DailyDirt: Does Bitcoin Matter?

from the urls-we-dig-up dept

There have been a lot of stories going around about Bitcoin, including some reports that Bitcoin could become a mainstream payment system. For now, Bitcoin seems like a relatively volatile place to store your money, but its protocol may spur innovation beyond online payments. Here are just a few links to check out if you haven't (yet) set up your Bitcoin mining hardware in your living room.

• Marc Andreessen has written up his opinion on why Bitcoin matters, stating that it's the first practical solution for the Byzantine Generals Problem -- allowing (digital) information to be transferred securely in an insecure environment (the internetz). Andreessen isn't an unbiased source, though, as he has invested nearly $50 million in Bitcoin startups and is looking for more Bitcoin-related investments. [url]
• Glenn Fleishman has a rebuttal to Andreessen's opinion, pointing out the less rosy features of using Bitcoins such as the "buyer beware" aspect of having no chargebacks and no recourse for disputed transactions. Fleishman agrees that Bitcoin has value as a secure payment and transaction system, but not as a new currency that could displace existing government-backed money. [url]
• Focusing on Bitcoin as just a payment system or a currency may be looking at it too narrowly. The Bitcoin protocol can be re-used for other purposes that have nothing to do with money, such as building a secure P2P microblogging platform (eg. Twister). [url]
• Overstock.com is now accepting Bitcoin payments, making it one of the first online retailers that you've probably heard of to do so (besides the Techdirt store, of course). So far, Overstock users have bought over $500,000 worth of stuff using Bitcoin -- with sheets and cellphone accessories as the top items purchased (???). [url]

If you'd like to read more awesome and interesting stuff, check out this unrelated (but not entirely random!) Techdirt post via StumbleUpon.

Filed Under: bitcoin, byzantine generals problem, currency, glenn fleishman, marc andreessen, money, online payments, p2p microblogging, retailers, twister
Companies: overstock

Police Chief To Be Paid In Bitcoin, But Mostly As A Publicity Stunt Gimmick

from the seems-a-bit-questionable dept

A few folks have been passing around variations on this story about how police chief Tony Vaughn of the small town (population: ~330) of Vicco, Kentucky, is likely to get his wish to be paid in Bitcoin very soon, after the city commission approved a measure saying that such a system is acceptable (taxes will be taken out in dollars before its converted to Bitcoin). While the story is interesting, the whole thing appears to be a publicity stunt. Vicco got a lot of attention a few months back when it was featured on the Colbert Report for having a gay mayor and passing a "fairness ordinance" against discrimination (the video is amusing, basically mocking those who falsely assume that "small town America" is anti-gay):

Police Chief Vaughn is among those featured in the video, talking about how Mayor Cummings is his best friend. After that show, the town discovered that a bunch of folks wanted to donate money to the town.

All together, the pledges and grant applications amount to more than $200,000, approaching Vicco's annual budget of about $300,000, Cummings said. Still, the town has only a tiny fraction of that money in hand.

However, both Cummings and Vaughn have talked about "capitalizing" on the attention, including appearing on a reality TV show:

The town may even become the setting for a reality-based television show. Cummings said he expects to review a contract proposal soon from a production company, but doesn't know which network might be interested.

He said he wants the show to focus on revitalizing the town.

"I don't see us being that entertaining, but somebody else seems to think we're a little unusual," he said.

A reality TV show where they show off how "unusual" they are? Suddenly the idea of a wacky police chief who gets his salary paid in Bitcoin seems like yet another "hook".

Also, Cummings and Vaughn seem to recognize that staying in the news -- and potentially getting more donations -- is part of the plan:

"I'm excited about it; it's a first for Vicco again," Vaughn said, referring to the city's fairness ordinance passed in January that prohibits discrimination based on sexual orientation. The city was the first in the region to approve such a law, and at the time only the third in Kentucky.

But Cummings added that publicity isn't necessarily the only reason for the city to take such a step. Since the city's passage of its fairness ordinance and a subsequent appearance on Comedy Central's "The Colbert Report," officials have received several donations, including several pieces of playground equipment for a new park near City Hall. And now the city's upcoming website will be set up to accept Bitcoin donations, something Cummings said could help the small town of 300 people better afford projects to improve local infrastructure.

That's not to say that the plan isn't real, but it seems reasonable to ask if this isn't just another way to get a small town extra attention after its recent attention (and donations) started to die out. Vaughn's salary is still being based in dollars and just converted to Bitcoin, so his "salary" isn't in Bitcoin, he's just "paid in Bitcoin." And given the fact that the town itself is doing this at the same time that it's seeking donations and has set itself up to accept Bitcoin, it appears that this may just be a somewhat silly way to keep this small town in the news... and trying to get donations.

Filed Under: bitcoin, kentucky, publicity stunt, salary, tony vaughn, vicco

News From The Techdirt Insider Shop: Bitcoins, Black Friday & The 2013 Holiday Bundle

from the reason-to-buy dept

It's that time of year again — we've got a bunch of treats for readers who want to support Techdirt while getting some new gear and perks for the holidays. Today we're happy to make three big announcements about the Techdirt Insider Shop.

First, the shop is accepting Bitcoins! You can now use the internet's native currency for any purchase — just fill your cart as usual and select the Bitpay option at checkout.

Second, in celebration of that upgrade and as part of the Bitcoin Black Friday event happening today, we've put a bunch of items on sale. There are savings on a bunch of Insider gear, plus big discounts on our offerings for serious fans: Lunch with Mike and an awesome day with Techdirt.

Last but not least, it's time for the return of the Holiday Bundle!

This year's bundle includes a pullover hoodie, your choice of a coffee mug or water bottle, and the classic logo tee in your choice of light or dark gray. On top of that, the bundle includes a Watercooler Special: one full year of access to the Crystal Ball and the Insider Chat, plus a monthly cache of First Word/Last Word credits and an exclusive group video chat with Mike. All together this package would normally cost up to $152, but for a limited time it's available at $99!

If you're ordering gear from the Insider Shop to give as a gift, please do it soon to ensure it ships in time! Unfortunately we are unable to guarantee Christmas shipping, but orders placed by December 14th (in the US) or December 9th (internationally) should arrive on time with all shipping options. Depending on your location, there may be express shipping options available as well.

Happy holidays and happy shopping!

Filed Under: bitcoin, black friday, holidays, insider shop

As Silk Road 2.0 Pops Up, The Government Needs To Avoid The Temptation Of Moral Panic

from the moral-panic-a-coming dept

Plenty of digital ink has been spilled about the supposed launch of Silk Road 2.0, a near copy of the original infamous Silk Road "dark web" shopping site for all sorts of illegal things. But, perhaps more interesting is how Congress suddenly feels the need to jump in and try to understand the dark web and things like Bitcoin:

The Senate Homeland Security Committee, officials tell TIME, plans on holding hearings on Bitcoin within the month. The committee sent letters to nine federal agencies in July asking for their thoughts on Bitcoins and other virtual currencies in the hopes of developing a holistic approach to the so-called cryptocurrency that neither stifles the currency’s potential nor enables criminals to abuse it.

This should be cause for concern. After all, it wasn't that long ago, that Senator Chuck Schumer absolutely flipped his lid about Bitcoin, claiming that Bitcoin itself was "money laundering" after some of the first news stories about the original Silk Road came out. The fact that he so immediately conflated the dark web with Bitcoin should be problematic already -- though, one hopes that he's since learned some more about Bitcoin and has realized his original statements were exaggerated.

Of course, any time Congress gets involved, especially with the kind of story that can be portrayed the way Silk Road has been portrayed, you almost expect the moral panic and grandstanding to reach a fever pitch. The one (minor) good sign in all of this is that the Senator who is putting together that hearing on Bitcoin, Tom Carper, seems to be going out of his way to make it clear that he isn't looking to have a kneejerk reaction to all of this -- especially if it might stifle important innovations. After news broke of the new Silk Road, he was quick to put out the following statement:

“This new website – launched barely a month after Federal agents shut down the original Silk Road -- underscores the inescapable reality that technology is dynamic and ever-evolving and that government policy needs to adapt accordingly. Rather than play ‘whack-a-mole’ with the latest website, currency, or other method criminals are using in an effort to evade the law, we need to develop thoughtful, nimble and sensible federal policies that protect the public without stifling innovation and economic growth. Our committee intends to have that conversation – among others - at our hearing this month on virtual currency.”

That's a whole hell of a lot better than Schumer's "it's money laundering!" grandstanding from two years ago -- but that doesn't mean that others in Congress will be as willing as Carper to take a careful, measured and informed approach to all of this. While it sounds good to create policies that "protect the public without stifling innovation and economic growth," in practice that's often a lot more difficult than most people think -- and Congress often has an uncanny ability to say one thing and put in place policies that do the exact opposite.

While some people like to mock concepts like the dark web and Bitcoin, there's a tremendous amount of important innovation happening within and around each of them. While they may initially be used, in part, for illegal activity, that's going to become less and less of the predominant use, and all sorts of powerful new tools and services are likely to develop -- if allowed. Bitcoin, in particular, has many powerful uses beyond just being a currency (in fact, that may be one of its least interesting characteristics), but overly regulating it based on moral panics might kill that off. I already know a few entrepreneurs and investors who are unwilling to commit to some really interesting Bitcoin projects, just because they know the regulatory situation might destroy the space overnight. Hopefully, Congress will avoid that temptation to go on a full out moral panic -- but their track record with these kinds of things isn't that great.

Filed Under: bitcoin, chuck schumer, congress, dark web, homeland security committee, moral panics, silk road, tom carper

2009: Man Buys 5000 Bitcoins For $27, Forgets About Them. 2013: Man Rediscovers His Bitcoins, Now Worth $886,000

from the valuable-information dept

Bitcoin shares with drones the unhappy distinction of being the subject of almost exclusively negative reports. Just as drones are usually doing bad things to people, so Bitcoins are usually helping people do bad things because of their supposed untraceability. So it makes a pleasant change to come across an upbeat Bitcoin story like this, as told by the Guardian:

Kristoffer Koch invested 150 kroner ($26.60) in 5,000 bitcoins in 2009, after discovering them during the course of writing a thesis on encryption. He promptly forgot about them until widespread media coverage of the anonymous, decentralised, peer-to-peer digital currency in April 2013 jogged his memory.

In those four years, his Bitcoin holding had become worth around $886,000 -- a rather nice gain on the original outlay. But the real moral here is not, as it might appear, that you should rush out and buy Bitcoins in the hope that they will be worth fabulous sums in a few years' time -- the continuing fluctuations in Bitcoin's value and doubts about its underpinnings make that a very risky proposition. Rather, the key thing to note is the following:

Bitcoins are stored in encrypted wallets secured with a private key, something Koch had forgotten.

Fortunately for him, Koch did manage to remember his password. But just imagine how he would have felt if he hadn't been able to recall his private key, and had meanwhile discovered that he had $886,000 worth of Bitcoins that he couldn't access. So the real moral here is this: make sure you back up all your passwords -- even the ones you think you'll never need again -- just in case.

Follow me @glynmoody on Twitter or identi.ca, and on Google+

Filed Under: bitcoin, encryption, fluctuations, norway, value

Bank Calls Customer Over Detected Bitcoin Transactions, Asking What They Were For

from the so-much-for-privacy dept

One of the key reasons many people support Bitcoin is that it's supposed to be anonymous, like cash. However, Sean Percival today wrote about how he received a phone call from his bank, because "they detected Bitcoin related transactions," and they asked him if it was for personal use or business. And, no, it wasn't because of some concern about fraud. Percival clarified that it was just about Bitcoin, and said they wanted to know about "a spike in activity" with merchants like Coinbase. He later confirmed that it was not even from the fraud department. Percival does not name the bank, other than to say that it's "one of the biggies." It will be interesting to see if this becomes a regular thing, and whether or not it'll become yet another path for government officials to try to track Bitcoin usage.

Filed Under: banks, bitcoin, sean percival

DOJ Hasn't Actually Found Silk Road Founder's Bitcoin Yet

from the they're-still-out-there dept

With the DOJ tracking down and arresting the alleged founder/owner of Silk Road, Ross Ulbricht, it was noted that it had also seized 26,000 or so Bitcoins. However, in the criminal complaint against Ulbricht, it suggested that his commissions were in the range of $80 million -- or about 600,000 Bitcoins. You might notice the disconnect between the 26,000 Bitcoins seized and the supposed 600,000 Ulbright made. It now comes out that those 26,000 Bitcoins aren't even Ulbricht's. Instead, they're actually from Silk Road's users. In other words, these were Bitcoins stored with user accounts on Silk Road. Ulbricht's actual wallet is separate from that, and was apparently encrypted, so it would appear that the FBI does not have them, nor does it have any way of getting at them just yet. And given that some courts have argued you can't be forced to give up your encryption, as it's a 5th Amendment violation, those Bitcoins could remain hidden -- though, I could see the court ordering him to pay the dollar equivalent in restitution (though still not sure that would force him to decrypt the Bitcoins).

The other amusing bit in all of this is that the FBI's Bitcoin wallet has been identified and renamed as "Silkroad Seized Coins" allowing users to send the FBI tiny amounts of Bitcoin with public messages attached, some of which are fairly amusing -- and many of which are critical of the government and the takedown of Silk Road. Personally, I like the one that reads: "This page shows how Bitcoin is more transparent than the US government."

Kash Hill, over at Forbes (the link above) who highlighted this story, also asked the FBI about what they're going to do with all that Bitcoin. Apparently, the plan is to hold onto it for now, and then "liquidate it" after any trial is concluded, though the FBI's spokesperson admits that "this is kind of new to us." Does that mean that someday soon folks will be able to buy some Bitcoin at a government auction?

Filed Under: bitcoin, bitcoin wallet, doj, fbi, ross ulbricht
Companies: silk road

FBI's Case Against Silk Road Boss Is A Fascinating Read

from the for-you-breaking-bad-junkies dept

It's been known for quite some time that the feds were desperately trying to hunt down the folks behind Silk Road, the somewhat infamous "dark web" e-commerce site, accessible only via Tor, which was famous mainly for selling drugs in a slightly anonymous fashion. Of course, when the news came out recently that the FBI had used malware to reveal Tor Browser users, many believed that this was part of an attempt to track down Silk Road, and that seems increasingly likely after the FBI announced this morning that it has arrested Silk Road's owner, Ross William Ulbricht, who went by the moniker "Dread Pirate Roberts" online. Turns out that Ulbricht was based in San Francisco and was arrested at the public library, of all places.

The case against him (pdf) is interesting, because beyond just going after him for helping to distribute illegal drugs, they claim that he solicited a Silk Road user in a murder-for-hire request (though he's not charged with that), to potentially go after a different Silk Road user who was threatening to reveal the identities of people on the site (the user claimed to have hacked a large vendor's account, and demanded $500,000 to not reveal names). They also go after him (of course) with a CFAA violation claim and a money laundering claim. Of course, we've seen the DOJ inflate and pile on charges against people in the past, so it will be worth watching to see what details come out of this -- but soliciting a murder, if true, seems like a fairly big deal.

In addition, the complaint against him claims that Silk Road generated 9.5 million Bitcoins in revenue, leading to 600,000 Bitcoins in commissions (or roughly $1.2 billion in sales and $79.8 million in commissions). Of course, that seems noticeably higher than previous research had suggested. It also notes that the FBI itself made over 100 purchases on Silk Road -- including ecstasy, cocaine, heroin, LSD and others. Apparently, they wanted a lot of evidence. And, in case you were wondering, the FBI informs us that their orders "have typically shown high purity levels of the drug the item was advertised to be on Silk Road."

While the details in the complaint seem pretty thorough, there are some tidbits that stand out as questionable. The complaint clearly states that Bitcoin and Tor are both legal and have legitimate purposes, but it also says that Silk Road's use of proxies to "hide the identities of those that run Silk Road... reflect his awareness of the illegal nature of the Silk Road enterprise." I don't quite see how wanting to be anonymous automatically suggests that you're engaged in illegal behavior. Later in the complaint, the FBI agent spends an awful lot of time talking about how Ulbricht was interested in the Mises Institute, the well-known libertarian think tank. I'm not sure what that has to do with anything. The FBI notes that Dread Pirate Roberts' defense of Silk Road included quoting Ludwig von Mises and Murray Rothbard (two economists closely associated with the Mises Institute), but lots of people follow the Mises Institute, so that seems like a stretch.

Another questionable tidbit: the FBI notes that Ulbricht posted a question to Stack Overflow using his real name, but "less than one minute later, Ulbricht changed his username at Stack Overflow from 'Ross Ulbricht' to 'frosty.'" and then the FBI agent noted "I know that criminals seeking to hide their identity online will often use pseudononymous usernames to conceal their identity." Later, after Ulbricht changes the email on the account to frosty@frosty.com -- an invalid email address -- the FBI agent similarly notes that "criminals seeking to hide their identity online will often use fictitious e-mail addresses." Well, yes, but the same is true of people with perfectly legitimate reasons to be anonymous, or those who don't want spam. While there does appear to be plenty of actual evidence, the use of these tidbits seems highly questionable.

The whole extortion/murder for hire story is a bit crazy. As noted above, one user contacted Dread Pirate Roberts, claiming to have hacked another vendor and obtained the details of users, which he'd release if not given $500,000 to pay off another drug supplier. Ulbricht asked the guy who was threatening him, a user who went by the name FriendlyChemist, to put him in touch with that supplier. After FriendlyChemist did so, Ulbricht used the opportunity to try to get that supplier to sell drugs via Silk Road. There was a further discussion, and when FriendlyChemist started getting anxious, the complaint says Ulbricht asked FriendlyChemist's supplier how much "would be an adequate amount" in order to "put a bounty on his head." After being quoted a price of $150,000 to $300,000 (rate dependent on "clean" or "not clean") Ulbricht allegedly complained that the price was high, and noted that he'd previously hired someone to kill someone for $80,000. They eventually agreed to a price of $150,000 (16710 Bitcoins), and Ulbricht was told that the job was done: "Your problem has been taken care of. . . . Rest easy though, because he won't be blackmailing anyone again. Ever." Apparently a photo was supplied. The FBI notes that while this supposedly happened in Canada, Canadian law enforcement says that it didn't happen.

The complaint also notes that Ulbricht has a LinkedIn page which includes a bit of a rant about "using economic theory as a means to abolish the use of coercion and aggression amongst mankind." It also notes "I am creating an economic simulation to give people a first-hand experience of what it would be like to live in a world without the systemic use of force." Not sure how one squares that with trying to hire someone to commit murder, but we'll let others debate that.

It appears that while Ulbricht was mostly careful to cover his tracks, he wasn't always that careful. The complaint notes that Silk Road was first advertised on different forums by a user named "altoid," in a manner that indicated altoid was connected with the site. Months later, altoid also posted elsewhere that he was looking to hire an "IT pro in the Bitcoin community" for "a venture backed Bitcoin startup company" -- but then told interested people to contact him at his actual gmail address: rossulbricht@gmail.com. And, voila, the FBI had a name. Also, later, when Homeland Security officials intercepted a package that contained a bunch of fake IDs for Ulbricht, they showed up at his home in July. While he generally refused to answer questions, he did tell them that "'hypothetically' anyone could go onto a website named 'Silk Road' on 'Tor' and purchase any drugs or fake identity documents...." There was also the above mentioned Stack Overflow account, which (briefly) used his real name and email address, which indicated that he was working on a Tor hidden service, and posted some code that (in a modified form) was also found on Silk Road.

All in all, there does seem to be a fairly compelling case built against Ulbricht based on this (though, again, we've seen in previous DOJ cases where things aren't always as they seem). At a first glance, they have a lot of evidence on him. However, some questions do remain. At the beginning of the post, we mentioned the whole thing where the FBI was using malware to identify Tor users... but, of course, that doesn't show up anywhere in the complaint. Instead, the big "breakthrough" was when a "random border search" by DHS turned up those fake identities intended for Ulbricht. However, as Parker Higgins notes, it seems like this could be a case of "parallel construction" whereby the hacking revealed those details, and DHS was then tipped off to check packages sent to Ulbricht, seeking to create "parallel construction" of evidence, in order to launder the fact that the FBI had hacked its way into identifying Tor users. After all, we'd just reported on how the FBI was actively trying to avoid revealing its hacking/malware powers to technologically sophisticated individuals.

Either way, we're sure that there will be plenty more news on this case.

Filed Under: bitcoin, cfaa, doj, fbi, murder for hire, ross ulbricht, silk road
Companies: silk road

SEC Confirms That Bitcoin Savings & Trust Was A Ponzi Scheme; Files Lawsuit

from the seven-percent-per-week-interest-is-a-bit-unbelievable dept

A little less than a year ago, an operation called the Bitcoin Savings & Trust (an updated name from what had been the "First Pirate Savings & Trust") shut down suddenly, right after there was growing evidence that it was a pyramid scheme -- or, as some called it, the Bernie Madoff of Bitcoin. The "deal" promised an insane 7% interest weekly. If you know even the slightest thing about compound interest (or can use a calculator for a few rounds), you'd recognize that's insane and obviously unsustainable in any real world situation.

The guy behind it, who went by the name pirateat40, insisted it was no such scheme, and that people would get their money back. In fact, he claimed "once my process is released you'll understand more of how coins move around." Well, a month later the SEC officially began investigating, and along with a big lawsuit against Trendon Shavers (aka pirateat40), the SEC has now "released" his process, and it sure does look quite a lot like a Ponzi scheme. The exhibits (many included below -- and others found at the RECAP case docket) include a number of public forum statements made by Shavers, many of which appear to be outright lies, especially when asked how people can tell this wasn't a giant pyramid scheme. In one forum discussion, someone points out that this sounds a lot like an "HYIP scam" -- a High Yield Investment Program scam -- which have been popping up here and there. And Shavers insists that if that were true, people would have figured it out already: The SEC issued an "investor alert" to go along with the lawsuit, warning about ponzi schemes using virtual currency. Of course, it's not clear that this really has anything to do with it being "virtual currency." There are ponzi schemes with all sorts of currency. Either way, the real irony may be that those who chose not to invest with Shavers and to just hold onto their Bitcoins clearly were better off not just because they still had their Bitcoins, but because the (wildly fluctuating) value of Bitcoins rose even higher than the insane interest promises.

Ironically, investors who had simply bought and held bitcoins during the period the alleged Ponzi scheme was in operation would have made a killing. While one bitcoin was worth about $6.56 on average between September 2011 and September 2012, they were valued Tuesday at $95.30 each.

Filed Under: bitcoin, bitcoin savings and trust, ponzi scheme, pyramid scheme, sec, trendon shavers