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By Jon Matonis
Forbes
Thursday, April 18, 2013

http://www.forbes.com/sites/jonmatonis/2013/04/18/the-fiat-emperor-has-no-clothes/

A piece from Paul Krugman in The New York Times
this week criticizes bitcoin for being antisocial and for not having a
State-controlled supply while secretly admiring its powerful
abstractness.

As a complicit minion in the State’s appropriation of the monetary unit, Krugman perpetuates ‘The State Theory of Money’ myth that the sovereign’s power to collect taxes and declare legal tender imbues a currency with ultimate value.

While that may be a reason to acquire a certain amount of government
fiat currency, it is a transitory value because in the end it is still
based on a State-sanctioned illusion. Anyone who has visited a weekend
flea market has noticed the old coin and currency collector displays
filled with past experiments in national fiat money. Those paper notes
were at one time valued for something too.

We don’t want a pristine monetary standard untouched by human frailty
as Krugman claims. We want freedom in the monetary standard untouched by the politicizing process.

In a Krugman world, centralized management of the money
supply is preferable to a market-based outcome because the
academically-informed economists will serve the best interests of the
economy at large. However, our monetary overlords possess no special
knowledge or secret sauce that justifies dictatorial control over money
any more than it would justify dictatorial control over the market for
something like soda beverages or dog food. Trust in mathematics trumps
trust in central bankers.

The question of political control over a monetary system is the
greatest litmus test for discovering those that seek control over
others. Usually, it will be cloaked in terms like full employment, price
stability, temporary stimulus, quantitative easing, and economic
growth, but manipulation of the money supply serves only to favor the
issuers of that particular monetary unit.

Money has a lot in common with religion. At some level, it requires a
huge leap of faith. Yes, a belief in gold requires this too as the
non-monetary value assigned to gold is probably no more than 5% of its
market price. However, this is also what makes bitcoin the ultimate social
money because for its value it merely requires others, not the law.
Money is already the most viral thing on the planet and the network
effect exponentially reinforces that.

Krugman actually struggles to assert that bitcoin is antisocial
because he cites economist Paul Samuelson who once declared that money
is a “social contrivance,” not something that stands outside society.
Samuelson is absolutely correct on that point and bitcoin stands firmly
within society. It is no one’s right to question why some place value on
bitcoin and some do not since all value is subjective. The rationale
for assigning value to bitcoin is as varied as the human fabric itself.

In this context, society can be defined as those mutual users willing
to agree to a medium of exchange and a store of value. Since bitcoin,
just as the Internet, recognizes no political boundaries, Krugman
resists seeing the global monetary unit as something social. Krugman sees society only as a multitude of aggregated fiefdoms where he is the emperor’s cherished tailor.

Though, just like the untainted child in the Hans Christian Andersen
fairy tale, some of us are beginning to notice. It’s not the illusion
itself that so offends our sensibilities, but more the notion that a
competitive illusion is not to be permitted. If a free market illusion
voluntarily agreed to from the bottom up is so desperately feared, then
the protectors of the State-sanctioned illusion must not have the most
benevolent of motives in store for us plebeians.

I don’t know about you, but I for one can stand up and exclaim: “the fiat emperor has no clothes!” What if more of us did?

Recorded in Brussels:
http://www.chyp.com/media/podcast/jon-matonis-bitcoin-foundation/

ATLANTA — April 22, 2013 — BitPay Inc, the world’s leading payment processor for bitcoin, announces it now has seven full-time employees working in its Atlanta office, using the funding from its seed round in January and February.

(left-to-right) Crystal Campbell, Patrick Nagurny, Paige Freeman, Tony Gallippi, Ian Patton, Kevin McInturff, Stephen Pair

With a strong focus on technology infrastructure, two new Senior Software Engineers were added under the leadership of co-founder and CTO Stephen Pair, who architected and built the platform. BitPay is pleased to announce the addition of Patrick Nagurny and Ian Patton to their Engineering team.  This team will be improving the core product, making it more reliable, and adding new features.

Paige Freeman also joins BitPay as VP of Sales.  Paige has an Industrial Engineering degree from Georgia Tech, and has spent much of her career as a top Information Technology Sales Manager/Recruiter. Paige’s role at BitPay will be to increase the merchant base, transaction volume, and revenue.  Paige will report to co-founder and CEO Tony Gallippi.

Crystal Campbell has also joined BitPay full-time, relocating from Orlando where she worked at a local restaurant and bar which has been accepting bitcoin using BitPay.  Crystal will be handling Inside Sales and Customer Support in the Atlanta office, also reporting to Tony Gallippi.

The massive increase in transaction volume during March has generated a revenue boost for BitPay, and the company is using the funds to recruit more full-time employees.  The most explosive merchant sector has been companies selling precious metals for bitcoin, which has seen a 500% increase since March as investors chose to transfer their bitcoin gains into gold and silver.

BitPay continues to acquire new merchants at a rapid pace, with over 5,500 merchants now approved to accept bitcoin payments using their service.  Recently, organizations such as the National Libertarian Party and the Freedom of the Press Foundation have begun accepting bitcoin donations using BitPay. 

Overland Park Jeep dealership in Kansas City has also signed up with BitPay to accept bitcoin as payment for any new or used vehicle at their dealership.

The Technology Association of Georgia (TAG) held a reception on April 17 to welcome BitPay to Atlanta.

About BitPay
BitPay is a Payment Service Provider (PSP) specializing in eCommerce, B2B, and enterprise solutions for virtual currencies. Visit https://bitpay.com.

Contact
Jan Jahosky
407-331-4699
[email protected]

In this article we will review how read a bitcoin order book, how to interpret a bitcoin order book, and how to spot common market manipulation techniques by properly understanding order book dynamics.

What is an Order Book?

No, the other kind of Ledger

An order book is a ledger containing all outstanding orders – instructions from traders to buy or sell bitcoin. An order to buy is called a “bid” and an order to sell is called an “ask.” Bids and asks are paired up as soon as their requirements are fulfilled, resulting in a trade. For introductory purposes there are two primary order types to know:

1. Market order – buy or sell immediately for the best available price. These orders are filled by immediately pairing buyers and sellers with orders currently in the books.

2. Limit order – buy or sell a set number of bitcoins at a specified price or better. An example order would be: Bid $1000 to buy ฿10 at $100.

Understanding order book volume

To understand how to interpret order books, we have to first understand how to read them. In the below, you can see current trading price and volume, as well as the bid and asks currently in the order book. The numbered green, red and yellow boxes were added for the purposes of this explanation.

The red boxes indicate sell orders and the green boxes indicate buy orders. For both sides of the order book (bid and ask / buy and sell) the annotated numbers indicate the following:

1. The price level
2. The total volume of bitcoin in the order book at that price level
3. The cumulative volume of all orders between the current trading price and a given price level

The yellow box (#4) highlights a snapshot of the order book $2 above and below the current trading price (approximately $128). In this example, there are 124 BTC of bids at $126 and 344 BTC in cumulative bid volume between $126 and the current price of $128. If a trader were to place an order to sell 300 BTC at $126, they would be filled by 2.5 BTC at $128, 220.4 BTC at $127 and the remaining 77.1 BTC at $126.

Order book depth (total quantity of orders) can be used as a way to quantify the market’s intentions to buy and sell. One way traders can view order book depth, in addition to the method above, is to use a depth chart that shows the cumulative bids and asks in the current market. This technique illustrates the total volume on the order books starting from the value of the latest transaction. In the depth chart below you can see bitcoin trading near $123.5 with bids starting at $122.5 and asks starting at $125. The $2.5 between the highest bid and lowest ask is known as the bid-ask spread.

The green and red lines continue upwards, showing the cumulative bids at any given price level, reflecting the same information as the previous chart we looked at, but with a better visual representation of the order book.

One important note is that the depth of orders is generally much smaller than actual trading volumes, especially during large moves. In the top half of the chart below, we can see several periods where the 1 hour volume was over ฿30,000, however there were relatively small net movements in the price (of only about $5). Compare this to the limit orders on the order book at the bottom of the chart – a ฿30,000 market order bid would move the price up $20 to $149.

So what is really happening here? Most traders are not leaving their orders on the books, but reacting to movements and timing in the market.  There is little reason for a trader to reveal his market expectations and trading positions when you can react almost instantly to market movements.

Bid/Ask Walls

If a trader wants to place orders at pre-determined price points, he can do so automatically without showing his orders on the books by using simple trading software. That said, there are some advantages that would lead a trader to reveal his intentions by placing large, public limit orders.

One common technique is to place a large limit order called a “wall” – referred to as bid walls or ask walls, depending on the type of order. It is fairly common to see walls of ~฿1,000 at even dollar values; however large walls of ฿5,000 can have a significant impact on market sentiment. Large limit orders are often placed to advertise intention and to affect the distribution of orders around the wall (illustrated in the example below). Traders will often move orders ahead of the wall to get executed first.

Lets look at the recent reaction to a ฿5,700 bid wall placed at $123. Traders with orders to buy at a price below $123 observe the reduced likelihood that their limit orders would be filled and move orders ahead of the wall – we can see an almost ฿2,000 increase in orders at $124 and $125.  Then the trader removes the wall at $123, however the newer orders have remained:

Recognizing potential manipulation

As we’ve shown, an order book may not accurately represent a market – unlike historical data, current pricing and live trading volume. At any point before an order is executed (matched with a counterparty) it can be canceled. The temporary nature of order books makes analysis challenging and fraught with potential attempts at manipulation. Traders can place large limit orders that they have no intention of filling in an attempt to give the appearance of a desired market sentiment.

When smaller traders view a large wall ahead of them, the logical reaction is to move orders ahead of it to prevent the wall from absorbing all potential trades.  As others do this in mass, a second wall is created with legitimate orders. The manipulative trader effectively moved up the limit orders on the books, and increased the price people are willing to pay.  There are two potential motives for this:

1. Selling – the trader is trying to reduce the size of his BTC position, he can influence a higher asking price before offloading his BTC. Watch for a fairly large sell order after the bid wall is removed to recognize this.

2. Building support – the trader has already established a BTC position and is trying to reduce the vulnerability of a large sell order moving the market downward. Usually this scenario is followed by a fairly large BTC purchase and a lot of momentum higher.

Questions?

Thank you to Chris, one of our twitter followers, for requesting this order book overview. We appreciate feedback, so feel free to leave questions about this material in the comments below, or reach out to us on twitter @TheGenesisBlock.

The post Bitcoin Trading: Interpreting Order Books appeared first on The Genesis Block.

After nearly six months of delays, Butterfly Labs has finally released a copy of what appears to be the final version of one of their long-awaited ASIC mining products. Similarly to how Avalon first shipped a sample copy of their mining rig to Bitcoin developer Jeff Garzik, Butterfly Labs shipped their first unit to David Perry of Coding in My Sleep. David received the unit Saturday evening, and uploaded a video of himself unboxing and testing it the same day.

The unit in question is a Bitforce SC Jalapeno, the smallest of the four models that the company is selling, and it appears to be running flawlessly, connecting to mining pools with minimal setup and consistently cranking out 4.5-5.7 GH/s, within fifteen percent of its operating specifications. However, aside from the hash rate the statistics do not nearly live up to what the company had originally promised. The device is roughly 10x10x8 cm in size, about three times higher than the relatively flat design that had originally been conceived for the Jalapeno – the name itself coming from the idea that the machine could be used as a coffee warmer. In fact, the company has now quietly dropped the Jalapeno name from this low-end version of its product, preferring instead to use the more mundane “5 GH/s Bitcoin Miner”. However, the device is still somewhat better than those of its chief competitor: Avalon’s miner offers 65 GH/s for 620 W , or about 10.5 W per GH/s compared to Butterfly Labs’ six, and fits into the space of a desktop computer – a space into which Butterfly Labs can put 120 GH/s worth of its Jalapenos.

The device’s power consumption is 30 watts, giving an efficiency of 6 joules per gigahash (or 6 watts per GH/s; the two units are the same), six times higher than what the company originally promised. However, for those who have been following mining news, this is not surprising. When Avalon first released their miners in January, founder Yifu Guo had said in an interview: “They won’t reach the power consumption they were claiming. Recently they changed it to 1.2w, but they won’t even reach that.” Avalon’s own simulations at the time showed that even with Butterfly Labs’ superior 65-nanometer precision manufacturing process it would only be possible to reach about 3W per GH/s. At the time, many (including myself) criticized Avalon for their inferior figures with regard to both power efficiency and size, but now the truth has become clear: Avalon was simply being realistic.

In February and March, Butterfly Labs staff informed customers on their forums that they were having problems keeping to their power consumption targets, and at the beginning of April Bitcoin developer Luke Dashjr publicly confirmed that Butterfly Labs had a working ASIC, but the machine was consuming 180 W to produce only 25 GH/s. The device was not quite production-quality, and some argued that perhaps it was working so inefficiently because it was defective, but at that point it became clear to everyone that 1.2W would remain a pipe dream for many months to come. With its current efficiency of 6 W per GH/s, the “Jalapeno” remains more efficient, but far from what had been originally promised.

Thirty watts is still not a very high power expenditure; the extra 25 watts gives an expenditure of 0.6 kWh, or about $0.10 per day – a pittance compared to the $29.52 per day (that’s 5 GH/s per miner / 75000 GH/s total network hashrate * 25 BTC per block * 144 blocks per day * $123 per bitcoin) of profit that the device can currently produce. But it is nevertheless a serious inconvenience for two reasons. First of all, contrary to Butterfly Labs’ original intent, the device won’t be running off a USB anytime soon. Second, and more importantly, assuming that larger units will have a similar power to output ratio, people in apartments will have difficulty powering large numbers of Single SCs or a MiniRig (now expected to be 10 kW), meaning that those buyers will need to come up with alternative arrangements to run their machines.

Fortunately, Butterfly Labs has provided just that: in a recent FAQ update, the company wrote: “When ordering equipment from Butterfly Labs, you have the option of hosting your equipment locally with one of our affiliate data centers. Your hosted units will be added to a mining farm and you will be paid out regularly based on their collective output.” What is interesting is that Butterfly Labs and its competitor ASICMiner, taking two completely different paths, have now seen their business models converge to one and the same: Butterfly Labs, initially only selling machines, is now offering what from the buyer’s view is essentially an investment product – although they are careful to maintain that they are still actually selling hardware, giving the buyer the responsibility of configuring their device on the software side, and ASICMiner, originally literally selling shares, is now also selling machines. For those concerned about Bitcoin network centralization, Butterfly Labs’ announcement is unfortunate, as a significant fraction of the Bitcoin network will end up headquartered in one place, although the hosting location will not be administrated by Butterfly Labs themselves, and ASICMiner’s opposite announcement effectively counteracts the added centralization from this program.

So far, only the Jalapeno has been publicly released to anyone, so it still remains to be seen exactly what Butterfly Labs will do with their larger units. Josh Zerlan has said that the medium-size Singles will likely be about twice as large as the original ten-centimeter cube design and slightly wider, and stated in a public update that “obviously the minirig can’t fit 1.5 TH/s in a case the size of what we were planning, but we have some interesting solutions with regards to that,” but more specific answers are not available just yet. Fortunately, it appears that the Bitcoin mining company that we have been waiting on for so long is now in the final stages of working out these problems, so the Bitcoin mining landscape will continue to be interesting to watch for many months to come.

The post Butterfly Labs Ships First Finished ASIC For Review appeared first on Bitcoin Magazine.

By Bradley Jansen
FreeBanking.org
Saturday, April 20, 2013

http://www.freebanking.org/2013/04/20/fincens-director-on-virtual-currencies/

Earlier this week, FinCEN Director Jennifer Shasky Calvery
addressed the National Cyber-Forensics Training Alliance CyFin 2013
Conference.

She explains again
how the Financial Crimes Enforcement Network (FinCEN) gets its data
from the reports it mandates that banks use to spy on their customers
against them. Lots and lots of reports.

But she promises:

“However, right now this is long and arduous work as
analysts sift through hundreds and sometimes thousands of reports. Very
soon, new capacities made possible by our internal technology
modernization will allow our analysts to deal with such data sets to
find leads in a fraction of the time previously necessary. Very soon, we
will be able to point law enforcement and other stakeholders precisely
to where they should be looking. Our analysts, working hand- in-hand
with our superb technology team, are now putting these new capacities
into place.”

But her talk really focused on “Emerging Payment Systems.” Her
comments have echoed mine (from an entirely different perspective) that
technology (and specifically mobile apps) offer great opportunities (for
free banking) and that those not well served by our current system (the
“unbanked” in the US–immigrants,
poor, racial and ethnic minorities–and people in countries with less
mature financial systems or sound currencies) are a great target market.

“As we all know, during the past decade, the development
of new market space and new types of payment systems have emerged as
alternatives to traditional mechanisms for conducting financial
transactions, allowing developing countries to reach beyond
underdeveloped infrastructure and reach those populations who previously
had no access to banking services. For consumers and businesses alike,
the development and proliferation of these systems are a significant
continuing source of positive impact on global commerce.”

Don’t worry, FinCEN is working to strangle these initiatives in their crib with their regulations. She pays special attention to “crypto-currencies” in her talk.

“We’re viewing our analytic work in this space as an
important part of an ongoing conversation between industry and law
enforcement. While probably most of today’s audience understands what
these emerging payments systems are and how they work, many line
analysts, investigators, and prosecutors in law enforcement may not, and
part of FinCEN’s role is to help be the bridge to explain these new
systems. FinCEN is dedicated to learning more about digital currency
systems, along with other emerging mechanisms, to protect those systems
from abuse and to aid law enforcement in ensuring that they are getting
the leads and information they need to prosecute the criminal actors. As
our knowledge base develops, in concert with you, we will look to
leverage our new capabilities to identify trends and patterns among the
interconnection points of the traditional financial sector and these new
payment systems.

In addition to developing products to help law enforcement follow the
financial trails of emerging payments methods, FinCEN also develops
guidance for the financial industry to clarify their regulatory
responsibilities as they relate to emerging areas.”

And, as our Bitcoin fans know–at least those who follow my posts here or my rants on our Facebook page, FinCEN has “virtual currencies” in their sights. And, remember too, it was FinCEN that shut down e-gold back in the day and crippled the crypto-currency movement last century.

I’ll quote her in the entirety of her virtual currency remarks:

“In fact, just last month, FinCEN issued interpretive guidance to clarify the applicability of BSA regulations to virtual currencies, such as Bitcoin, which has in recent weeks gained significant attention. The guidance responds to questions raised by financial institutions, law enforcement, and regulators concerning the regulatory treatment of persons who use virtual currencies or make a business of exchanging, accepting, and transmitting them.

FinCEN’s rules define certain businesses or individuals as money services businesses (MSBs) depending on the nature of their financial activities. MSBs have registration requirements and a range of anti-money laundering, recordkeeping, and reporting responsibilities under FinCEN’s regulations. The guidance considers the use of virtual currencies from the perspective of several categories within FinCEN’s definition of MSBs.

The guidance explains how FinCEN’s “money transmitter” definition applies to certain exchangers and system administrators of virtual currencies depending on the facts and circumstances of that activity. Those who use virtual currencies exclusively for common personal transactions like receiving payments for services or buying goods online are not affected by this guidance.

Those who are intermediaries in the transfer of virtual currencies from one person to another person, or to another location, are money transmitters that must register with FinCEN as MSBs unless an exception applies. Some virtual currency exchangers have already registered with FinCEN as MSBs, though they have not necessarily identified themselves as money transmitters. The guidance clarifies definitions and expectations to ensure that businesses engaged in similar activities are aware of their regulatory responsibilities and that all who need to, register appropriately.”

The second half of her speech talked about account takeovers via
malware, risks with third party payment processors, improvements they
are making to their analytical work (after some false starts!),
their public-private partnerships with industry, and her personal
initiative “The Delta Team” (“The purpose of the Delta Team is for
industry, regulators, and law enforcement to come together and examine
the space between compliance risks and illicit financing risks. The goal
is to reduce the variance between the two.”).

And let’s not forget FinCEN’s dreams of global domination. They are
in a partnership of 130 other “Financial Intelligence Units” as part of
the Egmont Group.

The text of her remarks is available at the following link:

http://www.fincen.gov/news_room/speech/pdf/20130416.pdf

Reprinted with permission.