Here’s How Taxes Are Harming Bitcoin’s Usefulness as a Payment Method

While most of the early buzz around Bitcoin centered on it as a new, fast, cheap and permissionless method of online payment, the focus has moved from medium of exchange to store of value over the past few years. It’s clear that bitcoin is useful for censorship-resistant payments that may not otherwise be possible without this new technology, but much more of the recent hype has been around tracking the price more than anything else at this point.

Although general activity on the Bitcoin network has continued to rise, a recent report from blockchain analytics firm Chainalysis shows that a growing percentage of this activity is related to trading on exchanges.

There are a variety of reasons as to why the average person on the street is not interested in using bitcoin for payments. For example, the user interfaces are still hard for non-techies to use, network congestion leads to high fees, and price volatility is not something people are used to dealing with in their wallets (at least in most developed countries).

On top of that, one other key issue is often overlooked: capital gains taxes.

Who’s Reporting Capital Gains Taxes on Purchases Made via Bitcoin?

In the United States and many other countries, capital gains taxes must be paid every time an individual uses some of their bitcoin stash to make a purchase, as long as the bitcoin price has gone up since those bitcoin were first acquired.

For example, let’s say someone buys 1 bitcoin when the price is $1,000. This person simply holds that bitcoin for a couple of years, and then it is eventually worth $10,000. If this person goes to the store and purchases a television for $500, they’re effectively selling a portion of their bitcoin holdings at a profit. These gains are supposed to be taxed.

When you imagine this person earning bitcoin on a regular basis and buying something as small as a meal or a coffee every day, it becomes easy to see how keeping track of everything would be quite cumbersome, especially when bitcoin wallets offer pretty much zero assistance in this area at this time.

Even if the buyer and seller involved in a transaction are both bitcoin enthusiasts, it wouldn’t make much sense to make a deal denominated in bitcoin; the tax headache is not worth it.

Instead, it makes much more sense for individuals in places like the United States to simply convert $1,000 or so worth of their bitcoin holdings to the local currency by way of a bitcoin debit card for spending every now and then.

It’s unclear how many people have effectively become tax evaders by accident because they’re spending their bitcoin gains without reporting them. Obviously, those involved in illicit activities tend to be less concerned with the tax implications of using bitcoin for online payments because they’re already attempting to hide these transactions from the authorities anyway.

The Cryptocurrency Fairness Act

So what’s the solution to the usability issues caused by capital gains taxes? One might be through a change in tax law, at least in the United States.

The Cryptocurrency Tax Fairness Act introduced in Congress last year would exempt bitcoin transactions under $600 from capital gains taxation. This means bitcoin users would only have to calculate the tax implications of their bitcoin payments if they’re in amounts greater than $600. Notably, this is the same exemption that already applies to foreign currencies.

The passage of this act would do wonders for the usability of bitcoin for payments by Americans.

Hedging Options Could Also Help

Another useful tool for avoiding tax-related usability issues with bitcoin may be hedging options in wallets. This is already available with Abra.

The basic idea is that you hold bitcoin in a smart contract hedged to U.S. dollars or any other currency to avoid bitcoin’s price volatility. This setup would be useful for anyone who is interested in using bitcoin for payments but not necessarily gaining exposure to the price swings of the cryptoasset.

If someone can hold bitcoins as U.S. dollars, they no longer have to worry about gains or losses whenever they make a transaction; however, they also lose access to the store-of-value properties of bitcoin in this situation.

Gemini Adds Block Trading to Reduce Impact of Large Orders on Bitcoin Price

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Gemini, the cryptocurrency exchange founded by the Winklevoss twins, has added a new feature that will reduce the impact that large buy and sell orders have on the Bitcoin price.

Announced on Monday, Gemini Block Trading will allow cryptocurrency “whales” to execute large trades outside of the exchange’s continuously-updated order books, where a single trade can have an outsized effect on the market as a whole.

Using the new platform, customers can place block orders that are only published to market makers, who can decide whether to make a market for the trader’s indication of interest.

Transactions made using the block trading platform will be published on a 10-minute delay, ensuring that all market participants have access to pricing and liquidity information while also reducing the data’s propensity to have a cascading effect on the Bitcoin price (or the Ethereum price, as Gemini supports both coins).

In recent months, the market has been forced to weather at least three major sell-offs that have demonstrated the need for these trading services.

The first came when the trustee of now-defunct cryptocurrency exchange Mt. Gox sold more than $400 million worth of Bitcoin and Bitcoin Cash to settle the bankrupt company’s JPY liabilities.

Similarly, though on a much wider scale, taxpayers in the US and other regions have withdrawn as much as $25 billion to cover capital gains accrued during fiscal year 2017.

Finally, Fortress Investment Group revealed that it had sold approximately $200 million worth of Bitcoin it was holding.

While the latter sale was most likely done through an over-the-counter (OTC) trading platform like the one Gemini is launching, the other two have occurred in the order books.

Tom Lee, founder of Wall Street strategy firm Fundstrat, estimated in a recent note to clients that every dollar converted from cryptocurrency to fiat has a $25 impact on the cryptocurrency market cap.

On the other hand, large buy orders can spur outsized rallies, which is perhaps one reason that institutional buyers have been hesitant to trade cryptocurrencies more aggressively.

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How Anonymous Is the Purchase of Crypto? Regulations, Practice, Risks

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, you should conduct your own research when making a decision.

In a worldwide environment where privacy is constantly under threat, purchase of cryptocurrencies is not an exception. In the early stage of this market, as the number of users and exchanges was not significant, the formalities around the identification of the users were not widespread. However, over the course of the years, the situation changed.

Criticisms on the anonymity of many Bitcoin users and the perceived risk that cryptocurrencies were used as a way of money laundering or for other illicit activities, increased the attention of international regulators.

Is crypto anonymous?

During the latest AMA (Ask me anything) meeting, when Bill Gates was asked for his general thoughts on cryptocurrencies, he responded:

“The main feature of cryptocurrencies is their anonymity. I don’t think this is a good thing. The [government’s] ability to find money laundering and tax evasion and terrorist funding is a good thing.”

On the other side, Edward Snowden talking about Zcash (cryptocurrency aimed at using cryptography to provide enhanced privacy for its users), defined it as “the most interesting Bitcoin alternative,” adding:

”Bitcoin is great, but if it’s not private, it’s not safe.”

The proliferation of cryptocurrencies and their constant increase in negotiation volumes has increased the attention of different national and international authorities. As of 31 December 2015, the daily volume of cryptocurrencies trading was $46 mln, whereas during the same day of 2017 this arrived at $12,136 mln (hence representing a 26,283 percent increase)

Total Market Capitalization

Image source: Coinmarketcap

Regulations – Government initiatives

United States

In the US exchange platforms have to comply with the Anti-money Laundering (ALA) and Know your customer (KYC) regulations. The ALA/KYC regulations are intended to strengthen the measures to prevent, detect, and prosecute money laundering and the financing of terrorism and require the subjected entities, to establish written customer identification programs, with the aim of:

  • obtaining customer identifying information from each customer prior to account opening
  • verifying the identity of each customer, within a reasonable time before or after account opening
  • making and maintaining a record of information obtained during identity
  • verification
  • determining within a reasonable time after account opening or earlier whether a customer appears on any list of known or suspected terrorist organizations designated by US Treasury

European Union

In the EU exchange platforms have to comply with the international standards issued by the Financial Action Task Force (FATF), then complemented by national rules. The FATF framework prohibits the subjected entities, from keeping anonymous accounts or accounts in fictitious names. These institutions should be required to undertake customer due diligence measures when:

  • establishing business relations
  • carrying out occasional transactions above the applicable designated threshold (USD/EUR 15,000)
  • there is a suspicion of money laundering or terrorist financing
  • the financial institution has doubts about the veracity or adequacy of previously obtained customer identification data

Asia

As many Asian countries are part of the FATF, the established framework also applies to them. South Korea, representing one of the world’s biggest Bitcoin exchanges where cryptocurrencies have gained popularity among national investors along the course of the years, has recently banned anonymous trading of cryptocurrencies and requires the subjected entities to verify their customers properly.

A government official of Japan said on March 13, the country will urge its G20 counterparts at the March meeting to beef up efforts to prevent cryptocurrencies from being used for money laundering. The meeting then set a firm deadline to July for providing recommendations on how to regulate cryptocurrencies globally.

Implementation of the regulations

The implementation of these regulations have also been encouraged by the International Monetary Fund, whose head Christine Lagarde recognizes the potential of the Blockchain technology and praises the work of FATF as “useful guidance to countries on how to deal with cryptocurrencies and other electronic assets.”

Today, exchange platforms all around the world have to put in place procedures in order to be compliant with ALA/KYC regulations, hence requiring new clients to go through an identity verification process.

Coinbase, a digital currency wallet and platform where merchants and consumers can transact with new digital currencies like Bitcoin, Ethereum, and Litecoin, requires new clients to go through an identity verification process.

In some instances, different stages of verifications are required, based on the services used by the clients. Kraken a San Francisco-based company, founded in 2011, requires different stages of verifications, that change based on the services used by the clients. The steps go from Tier 0, where the client can look around but can’t deposit, withdraw or make any trades, and where only the email address is required, to Tier 4 where the clients are required to upload a valid Government ID, a recent proof of residence, a signed application form and KYC documents.

Trading anonymously still possible

Despite the efforts of regulators anonymous trading is still possible, mainly through:

1) peer to peer trading platforms that allow users to trade Bitcoins for traditional currencies through person-to-person trades.

For example, Localbitcoins is a platform where users post advertisements where they state exchange rate and payment methods for buying or selling Bitcoins. An interested buyer replies to these advertisements and agrees to meet the person to buy Bitcoins with cash, or trade directly with online banking.

2) decentralized exchanges built into Bitcoin wallets that help to arrange local trades between buyers and sellers. For example, Mycelium Local Trader help arrange the trade between buyers and sellers, manage the transaction, and calculate reputation ratings based on the trades.

These platforms don’t require ID verification or any personal information besides an email address to sign up.

In addition to online platforms, Bitcoin ATMs allow a person to exchange Bitcoins and cash. Some Bitcoin ATMs offer bi-directional functionality enabling both the purchase of Bitcoin as well as the redemption of Bitcoin for cash. Another functionality is the possibility to send cash-to-cash payments to other people resident in different countries by using two Bitcoin ATMs. The diffusion of these machines is today very capillary as they can be found in more than 65 countries, in the main important cities.

Risks and correlation between ease of purchase and anonymity

Anonymous trading comes at risks. The first one could be related to the use of cash for settling the transactions through peer-to-peer platforms. The direct exchange of cash between unknown buyers and sellers poses security risks, which the feedback system of the users only partially mitigated.

The second risk is related to scams. The absence of a central entity that functions as a market settler, may not guarantee the two parties that the transactions will be successfully finalized. LocalBitcoins has a forum dedicated to this issue where suspected users are constantly signaled to the community.

The third risk could be connected the tightening of the regulatory framework around the cryptocurrencies. On Feb. 23, the Financial Action Task Force announced that it “will step up its efforts in the understanding of the misuse and risk of virtual currencies.” After that, on March 7, the SEC required that platforms trading digital assets to register with the agency.

Decentralized regulation

As the trading of cryptocurrencies is still at an initial stage, the rules around identifications of the users are not uniforms and some countries are stricter than others. The US and the EU are front-lining the regulatory environment, requiring the exchange platforms to be compliant with the AML/KYC regulations.  

Peer-to-peer transactions and the use of ATM services still allow, with some risks, interested users to transact without disclosing their personal information.

International prosecutors are also catching up the cryptocurrency environment. As Ryan Schoen, senior financial services policy analyst at Washington Analysis said:

“I think the next step here will likely be subpoenas to exchanges if they haven’t already started.”

As a result, in the short term, it could be expected that national and international authorities would strengthen further the regulatory framework around exchange platforms and cryptocurrencies trading.

$1.6 Billion Chinese Fund Launches in Support of Blockchain Startups

Blockchain startups in China now have a new source of funding they can tap into.

Today, April 9, 2018, the Xiong’An Global Blockchain Innovation Fund launched with $1.6 billion (10 billion yuan) to funnel into promising Chinese blockchain startups. The announcement took place during the grand opening of the Hangzhou Blockchain Industrial Park in China. The industrial park, which will also serve as an incubation center for the startups, is located in one of the biggest tech hubs in China, Hangzhou city in Zhejiang province, home to e-commerce giant Alibaba.

The Xiong’An Global Blockchain Innovation Fund was jointly funded by the Yuhang District Government, the Future Science and Technology City Administrative Committee, and the Hangzhou Yanqi Investment Management Co. “Government-guided funds” accounted for 30 percent of the investment, according to a report in Sohu.  

Xu Xiaoping, one of China’s most celebrated angels investors, will serve as the fund’s advisor. Xu is the founder of ZhenFund, a venture capital firm that has invested in blockchain projects such as Stream and Lino. Li Xiaolai, a prominent Chinese Bitcoin investor and well-recognized figure in the cryptocurrency space, will manage the fund.

The fund’s announcement and the opening of the industrial park further establish Hangzhou as a rising center of blockchain technology in China. The government in Hangzhou has attached great importance to blockchain technology, ranking it just behind artificial intelligence and virtual reality technologies.

Notably, the announcement of the fund arrived just weeks after the government-affiliated Investment Association of China (IAC) rescinded its plans to establish a blockchain-funding center due to internal structural conflicts.

Several companies have been making a bid to support blockchain technology in China. In February 2018, Alibaba rival JD.com announced plans to launch a new Beijing-based accelerator program for artificial intelligence and blockchain startups. And in September 2017, the state-owned Bank of China (not to be confused with the People’s Bank of China, the country’s central bank) filed a patent application for a process for scaling blockchain systems.

Despite a spate of enthusiasm to delve into the blockchain space, all of these companies will have to deal with the regulatory uncertainty in the country. In efforts to stem capital outflow and corruption, China has been increasingly clamping down on cryptocurrencies, initial coin offerings (ICOs) and cryptocurrency exchange trading.

Manufacturer Holds Cryptonight ASIC Firesale after Monero Hard Forks

Bitcoin price sell off
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Mining hardware manufacturers have begun selling Cryptonight ASIC miners for next to nothing after privacy-centric cryptocurrency Monero carried out its threat to adopt a hard fork to maintain ASIC resistance.

Last week, Monero activated its semi-annual hard fork, an update that included an alteration to its instance of the Cryptonight Proof-of-Work (PoW) consensus algorithm.

This particular update had one purpose: ensure that no currently-existent Application Specific Integrated Circuit (ASIC) miners are compatible with the Monero network.

The hard fork came weeks after Bitmain — the dominant ASIC manufacturer and a subject of scorn among many cryptocurrency communities — unveiled the Antminer X3, its first Cryptonight ASIC miner.

At least one other manufacturer — lesser-known company Baikal Miners — claimed to have developed a Cryptonight ASIC, an announcement it made several days before Bitmain went public with the much more powerful Antminer X3.

Though vastly more efficient than GPU-based miners, ASICs have a critical vulnerability — they cannot currently be reprogrammed. Consequently, fundamental changes to a PoW algorithm can “brick” them permanently.

While the devices are still compatible with other Cryptonight coins, there is little consumer demand to mine an algorithm headlined by Electroneum, Bytecoin, and Sumokoin.

Consequently, Bitmain and Baikal are sitting on piles of now nearly-worthless devices, and while Bitmain can likely stomach the losses due to its reported $4 billion in profits last year, Baikal may have bitten off more than it can chew.

To wit, the Hong Kong-based firm is now offering a five-for-one deal on its Cryptonight ASICs in a bid to recoup something — anything — from the funds it poured into researching, development, and manufacturing for the nascent product.

Meanwhile, at least five different projects claim that they will continue to develop the old Monero blockchain, including two named “Monero Classic” and one that has been promoted by Bitmain’s official Twitter account.

Monero is not the only major cryptocurrency that has considered using a hard fork to maintain ASIC resistance. Ethereum, the second-largest cryptocurrency, recently began this debate in response to Bitmain’s announcement that it had developed an Ethash ASIC miner. While the fork appears wildly popular among users, developers have thus far been hesitant to pursue the potentially “chaotic” course.

Featured image from Shutterstock.

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Bitcoin, Ethereum, Bitcoin Cash, Ripple, Stellar, Litecoin, Cardano, NEO, EOS: Price Analysis, April 09

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

The market data is provided by the HitBTC exchange.

The current bear market in cryptocurrencies will turn out to be a boon in the long-term. The rally in 2017 had become frothy and attracted mostly retail traders who dreamt of becoming rich overnight. This was not good for the longevity of the virtual currencies.

The institutional investors don’t enter in a ‘bubble-like’ environment. Now, with most of the froth removed, we get rumors of some big names showing interest in investing in the digital currencies.

A name that stands out is that of the legendary investor George Soros. Bloomberg’s sources confirmed that Adam Fisher, the person in charge of global macroeconomic investing at Soros Fund Management, has received the green signal to proceed with cryptocurrency investing.

Another very prominent investor to enter into the crypto world is the Rockefeller family, through their official venture capital arm Venrock.

These are not all, as there are a few other macro managers who are showing interest in digital currencies.

If the institutional money starts pouring in, it will put a floor beneath most of the larger cryptocurrencies. Let’s see if we can find any signs of a bottom in them.

BTC/USD

Bitcoin remains stuck in a downtrend. It is currently sliding towards the support of $6,757.26, after failing to break out of the resistance line of the descending channel. If the bears break below the support, a fall to $6075.04 is possible.

BTC/USD

In the very short-term, the BTC/USD pair has formed a descending triangle pattern, which will complete on a breakdown below $6757.26. The pattern target on the downside is $5435.66.

If the bulls defend the $6757.26 levels and subsequently break out of the 20-day EMA, it will signal strength. We shall wait for buyers to emerge before recommending any long positions.

ETH/USD

The bulls attempted to break out of the tight range but prices could not sustain the higher levels. As a result, Ethereum has again fallen into the range.  

ETH/USD

Now, the bears will attempt to break down of the range. If successful, the ETH/USD pair will resume its journey towards its lower target objective of $300.

Considering the strong downtrend, we shall wait for the cryptocurrency to break out of the descending channel before proposing any trades.

BCH/USD

We are yet to see any strong buying in Bitcoin Cash. The bulls are making a half hearted attempt to push prices towards the resistance line of the descending channel.

BCH/USD

At $778.2021, there is a confluence of three resistances, the 20-day EMA, the resistance line of the descending channel and the horizontal line.

Prices will gain strength only above this level. Until then, the bears will continue to sell on rallies.

We shall turn positive on the BCH/USD pair only after it sustains above $780 levels for a couple of days.

XRP/USD

Ripple held the April 01 lows of $0.45351 and is trying to recover, but the buying is very sluggish. Its overhead resistance is at $0.56270.

XRP/USD

The XRP/USD pair can remain range bound between $0.45351 and $0.56270 for the next few days.

Once the virtual currency breaks out of this range, it can rally to the $0.72, where it will face resistance from the 50-day SMA. A breakdown of the consolidation will sink it to $0.35 levels.

We shall wait for a confirmed break out and close above $0.56270 before recommending any trade.

XLM/USD

Stellar has held its first critical support level of $0.184 but it has turned down from the 20-day EMA. If price breaks down of the immediate support, it can decline to $0.16.  

XLM/USD

If the XLM/USD pair breaks out of the 20-day EMA, it can rally to the resistance line of the descending channel. The digital currency has been trading inside the channel since early January of this year. Hence, a break out of this will be a significant event and will signal a change in trend.

We shall wait for a breakout and close (UTC time frame) above the resistance line before proposing any trades.

LTC/USD

Litecoin held the first support level of $114.706 but its recovery attempt stalled at $126. It could not even reach the downtrend line 1. The 20-day EMA is also located close to this line.

LTC/USD

If the bears break below $114.706, the LTC/USD pair can fall to $107.102, which is a February 02 low. This should act as a strong support but if this also breaks, the next support on the downside is at $84.706.

First signs of a change in trend will be when the digital currency breaks out and sustains above the downtrend line 1.

ADA/BTC

Though Cardano continues to trade in a range, it is forming a bullish ascending triangle pattern, which will complete on a breakout above 0.00002460 levels.

ADA/BTC

The pattern target of a breakout above the upper end of the range is 0.0000323, but we believe that the up move can extend to 0.000035 levels.

Hence, we suggest a long position on the ADA/BTC pair on a breakout and close (UTC time frame) above 0.0000246. The stop loss for the trade can be kept at 0.00002.

If the bulls fail to achieve the breakout, a few more days of range bound action will continue.

NEO/USD

The bulls have held onto the $44 levels for the last few days, resulting in a pullback, which carried NEO to the 20-day EMA.  

NEO/USD

The zone between the 20-day EMA and $63.62 is a major resistance. Once this zone is crossed, the NEO/USD pair will turn positive in the short term and rally towards the 50-day SMA at $83 and above this to the downtrend line.

However, if the bulls fail to break out of the overhead resistance, we might see another attempt to break the $44 levels.     

We shall recommend a buy on the digital currency around the $65 mark.

EOS/USD

EOS tried to break out of the descending channel for the second time within five days but failed. It is showing strength but it has a slew of resistances from the current levels up to $7.28.

EOS/USD

We like the EOS/USD pair because it did not revisit its March 18 lows of $3.8723 in the recent correction. This shows that the buyers are accumulating on every small dip and there is a lack of sellers at these levels.

We have recommended initiating long positions at $7.5 after the virtual currency clears the overhead resistances. This will pave way for a rally to $11 levels. The stop loss can be kept at $5 initially, which can be trailed higher subsequently.

The market data is provided by the HitBTC exchange. The charts for the analysis are provided by TradingView.

Op Ed: Tulip Myths and Modern Cryptocurrency Skepticism

“Ever heard of tulips?” It’s a question anyone who is publically involved in the cryptocurrency space has been asked multiple times. With the enormous gains in value the industry has seen, many observers come to the same conclusion. It’s a bubble.

The take is not a terrible one and many experienced cryptocurrency traders agree with the sentiment. Bubbles have come to be an expected occurrence in the space. The difference in opinion comes when deciding whether the “pop” will be a minor setback or the final conclusion in an exciting but short-lived ride.

On one side are the supporters of cryptocurrency. Their motivations can be boiled down to two points: desire for profits and a belief that the technology will benefit humanity. They believe that bubbles are a natural phenomenon in price discovery and an inevitable part of the long-term upward trend in value that will occur as cryptocurrencies become more utilized. They also understand that, while bubbles can hurt some traders in the short term, they are a necessary evil in the development of a technology which stands to dramatically increase human financial freedom. Sometimes these motivations can seem at odds, but in general they coexist within the community.

Get rich making the world a better place. It’s an attractive pitch.

On the other side are the skeptics. Doubt in cryptocurrency has made strange bedfellows of a band of commentators as diverse as it is vocal. Nobel prize economists, billionaire bankers, goldbugs and central banks have all weighed in to signal their prediction of the industry’s inevitable demise. And with the spotlight of increasing coin valuations has come even more doubters. In the age of Twitter, it’s almost essential that you have an opinion on the matter and that you let the world know it. For detractors, the tulip meme often comes into play:

For skeptics as much as believers, there is a personal economic motivation. While they may not have cashed in on the extraordinary rise of cryptocurrencies, they think the game is rigged from the start. By keeping their hard earned cash out of the market, they are saving themselves from an “inevitable” crash to zero.

But under this current of self-preservation is an ethical play opposite to that of cryptocurrency supporters. Many detractors believe that this technology is not just ridiculous but actually harmful to society. What drives this outlook? The true history of the tulip bubble can give us an interesting view of the motivations driving their sentiment.

An Early Mania

Tulip Mania is the go-to story whenever someone wants to talk about humanity’s penchant for irrational exuberance in financial markets. It’s the catchy name for the extraordinary rise in value, and subsequent crash, of Dutch tulip bulb valuations over a four month span from November 1636 to February 1637. This phenomenon had devastating effects on the Dutch economy and left many people in financial ruin.

At least that’s how the story is told.

But according to Anne Goldgar, Professor of Early Modern History at King’s College London and author of Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age, the popular story is mostly an exaggeration.

The description of her book reads like this:

“We have heard how these bulbs changed hands hundreds of times in a single day, and how some bulbs, sold and resold for thousands of guilders, never even existed. Tulipmania is seen as an example of the gullibility of crowds and the dangers of financial speculation. But it wasn’t like that … not one of these stories is true.”

Goldgar uses extensive research to expose that, while there was a rise and crash of tulip prices, much of what we believe about the period is the product of historical exaggeration from a small number of writers.

What drove this? According to Goldgar, it was a product of societal anxieties triggered by the immense riches of the Dutch Golden Age. As Lorraine Boissoneault writes in Smithsonian Magazine’s recent piece on the book, “All the outlandish stories of economic ruin, of an innocent sailor thrown in prison for eating a tulip bulb, of chimney sweeps wading into the market in hopes of striking it rich — those come from propaganda pamphlets published by Dutch Calvinists worried that the tulip-propelled consumerism boom would lead to societal decay.”

English historian Simon Schama also writes of the period: “The prodigious quality of their [the Dutch] success went to their heads, but it also made them a bit queasy. Even their most uninhibited documents of self-congratulation are haunted by the threat of overvloed (abundance) … a word heavy with warning as well as euphoria.”

When looked at through the lens of this historic research, the legend of the tulip bubble becomes less about financial mania and more about the way that an economic memory can reflect a society’s collective mindset. The Dutch Golden Age represents a period during the 17th century when “Dutch trade, science, military, and art were among the most acclaimed in the world.”

This transformation was termed the “Dutch Miracle” by historian K.W. Swart. But, while it is easy to look back now and realize this era was a huge stepping stone to the modern prosperity the Dutch people enjoy today, at the time the progress was not as apparent. Many of the Dutch found a hard time adjusting to a society where fortunes were being created overnight. Schama compares the mindset to one which was found by de Tocqueville in 19th century America: “that strange melancholy which often haunts the inhabitants of democratic countries in the midst of their abundance, and the disgust at life which sometimes seizes upon them in the midst of calm and easy circumstances.”

While there was undoubtedly a run on Dutch Tulip prices, it seems there was an equal run on seizing the opportunity to find a negative aspect to extraordinary societal progress. Today, we are seeing the same mindset from cryptocurrency skeptics.

Modern Anxieties

Cryptocurrency has arrived at an uncomfortable moment in history. There is a wide debate surrounding whether or not technology is hurting human progress. Many argue that smartphones are making kids depressed and robots are taking our jobs. The thought is that technology which was supposed to make life better is instead causing us to become stupid, antisocial and unhealthy. On top of this, the freedom of speech made possible by the internet is being questioned for the alleged harm it can cause to democracy.

It is in this atmosphere of negativity that critics have found their “tulip moment” in cryptocurrency. It is being latched onto as an lightning rod for these growing worries about a society that is becoming radically shaped by the digital age. Detractors consistently ignore any possible justification for cryptocurrency to be considered useful and instead focus on its most distasteful features:

Many cannot push their analysis past observations of price movements. Warren Buffett partner Charlie Munger has described the cryptocurrency scene as “total insanity” and recently told an audience at University of Michigan’s Ross School of Business, “I think it is perfectly asinine to even pause to think about them. It’s bad people, crazy bubble, bad idea, luring people into the concept of easy wealth without much insight or work.”

Others, echoing popular sentiment questioning unbridled freedom of speech, are worried about a lack of governmental oversight. Back in 2013 author Charlie Stross wrote in Why I Want Bitcoin to Die in a Fire that “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 … late-period capitalism may suck, but replacing it with Bitcoin would be like swapping out a hangnail for Fournier’s gangrene.”

Economist Paul Krugman cited the article in his piece Bitcoin Is Evil, adding “Stross doesn’t like that agenda, and neither do I.” While Krugman did admit he was open to conversation on the topic, fellow economist, Joseph Stiglitz, has been less forgiving. Recently he told Bloomberg “Bitcoin is successful only because of its potential for circumvention, lack of oversight…So it seems to me it ought to be outlawed … It doesn’t serve any socially useful function.”

The Progress Paradox

Are these arguments baseless? Not at all. Cryptocurrencies do in fact make many unsavory things possible. But, much like supporters believe bubbles are a necessary evil for price growth, they also believe that some illicit activities are a worthwhile trade-off for the ability to have a censorship-resistant, value-transfer system. They believe the win for personal freedom trumps all else.

It looks as if this idea is spreading. Bitcoin alone has grown from roughly 6,000 transactions per day in January of 2011 to 240,000 transactions on January 1, 2018. With 1000+ other cryptocurrencies, each growing their own communities, this desire for this financial independence appears contagious.

To the critics, these statistics do not matter. They will continue to focus on perceived faults. As the myth of the Tulip Bubble illustrates, this is rooted in human psychology. Some people are set on ignoring the progress around them.

De Tocqueville observed: “In America I saw the freest and most enlightened men placed in the happiest circumstances that the world affords; it seemed to me as if a cloud habitually hung upon their brow, and I thought them serious and almost sad, even in their pleasures.” Over the last few centuries, technology has made our lives less nasty, brutish and short. But, for some of us, the natural reaction has been to question whether it was really worth it.

Cryptocurrency now finds itself at the center of this larger debate over the morality of technology in a developing society. If supporters have their way, it holds the power to usher in a new era of human economic freedom. If critics have their way it will be regulated to death.

Let’s hope one side ends up as forgotten as Calvinist pamphlet writers.

This is a guest post by Kenny Spotz. Views expressed are his own and do not necessarily reflect those of Bitcoin Magazine or BTC Media.

People Trust Satoshi Nakamoto More than US Federal Reserve: NYSE Owner

NYSE Satoshi Nakamoto
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International Exchange Inc. (ICE), the owner and operator of the New York Stock Exchange (NYSE) is keeping an eye on the nascent cryptocurrency trading markets.

Speaking with Bloomberg, Jeffrey Sprecher, ICE’s chief executive, said that it is imprudent to discount cryptocurrencies and that he won’t rule out the possibility of launching cryptocurrency future contracts on one of the exchange operator’s trading platforms.

“There is a trend here we can’t ignore in my mind, so I don’t discount it,” Sprecher said. “People put more faith in a guy named Satoshi Nakamoto that no one has ever met than they do in the US Fed.”

“It’s early days,” but “People are more comfortable in technology than the institutions of government and society that I grew up with,” he said. “I wouldn’t rule out anything around currency.”

It’s notable that the downturn has not caused ICE to view the cryptocurrency markets with incredulity.

While it’s true that the firm recently partnered with cryptocurrency startup Blockstream to launch a cryptocurrency data feed marketed at institutional clients, it had also been hesitant to jump on the Bitcoin futures bandwagon even at the height of the fourth-quarter market rally.

Currently, Bitcoin futures are available on two US exchanges — CBOE and CME, both of which are headquartered in Chicago — while the Colorado-based LedgerX has also launched a small line of Bitcoin derivatives. Other exchanges — including Nasdaq — are toying with launching cryptocurrency-based products, though such discussions have cooled off in recent months along with the overall cryptocurrency market.

Last month, the Securities and Exchange Commission (SEC) quietly began considering an ICE proposal from December 2017 that would allow the company to list two Bitcoin ETFs on NYSE Arca, a move that would likely introduce an entirely new class of retail investors to the cryptocurrency marketplace, albeit through vehicles that provide indirect exposure to the flagship cryptocurrency.

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As The Clouds Are Piling Up: What Do Recent Legislative Developments Mean For Crypto Users’ Privacy

The last few weeks have been tense for those who take privacy issues seriously. First, there was Edward Snowden with yet another massive NSA leak, substantiating the suspicions, already thick in the air, that intelligence services are really after Bitcoin users’ personal information. Then, in the midst of the fallout from the news that Facebook had casually handed the private data of its 87 mln users to an unsavory electioneer firm, US Congress sneaked in a major piece of online privacy legislation, known as the Clarifying Lawful Overseas Use of Data (CLOUD) Act.

The document was tagged onto the coattails of a trillion-something-dollar omnibus spending bill, and therefore had no chance for any earnest legislative review of its own. Despite the initial uproar that it stirred among both online privacy activists and some prominent figures in the crypto community, the immediate public concern for the issue appears to be fading. Let’s not dismiss it as quickly, though: while the CLOUD Act’s implications on privacy regulation are already kicking in profoundly, it is worthwhile to take a thorough look at what’s inside the law and what it holds for cryptocurrency users.

Who is behind, for, and against the CLOUD Act

Sponsored by a soon-to-be-retired Republican Senator Orrin Hatch, the bill found few outspoken opponents on the Capitol Hill. The notable yet unsurprising exception was the libertarian Rand Paul, who unleashed a series of fiery tweets on the Act in the days building up to the vote. The most prominent public opposition came from a lineup of advocacy groups: a coalition led by The American Civil Liberties Union (ACLU), which in a letter called the Act nothing but “a grave threat to civil liberties,” as well as from the aforementioned Electronic Frontier Foundation, the group that voiced concerns about the CLOUD Act’s potential to enable the government to circumvent the Fourth Amendment.

For an outside observer, it might seem counter-intuitive that the united front of the tech’s big guns, including Apple, Google, Facebook, Microsoft and Oath, had earlier pledged unanimous support for the initiative that is designed to urge them to share users’ data with the government. Yet, it starts to make much more sense if you factor in the years-long courtroom thriller that came to be known as United States v. Microsoft Corp. A now-Supreme Court case, it deals with exactly the same issue as the one the CLOUD Act addresses. That is, whether an American tech company can refuse to comply with a court-ordered search warrant that seeks access to user data stored on a server outside of the United States.

The case emerged with regard to a 2013 federal government’s warrant ordering Microsoft to turn over to law enforcement an email stored at its Irish data center. Supreme Court should have made its decision this summer; by all projections, Microsoft’s chances to emerge victorious were slim. The Supreme Court’s likely reversal of the circuit decision (which was in favor of Microsoft) would have created a clear precedent for all similar cases to come – the one that big tech wouldn’t like at all.

The CLOUD Act presents a more palatable way out of this gridlock for communication platforms. Not only it lays down a nonambiguous legal framework to go by in similar cases but also provides the US companies with a firmer vantage point when handling such requests vis-à-vis foreign governments. The Department of Justice has already initiated the process of nullifying the case, while both Supreme Court justices and Microsoft representatives seemed anything but disappointed with the United States v. Microsoft Corp. going moot.

What exactly is in the CLOUD Act?

Essentially, the Act does two things with the data that American tech companies store. First of all, it extends the US government’s jurisdictional reach over them, regardless of the hosting data center physical location. Furthermore, it redefines the rules of the US international cooperation over data matters, simplifying the procedure and almost entirely relieving it of judicial review.

The first clause is quite straightforward. From the day the CLOUD Act is signed into law, all data hosted by any American provider anywhere in the world is a fair game for the US law enforcement, from local police to feds. If there is a court-ordered warrant, it has to be honored. However, it is the international cooperation part that appears to be the most contentious. The Act compels the US providers of electronic communication services (ECS) or remote computing services (RCS) to honor the same requests from foreign governments who have signed bilateral agreements with the United States.

The CLOUD Act amends the 1986 Stored Communications Act, from where it also draws the antiquated language of the ECS’s and RCS’s. Under the old law, the international procedure included signing Mutual Legal Assistance Treaties (MLATs), agreements that required Congressional approval. The new legislation eliminates the legislative review and vests the power to approve bilateral agreements in the executive, namely the attorney general and the secretary of state.

In effect, this means that the executive branch gets to unilaterally decide which governments are granted access to Facebook and Google users’ data. The law contains the language compelling the US officials to ensure that the partner nation’s legal system has robust enough protections for citizens’ privacy, and the requests do not serve to abridge free speech. Yet privacy advocates cite the vagueness of these formulations and lack of concrete criteria that the executive is to apply. Another big concern is that under the CLOUD Act, unlike the law it had amended, foreign governments’ requests for data can be approved without going to a US court.

While privacy advocates complain about all the discretion that the Act endows the executive with, along with the general lack of procedural transparency and oversight, some legal minds suggest that the new system might actually prove more efficient than the MLATs-based one. The ongoing requests will be settled quickly without the need to wait for months and months for a Congressional approval.

Overall, the experts envision a world where the United States would form a “club” of like-minded nations with similar legal systems. Members of this club, bound by bilateral agreements with the US, will cooperate extensively in sharing user data for law enforcement purposes. The data stored in non-member countries will still be accessible to the US officials on court order, but the hosting countries’ national laws will become irrelevant in such cases.

What’s in all that for crypto

The major problem that any government has with cryptocurrencies is that they allow for anonymous transactions. Now, the catch is that most of the cryptocurrencies are not anonymous, as the popular line goes, but rather pseudonymous. Once it becomes possible to link, say, a Bitcoin address to its owner’s identity, the public ledger is wide open to track down all the transactions that have ever gone through the person.

Governments have an obvious interest in establishing such links. Forensic analysis of Blockchains has grown into a lucrative industry, with leading enterprises such as Chainalysis and Elliptic cooperating with law enforcement agencies globally. We have learned well that the IRS is eager to know crypto traders’ identities for the sake of taxing their gains, while the NSA wants to trace every satoshi that had ever possibly gone through terrorist supply chains. The incentives and the tools are both in place. Now, the CLOUD Act comes in.

Who is targeted?

The first question is the scope of the law. Which companies will be compelled to turn users’ private details over to the US and foreign governments? As in the Stored Communications Act of 1986, the language is still all about good old providers of “electronic communication services” and “remote computing services”– the spirits from the early days of the internet. But who are those? Over more than three decades of rulings, courts have applied these labels to all sorts of entities, from a city providing pager services to its police officers, to an airline that ran a centralized electronic booking system. The good news is that in all these cases organizations deemed ECSP’s were actually allowing for exchange and storage of messages; simply keeping user’s personal data did not automatically make a website qualify as an ECSP. Under this logic, online exchanges such as Coinbase or Kraken, which do not allow for users to exchange messages, would be out of the scope of the Act. Then again, we all remember too well that IRS has its own means of compelling crypto exchanges to turn over user’s data.

Within the scope of the CLOUD Act, though, there are companies that directly facilitate communication: email services, social networking platforms, and messengers. It might seem not that big of a deal on the face – after all, who shares their BTC wallet addresses on Facebook? We don’t have surveys on that one, but common sense suggests that not so few. Before a crypto transaction can take place, the parties should somehow communicate all the necessary details to each other, and not everyone uses encrypted messengers for that end. Personal communications are therefore potentially rife with details that are at least indirectly related to people’s crypto identities.

What information can law enforcement obtain?

Under the Fourth Amendment, the government can only look for the evidence that the court-ordered search warrant authorizes it to look for. If, say, the police is inside someone’s house looking for a dead body, the pack of weed that they happen to spot under the kitchen sink cannot be used in court as the evidence of an unrelated crime that the deputies had occasionally discovered along the way. Well, at least that is how it is supposed to work. Similarly, when the NSA sifts through a suspect’s email for terrorist propaganda and comes across the BTC wallet addresses of all presumptively innocent people with whom the suspect had ever transacted for unrelated ends, they should leave this information alone. However, the temptation is there not to. And with lack of oversight, the temptation gets even greater.

The software that the “Blockchain detective” startups rely on performs network analysis to identify clusters of associated wallets. The efficiency of this kind of inference is proportional to the amount of data that is the input to the model. Thus, there is a clear incentive for investigators to have the most complete data even on those who are not directly involved in crimes, so that they can better chart the Blockchain network. Recent Snowden revelations illustrated how intelligence services are ready to go to great lengths in obtaining crypto users’ data, and how unscrupulous they may be in choosing the means of doing so. Of course, where there are tools like tapping into raw backbone traffic and creating whole bogus VPN services at play, unauthorized collection of incidental user data while searching under legitimate warrants might seem not a big deal. However, it is still a feasible scenario under which law-abiding citizens, which the vast majority of crypto users are, can lose control over their personal data.

If that is what the US intelligence agencies routinely do already, the passage of the CLOUD Act is unlikely to make a whole lot of difference beyond granting them potential access to even more data stored by domestic telecoms. What makes the Act profoundly consequential on the global scale, though, is that it could provide as wide latitude to other countries’ law enforcement. For sure, these governments will not be among the most oppressive ones, but the lack of due process in approving bilateral agreements, as well as the lack of judicial oversight in handling individual requests for data, might produce an environment where the power of law enforcement to request and use personal information of Facebook, Twitter, and Gmail users around the world goes almost entirely unchecked.

Intimidating as it sounds, there is also another possibility that privacy advocates tend to consider less frequently: that the new rules for data use could prove efficient in helping law enforcement do their job. While this remains quite possible, it is also true that very soon more people, in raw numbers, will be getting access to more sensitive data, among which your wallet address and crypto transactions may accidentally come across. If this thought makes you uncomfortable, following Andreas Antonopoulos’ advice and “going dark” remains a good option.

Nano Team Target of Cryptocurrency Class Action Lawsuit

A class action lawsuit has been filed against Nano and key members of its core team for allegedly violating federal securities law.

In February 2018, the Italian cryptocurrency exchange BitGrail lost $170 million worth of the Nano currency “XRB” due to a “hack” which has now led to a class action lawsuit represented by the Silver Miller law firm. The firm bills itself as a cryptocurrency investor law firm and currently has actions pending against the Coinbase, Kraken, BitConnect and Cryptsy exchanges as well as lawsuits against pre-functional token ICO promoters Monkey Capital and Giga Watt. Nano was originally known as RaiBlocks and changed their name to Nano in January 2018.

The lawsuit alleges that, in their push to introduce XRB to a wide market of investors, Nano and key members of its core team recklessly directed investors to open accounts and place assets with the small and troubled BitGrail exchange, where the $170 million allegedly “disappeared” in February 2018.

In the complaint, it is alleged that the Nano team engaged in an unregistered offering and sale of securities that violated Section 5, 12(a) and 15 of the Securities Act of 1933 and wrongly directed investors to BitGrail. The lawsuits request that the court rescind the plaintiff class’ investments in XRB and require Nano to “rescue fork” the missing XRB into a new cryptocurrency to compensate the victims for their losses.

The action is being brought by Alex Brola through the law firm, the defendants named in the complaint are Nano the company as well as Colin LeMahieu, Mica Busch, Zack Shapiro and Troy Retzer. The complaint notes that, of the over 130 million XRB tokens that were generated, the defendants withheld millions, if not tens of millions for themselves, the bulk of which are owned by LeMahieu. It is asserted that the defendants promoted the use of and assisted customers in getting accounts at the BitGrail exchange, where the XRB/BTC trading pair resulted in over 80 percent of their trading volume.

The defendants promoted BitGrail as a safe and reliable exchange for XRB holders. The defendants consistently and publicly endorsed and supported BitGrail, despite many complaints. Nano attracted investors with a feature set that was described as instant transactions with no fees and virtually limitless scalability. In addition, there would be no mining as all tokens already existed and no more would ever exist. The full 26-page complaint was filed in the Eastern District of New York and can be read here.