Bitcoin Bolt

The following is a response to Max Keiser’s piece in the Huffington Post titled “Should Bitcoin Peg Itself To The Dollar?” Mr. Keiser is a smart man. He knows bitcoin as well as anyone. We would like to believe he posed this question not as a suggestion, but as a catalyst for thoughtful discussion. So, let’s discuss.

No person or entity has the power to enact such a policy

The entire proposition of a currency peg for bitcoin falls apart when you consider the actual implementation. There are unavoidable hurdles such as decentralized authority and limited issuance intentionally implemented by the bitcoin protocol to prevent this from ever happening.

No central authority

No single person or entity holds the authority to enact this change. Bitcoin relies on a distributed network of currency participants without a central control. The Bitcoin Foundation, responsible for software updates and thought leadership, could not enact this without majority consent from the community. Even if both the Foundation and the community bought into the idea, there would be no way to implement it.

Currency pegging is done by a central authority buying the pegged currency to keep the price up and selling the pegged currency into the open market to drive it back down as needed, keeping its exchange rate within a narrow band around the reference currency. There are two main blocks that would prevent this from ever actually occurring with bitcoin:

• Who would be responsible for doing this? There is no central repository of bitcoin to manage open market sales and purchases.

• Where would you even get the bitcoin to sell into the open market and reduce it’s value? It cannot be issued at will, as is done with the Yuan, so facilitating this would be impossible.

Pegged currency requires capital controls

Since maintaining a currency peg requires constant control of the pegged currency’s forex flow, it also requires capital controls to prevent holders of the currency from selling too much into the market and devaluing it. That would be impossible, given that bitcoin is anonymous, instant and does not have to clear through institutions, making it the ultimate tool to fight capital controls and is already being used worldwide as a way to circumvent such limitations. Good luck implementing those controls within bitcoin itself.

Devaluation for trade is irrelevant – bitcoin is a global currency

Mr. Keiser cited China’s economic growth, achieved by keeping their currency artificially low relative to the dollar. The goal of this was to make goods from China cheap relative to international alternatives, giving the Chinese government an incentive to perpetuate the low exchange rate. As a global currency, bitcoin does not favor the trade aspirations of one entity over another, so who exactly would this benefit?

The point about volatility affecting the viability of bitcoin as a trade medium is fair, but rushing to achieve this through artificial market manipulation is not ideal. Volatility will subside over time as the market matures. If it happens naturally, we create a currency that is both usable for trade and trusted because it is priced by an honest, open market. In the meantime, there are strong options for vendors looking to accept bitcoin. See our recent interview with Alex Likhtenstein for an overview of how his establishment, EVR, uses bitcoin as a payment method without taking on BTC volatility exposure.

Why, of all currencies, would you choose the dollar?

Bitcoin enthusiasts love bitcoin because it is not subject to the inflationary practices undertaken by the Federal Reserve, ECB and other global central banks. If bitcoin were pegged to a currency, why not a safe haven like the Swiss Franc that actually sees natural deflation, aligning it with the interests of current bitcoin holders? Destroying bitcoin’s use as a value store to encourage its use as a transactional medium is a trade-off bitcoin was designed to never have to make.

Open trading provides liquidity

As stated above, the notion that volatility hurts adoption from merchants looking to transact with bitcoin is fair. That said, we must not forget that using bitcoin as a transactional medium still means swapping it back to dollars so vendors can pay their suppliers and employees. Without an open forex market, the ability to make those swaps back to USD would be hindered, leaving vendors stuck with unusable BTC. Volatility risk affects pricing and adoption in the short term, but illiquidity would be far more detrimental.

The most upsetting statement of all

Without a doubt the most upsetting part of Mr. Keiser’s piece is his concession to the legacy banking and payment systems bitcoin was created to disrupt. He states,

“Fincen, a captured regulator (like the SEC, and CFTC) is muscling bitcoin exchanges and shutting them down, hoping to take off the market any potential competitor to entrenched oligopolists Visa, Mastercard and PayPal… Having a fixed rate of exchange for Bitcoin would allow all bitcoin exchanges to ‘go dark.’ Without the need to publish trading activity, exchange rates, and current prices; there would be no need to operate within eyesight of troublesome thugs-for-hire working for the payment and currency cartel looking to shut down a competitor.”

I, for one, am not ready to coalesce to avoid the ire of the payment and currency cartel. When did Max Keiser, a leader of open market economic thought and a vocal proponent of the bitcoin movement, lose his will to fight the good fight?

Bitcoin is the ultimate free market currency. Let’s keep in that way.

This man is an inspiration. May we have him back, please?

The post No, Mr. Keiser, Bitcoin Should Not Peg Itself To The Dollar appeared first on The Genesis Block.

By Jon Matonis
Forbes
Monday, April 22, 2013

http://www.forbes.com/sites/jonmatonis/2013/04/22/bitcoin-foundation-expands-global-media-opportunities/

The Bitcoin Foundation is an excellent template
for a decentralized nonprofit project and I am proud to serve alongside
the other dedicated board members on such a historic effort.

Established seven short months ago, the foundation
has recruited bitcoin’s lead developer (transparency of compensation is
important), launched a grant program for funding bitcoin-related
initiatives, and coordinated a showcase conference
in San Jose. About 60% of our membership comes from outside the U.S.
and we are currently seeking partners for local chapters in foreign
countries which will increase global effectiveness.

Additionally, the foundation maintains an active relationship with
various press entities seeking information about Bitcoin and the role of
the nonprofit foundation. Since these inquiries come from around the
world, we strive to be inclusive and we enlist the voluntary support of
foundation members and regional affiliates for certain questions because
they would best know their local bitcoin markets. We also refer many
technical questions on cryptography and bitcoin mining to contributing
developers. Frequently and on short notice, the press wants examples of
bitcoin users in a particular country that are willing to speak openly
with the media and sometimes on camera so we do our best to accommodate
that.

Media opportunities often lead to conference
opportunities. Ultimately, this work expands the market for bitcoin
education. Conference organizers and media outlets also reach out
directly to executives at existing bitcoin businesses and other
professional analysts that are known from previous appearances. If a
publication or television station seeks a certain individual for
political commentary, that can be found quite easily on Twitter or the
Bitcoin Forum. Social media has vastly increased the opportunities for
people willing to speak.

It’s not always about taking a position on political or human rights
issues. Mostly, it’s about freedom of choice in currencies and economic
education on bitcoin price movements, bitcoin exchange markets, bitcoin
merchants, potential regulation, and the differences between Bitcoin as a payments network and bitcoin as a monetary unit. Or, it’s about specific use cases such as asset protection in Cyprus or maintaining donation payments in support of freedom of the press.

The foundation itself is nonpolitical, so when an inquiry comes from an industry regulator, our role is to explain what is and what is not
possible in terms of potential regulation. I believe this approach to
be the most effective stance to take when confronted with regulatory
queries. Fortunately, Bitcoin transcends the conventional philosophy of
regulation by reducing certain aspects to irrelevancy.

For instance, bitcoin exchange endpoints where bitcoin interfaces
with national fiat money and the banking system is a possible point of
regulation due to current AML and KYC guidelines in most countries.
However, due to the nature of distributed computing, ongoing
transactions between individuals and companies would be technically
outside the scope of potential regulatory action as long as there is
electricity and internet connectivity.

Debates around gambling and personal drug use are moral issues. An
apolitical currency like bitcoin is simply a network protocol, like
email or telephone, so it is unable to express a morality.

To date, this educational approach has been effective because only
four jurisdictions and one central bank have published any formal
statements on the Bitcoin cryptocurrency — Norway, Australia, France, United States, and the ECB. With the exception of the recent U.S. FinCEN regulatory guidelines, all of the reports have been explanatory in nature.

Open source development projects while extraordinary in many respects
are actually not very good at “staying on message,” whatever that
means. And with Bitcoin, there’s no reason that they should be because
there isn’t a single message. The diversity of what attracts different
people to Bitcoin is one of its greatest strengths. Free market
economists admire the separation of money and government while
audit-minded accountants relish its public traceability. Even Paul
Krugman secretly covets bitcoin’s abstract nature for a future Federal Reserve digital currency.

However, being against dissenting viewpoints on regulation, being
unwilling to confront any form of taxation, or being anti-financial
privacy does not make one a neutral bitcoin advocate as some have
suggested. Those positions are the worst sort of bias because from the
outset they wrap ideology in what is politically correct and easily
digestible by the masses. Furthermore, it can be disingenuous and
manipulative.

Either way, Bitcoin is the honey badger of currencies and the
protocol rolls on. Hat tip to Gavin Andresen for locating this media
theme song.

By Jon Matonis
PaymentsSource
Monday, April 22, 2013

http://www.paymentssource.com/news/bitcoin-pros-to-talk-merchant-acquisition-banking-opportunities-3013882-1.html

With bitcoin in the media spotlight, everyone seems to have an
opinion on the price. Few recognize the profound implications of
decentralized money for the monetary system, society and government –
not to mention the emerging business opportunities.

The timing could not be better for the inaugural conference of the newly-formed Bitcoin Foundation.
Next month, several hundred people from around the world will converge
on the San Jose Convention Center (in Silicon Valley, naturally). Billed
as “The Future of Payments,”
the conference is attracting technologists, venture capitalists,
bankers, traders, payments specialists, and financial regulators.

Launched
in January 2009, bitcoin achieved all-time highs in transaction volume
and new entrants into the currency last week – milestones overshadowed
by the price volatility. The nonprofit foundation was established
in September 2012 to standardize and promote the core bitcoin protocol.
(I have a seat on the foundation’s board.) Two of its early
accomplishments were to recruit lead bitcoin developer Gavin Andresen
(whose informal role in the Bitcoin community mirrors Linus Torvalds’
position in the Linux world) as chief scientist and to launch a
quarterly grant program for funding various initiatives that advance the
bitcoin protocol. Next, the foundation intends to encourage best
practices for bitcoin businesses and exchanges, to facilitate the
formation of local foundation chapters in foreign countries, and to
educate global regulators about what can and cannot be regulated
feasibly with a distributed peer-to-peer system such as bitcoin.

Although
the conference features excellent technical tracks, the agenda will be
particularly interesting to those in the banking and payments fields.

For
example, many people understandably ask why merchants would want to
accept payments in Bitcoin given the volatility of the exchange rate
with the dollar. After all, even if you believe the digital currency
will appreciate over time, you probably can’t use it to pay the electric
bill or the rent.

Part of the answer is the service provided by firms like BitPay,
whose cofounder and CEO, Anthony Gallippi, will explain how he’s been
driving business adoption of Bitcoin. BitPay functions as a merchant
payment processor, somewhat akin to the acquiring banks in the
Visa/MasterCard space. The startup provides foreign exchange conversion
services for merchants desiring immediate settlement in local national
currencies. Thus Tony’s customers reap the benefits of Bitcoin – no
chargebacks, since bitcoin transactions are irreversible, and lower fees
than they’d pay for credit card transactions – while BitPay takes the
currency risk. Tony recently landed one of the best-known merchants to
accept Bitcoin: WordPress, the blogging platform.

Another startup is Paymium,
whose Bitcoin-central exchange has shown it is possible to seamlessly
integrate bitcoin and the traditional regulated banking infrastructure.
The French company’s co-founder and chief operating officer, Pierre
Noizat, will talk about bridging that gap. If his name rings a bell for
some financial services professionals, it may be because Pierre comes
from the traditional payments world, having served as managing director
of the French Mobile Contactless Association.

Would-be
disruptors eyeing this space but worried about legal uncertainties will
have a chance to hear from Patrick Murck, the general counsel of the
Bitcoin Foundation. His expertise extends across the legal and
regulatory issues governing the use of Bitcoin, virtual economies,
gamification, alternative payment systems, and social loyalty and reward
programs. Immediately after the Financial Crimes Enforcement Network
issued the March 18 regulatory guidance on centralized and decentralized
virtual currencies, Patrick published an analysis.

Bitcoin’s
user-defined anonymity protects personal privacy, and this combined
with the decentralized structure arguably thwarts censorship – for
example by allowing people who want to donate to WikiLeaks to circumvent
the political blockade that forced the major payment processors to cut off that organization. Rainey Reitman, the activism director of the Electronic Frontier Foundation,
a nonprofit civil liberties law firm and advocacy center, will hold
forth on these liberating aspects of Bitcoin. She is particularly
interested in the intersection between personal privacy and technology,
and has spent significant time investigating the role of financial
intermediaries as censors. Reitman is also the chief operating officer
and co-founder of the Freedom of the Press Foundation,
a nonprofit organization that crowd-sources funding to supporting
independent, nonprofit journalistic institutions – and recently started
accepting bitcoin.

Most of the attention paid to Bitcoin in the mainstream media has focused on its merits and drawbacks as a store of value. The smarter commentators
have paid greater attention to its potential as a means of exchange.
But what about the third key role of money, as a unit of account?
Bitcoins, after all, are divisible to the eighth decimal place, and this
is another disruptive component. Erik Voorhees,
a bitcoin early adopter involved in several leading bitcoin-related
companies, such as BitInstant, SatoshiDice and Coinapult, will encourage
thinking on this as he discusses the economics of Bitcoin and its role
as money.

Ever since the bitcoin cryptocurrency launched and
achieved initial success, institutional investors and hedge fund
managers have secretly sought a regulated investment vehicle for bitcoin
placements. Malta-based Exante Ltd. has a solution with its new Bitcoin Fund. There remains a case for Bitcoin as a store of value, even after the recent whipsawing. Tuur Demeester, author of the financial newsletter MacroTrends,
added bitcoin as part of his recommended currency basket in January
2012, and he’ll talk about bitcoin’s emerging role as a separate asset
class alongside precious metals, equities, and bonds.

Last month, my column featured a conversation with software developer and online payments industry veteran Peter Šurda about how nonpolitical cryptocurrencies like bitcoin could alter the future of fractional reserve banking. If you were as fascinated as I was by the discussion, he’ll be on the “Economics of Bitcoin” panel with Voorhees and Demester.

The One Foundation, the first officially recognized private charitable fundraising organization operating in China, has now also become the first Chinese organization to start accepting Bitcoin donations. The organization published a donation address on April 23, and received 230 BTC ($30,000) within two days, instantly making it one of the most successful Bitcoin charities to date.

The One Foundation was originally created in 2007 by renowned Chinese film actor Jet Li, who then took a year off film-making in 2008 to promote the foundation. Private fundraising organizations are highly regulated in China – even now most applications to create one are simply rejected, so for the first three years of its operation the One Foundation was not even an independent organization; instead, it operated under the umbrella of the Red Cross Society of China, a government-connected organization operated by the Ministry of Health. However, its partnership with the Chinese Red Cross was a restrictive one. “Jet Li complained that the One Foundation had little say in deciding on the use of money it had raised,” Xinhuanet’s Wu Chen and Wu Caixia write. “According to his plan, his foundation sought to focus more on supporting domestic grass-roots NGOs, which lack both money and professionals, while the Red Cross Society of China is an organization paying more attention to disaster relief.”

In 2009, the Chinese government started a trial project in its “special economic zone” in Shenzhen to streamline the registration process, allowing the local government of Shenzhen to register foundations – a power previously only held by the federal government. Shenzhen authorities were willing to work with the One Foundation, and it was finally able to register as an independent foundation in 2010. In 2011, the Chinese Red Cross’s reputation was damaged by a scandal in which a 20-year-old claiming to be the “commerce general manager” of the organization, Meimei Guo, publicly flaunted artefacts of an extravagant lifestyle that many assumed had been paid for with charity money (it was later discovered that she was the girlfriend of someone involved with the Red Cross; he has since resigned). Concerns over government corruption and extravagance are common in China; the Chinese Red Cross is administered by the Chinese Ministry of Health, and so its employees gain the “iron rice bowl” guaranteed job security and welfare benefits of public servants – benefits that many feel are undeserved when ordinary Chinese working outside government agencies have little of either welfare benefits or job security. The Meimei Guo incident reignited these concerns, and two investigations into the matter was carried out.

When the Ya’an earthquake struck in April 2013, the total lack of confidence in the Chinese Red Cross became painfully clear. “Right after the quake,” Financial Times columnist Julie Zhu writes, the RCSC said on Weibo, China’s answer to Twitter, that it had sent a team to ‘inspect’ the quake-hit region. Tens of thousands of Chinese microbloggers fired comments back. The message from most of them: ‘Get lost’”. “As an ordinary citizen, I will never donate a penny to the Red Cross Society,” one user of Weibo, the Chinese equivalent of Twitter, wrote, and another added “The RCSC is shameless. The earthquake is terrible enough. We don’t need you to ‘inspect’. Get out of our sight.” By the end of the day, the agency had received only $23,000 worth of donations. Because of its past relationship with the Chinese Red Cross, the One Foundation also took some of the reputational damage from the Guo Meimei incident; its staff had to frantically rush to remove an old Red Cross link from their site when a user stumbled upon it. However, at the same time the foundation is quietly gaining credibility as an alternative, although both organizations are careful to avoid outright competing with each other for individuals’ donations.

Soon after the earthquake struck, the One Foundation also decided to try something new: accept donations in bitcoin. The organization released the address on April 21, and within two days it received over 230 BTC – marking what appears to be the first significant Chinese Bitcoin fundraising drive in history. “Welcome geeks and hackers’ bitcoin donations to the One Foundation,” a representative wrote in a brief reply written in Chinese when asked about the donation address by Bitcoin Magazine. The 230 BTC donated are worth about $30,000 today; when compared with the agency’s total receipts of $2.4 million USD, this means that, within the scope of this particular fundraising drive, Bitcoin was responsible for an entire 1% of China’s largest independent charity’s revenue. The amount was not even from a single donor; the three largest donations were 88, 39 and 25 BTC respectively, but all other donations were 10 BTC or lower. Given that the organization had started accepting Bitcoin quietly, with no news of its Bitcoin acceptance or even the earthquake in the English-speaking Bitcoin media, this leads to an important question: where did the donations come from? There seems to be only one logical answer: a growing, and already quite developed, Bitcoin community in China itself.

There are also other signs that point to a massive surge of interest in Bitcoin in the Chinese community. Just like everywhere else, interest in Bitcoin according to standard indicators like Google Trends and exchange trade volume has risen massively over the past four months, but in fact Bitcoin in China is growing even faster than elsewhere. While trade volume at the leading exchange MtGox peaked at about 10 times January volume during the peak two weeks ago, trade volume on BTCChina increased by a factor of 30. April 23 became the first day that any country downloaded the reference Bitcoin client more than the United States; the country in question was China.

There are a number of reasons to believe China has solid potential to take up Bitcoin. The Chinese already have experience with virtual currency in the form of QQ Coin, although that particular attempt at virtual currency was eventually crippled by Chinese regulatory authorities. Bitcoin may enable Chinese users to evade currency controls to a much greater extent than previous centralized systems like QQ Coin ever did. Earning or trading virtual currencies in video games is also a popular occupation; the archetype of a “Chinese gold farmer” collecting in-game assets in massively multiplayer online games to sell for profit is quite real.

The greatest hope, however, lies in bridging the Chinese and Western worlds. Most of North America and Europe are standardized on a number of proprietary platforms for payment: PayPal, Visa and Mastercard come to mind. China has its own equivalents; Alipay is perhaps the best known. Bitcoin will not fix the language barrier between the two worlds, but it can certainly make economic interaction much more seamless; a store catering to Chinese expats called IWannaBuy started accepting bitcoins only a few weeks ago. Bitcoin may even end up being a significant boost for the entire Chinese non-profit sector; charitable donations in China currently only amount to about 0.09% of GDP, so the fact that Bitcoin opens the door for these organizations to receive international donations – from, say, Chinese expatriates living in Canada and the US with families still in China, opens an opportunity for Bitcoin and Chinese charity at the same time. The Bitcoin community has just shown that it alone is willing, and able, to donate as much to the One Foundation as all of China did to the Chinese Red Cross – suggesting that Bitcoin may play a significant role in China’s non-profit, and perhaps even for-profit, sectors in the years to come.

The post Chinese “One Foundation” First to Accept Bitcoin, Receives $30,000 appeared first on Bitcoin Magazine.

Guardian – Bitcoin Migrates Off The Internet (Video):

Guardian’ s Kate Connolly (@ConnollyBerlin) and Guy Grandjean (@guygrandjean) cover the story happening in Kreuzberg, which is becoming a the world’s largest Bitcoin local economy.  Excerpts:

”’[Bitcoin is] an easier way of digital payment than credit cards, which cost me a lot of money as a business and to which I’m forced to sign up for years,’ [says Florentina Martens owner of Parisian-style cafe Floor’s].”
–
“Graefekiez, a cosy neighbourhood established in the 19th century in the southern Berlin district of Kreuzberg, currently boasts the highest density of businesses accepting the currency in the world.”
–
“‘Kreuzberg is traditionally an area in which people are very politically aware, critical towards existing systems and are constantly discussing and looking for alternatives to them, which makes it the perfect breeding ground for Bitcoin,’ says Joerg Patze [owner of Room 77].”
–
“[Law student Jeff Gallas] taps the amount he owes Room 77 into the virtual Bitcoin wallet on his Android phone and, aligning it with a code on the bar’s device, presses a button to process the payment. A theatrical ‘kerching’ sound follows and Gallas is grinning from ear to ear. ‘It could hardly be easier,’ he insisted.”
–
“[Wilko Bereit] likes the fact that Bitcoin scares people in suits, ‘because if this thing were to really take off, it would bankrupt a lot of bankers.’”

 – http://bit.ly/12rZ73O
 – http://bit.ly/17m9pER (Video)
 – http://bitcointalk.org/index.php?topic=188269.0 (Further discussion of the article and video)

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