the information in the market. There’s lots of information out there, so use that
information. Use your judgment.

Q: If you don’t have time to figure this out, isn’t rote rebalancing worth the risk to keep from being overly exposed to stocks before a bear market?

A: If you have a very long time horizon, you may be able to bear the extra risk by rote rebalancing. You will still have bigger drawdowns in the value of your retirement portfolio, but you don’t need the money in the short term and you can ride out the risk. My point is all investors need to understand that rote rebalancing is an active investment decision that increases risk.

Q: You’ve also done research on Bitcoin. The smart money is pretty sure it’s a worthless currency. What don’t people get?

A: Almost everything. For instance, part of the misunderstanding is the focus on the price of the Bitcoin. You see that it was at $1,000, then it’s down to $200. People say, “Well, the bubble has burst,” and stuff like that.

They are looking at just one aspect of Bitcoin. These critics don’t start by asking themselves, “What problem does Bitcoin solve?”

Q: What problem does it solve?

A: I am tired of constantly getting phone calls from my credit card companies, having to go online to fix the 20 things I’ve got auto-debits for, and dealing with charges that are not mine on my card. These are problems that many people encounter.

Q: Bitcoin is safer?

A: Bitcoin is much safer. When you go to buy something, the retailer actually is able to check a common ledger of all transactions to make sure you actually have the money to spend. The public ledger, which is almost impossible to hack, solves the problem of double spending—using the same Bitcoin to buy two things. Merchants, such as restaurants, which are paying 3% to the credit card companies, love this.

For me, though, I look at Bitcoin not just as a currency, but what it could do in the future in other applications. Think of the Bitcoin technology as a way to exchange and verify ownership. It’s like getting into your car with your smartphone. You present cryptographic proof of ownership. You’re the owner, and it’s verified through this common ledger. The car is able to identify that it is your car, and so the car starts. You’re done.

Now suppose you borrow money from the bank for the car and you’re three months behind in your payments. You present your key, the car doesn’t start. The bank has the key that starts the car. So this is a very cool idea, right?

Q: There’s still a problem with the roller-coaster ride in Bitcoin prices, right?

A: There is, and Bitcoin currently is not a reliable store of value because of it. But the price swings could be solved with more liquidity—more money in the market. The recently launched Bitcoin exchange, which is fully regulated, insured, and backed by the New York Stock Exchange, should help with this. Bitcoin price fluctuations are a factor of it being so young.

The best way to judge Bitcoin is not to look at the price progression, but to look at the vast amount of money that’s being invested by venture capitalists into Bitcoin-related companies. That’s what I look at.

MONEY the photo bank

An Artist Mints Her Own Take on Bitcoin

How one photographer is using digital currency to rethink the value of money and art.

Virtual currency like Bitcoin has captured the imagination of a lot of people, from techies to economists to drug dealers. Now, artists are riffing on the idea, and one is trying to use it to fund her work—and to raise some new questions about what makes both money and art precious.

Sarah Meyohas, a Wharton School of Business grad who is currently finishing up her MFA in Photography at Yale University, is launching her own digital currency, which she calls, cheekily, BitchCoin. (“If you’re a woman who is taking a stake in your future and aggressive, you’re a bitch,” says Meyohas.) Unlike Bitcoin, which is computer-generated by its users, BitchCoin represents a claim on a tangible asset, in this case Meyohas’ photographic prints. One virtual coin is supposed to correspond to 25 square inches of print. Each time Meyohas creates a coin, she’ll set aside a print in bank vault.

BitchCoin will be “mined” inside of Where, a gallery/shipping container in Brooklyn. Meyohas will be camped inside producing her work, while being streamed live via a webcam. Coin buyers will receive a certificate with key number encryption allowing access to an account on a free BitchCoin software program in which BitchCoins can be sent and received.

At one level, this is really just a clever take on crowdfunding art, similar to Kickstarter, IndieGogo and the relatively new Fotofund. The initial BitchCoins will sell for $100 each, and that money goes to Meyohas. But she also says the project is about “the role of value in reproducible objects like the photograph.” And about the value of money. Since the end of the gold standard, regular money is just pieces of paper with pictures, backed by nothing. Meyohas describes BitchCoin as a virtual currency backed by a real asset, the art. But that art, of course, is just pieces of paper with a pictures. That paradox is especially relevant to her own medium. As Meyohas puts it:

For a long time, the art world wouldn’t seriously collect photographs because they seemed too reproducible. It was only once printed and editioned, made materially scarce, that they could be valued. There is something about the value of money which you can print endless copies of that parallels the photographic print.

Meyohas is also exploring where the value of an artist’s work should be placed, on individual pieces or on her entire body of work. Unlike crowdfunding or indeed traditional art buying, in which a patron invests in a specific project or publication, BitchCoin is supposed to represent a piece of Meyohas simply “as a ‘value producer’.” Meyohas says a BitchCoin is exchangeable not for a specific photo, but for any of her “editioned, unframed archival chromogenic photographs.” She believes this approach gives her more of a controlling stake in her art and career; if her career is successful and her works grow in value, she can tap into that by creating new, more valuable coins.

By getting buyers to support a career, not merely one work, she’s harkening back to an older type of arts patronage. In the fifteenth and sixteenth centuries, the Florentine House of Medici which controlled Europe’s largest bank and thus exerted unrivaled social and political influence over the region—used their wealth to underwrite art, architecture, literary and scientific projects. They supported the careers of those geniuses lucky enough to be aligned with their inner circle: Michelangelo, Donatello, Leonardo, Raphael, Galileo, Brunelleschi and Vasari—among others.

This Sunday, February 15, at 8 p.m., Meyohas will be launching BitchCoin at the Trinity Place Bar, a bar in a bank (of course) at 115 Broadway, in the Financial District of Manhattan. At its initial offering, BitchCoin will back the edition of one photograph, aptly titled “Speculation.” Afterward, the exchange rate will fluctuate based on demand for BitchCoin, and of course the value of Meyohas’ artwork in the market.

Virtual currencies are wildly speculative, and buying art is all the more so. And the idea of BitchCoin as a store of value is, well… complicated. If you see BitchCoin as really a part of Meyohas’ artwork, what would it even mean to try to trade it for 25 square inches of her pictures? Since she says a BitchCoin would be destroyed whenever it was converted to art, wouldn’t that in turn destroy part of the art, and part of its value? Prompting such knotty, unanswerable questions is of course what Meyohas is up to with this project.

This is part of The Photo Bank, a recurring feature on Money.com dedicated to conceptually-driven photography. From images that document the broader economy to ones that explore more personal concerns like paying for college, travel, retirement, advancing your career, or even buying groceries, The Photo Bank showcases a spectrum of the best work being produced by emerging and established artists. Submissions are encouraged and should be sent to Sarina Finkelstein, Online Photo Editor for Money.com at sarina.finkelstein@timeinc.com.

TIME Innovation

Five Best Ideas of the Day: February 5

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. Could Blockchain — the secure, encrypted network that powers Bitcoin transactions — be used to build a safer alternate Internet?

By Scott Rosenberg in Backchannel, on Medium

2. One NGO is crowdfunding the fight against human trafficking.

By Leif Coorlim at the CNN Freedom Project

3. High-achieving, low-income students get into selective colleges when they actually apply. Virtual college counselors can make sure they do.

By Bloomberg Philanthropies

4. “Vocal fry” and other patterns in the speech of younger women might signal a change for generations to come.

By Chi Luu in JSTOR Daily

5. Scientists are hoping genetically-modified coral can save the Great Barrier Reef.

By Laura Clark in Smithsonian Magazine

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME Security

Bitcoins Are Easier To Track Than You Think

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

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
Ethan Miller — Getty Images 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.

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]

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