Difference between revisions of "Cryptocurrency"

From CryptoMarketsWiki
Jump to: navigation, search
(History)
(History)
Line 43: Line 43:
 
Using the Cryptography Mailing List on metzdowd.com, Nakamoto published the bitcoin whitepaper entitled, "Bitcoin: A Peer-to-Peer Electronic Cash System" in October 2008.<ref>{{cite web|url=https://bitcoin.org/bitcoin.pdf|name=Bitcoin: A Peer-to-Peer Electronic Cash System|org=Bitcoin.org|date=February 2, 2018}}</ref><ref>{{cite web|url=https://www.mail-archive.com/cryptography@metzdowd.com/msg09959.html|name=Bitcoin P2P e-cash paper|org=The Mail Archive|date=February 2, 2018}}</ref> In 2009, Nakamoto released the first bitcoin software client, as well as the first mined bitcoins, marking the start of the bitcoin cryptocurrency. Until 2010, Nakamoto collaborated with an initially small community via mailing lists. Though the team was open-sourced, Nakamoto took care never to reveal anything personal, cementing the ambiguity surrounding Nakamoto's identity. Eventually, Nakamoto faded from the community. On April 23 2011, Nakamoto sent one final communication to the team, stating simply that Nakamoto had "moved on to other things."<ref>{{cite web|url=https://www.coindesk.com/information/who-is-satoshi-nakamoto/|name=Who is Satoshi Nakamoto?|org=Coindesk.com|date=February 2, 2018}}</ref>
 
Using the Cryptography Mailing List on metzdowd.com, Nakamoto published the bitcoin whitepaper entitled, "Bitcoin: A Peer-to-Peer Electronic Cash System" in October 2008.<ref>{{cite web|url=https://bitcoin.org/bitcoin.pdf|name=Bitcoin: A Peer-to-Peer Electronic Cash System|org=Bitcoin.org|date=February 2, 2018}}</ref><ref>{{cite web|url=https://www.mail-archive.com/cryptography@metzdowd.com/msg09959.html|name=Bitcoin P2P e-cash paper|org=The Mail Archive|date=February 2, 2018}}</ref> In 2009, Nakamoto released the first bitcoin software client, as well as the first mined bitcoins, marking the start of the bitcoin cryptocurrency. Until 2010, Nakamoto collaborated with an initially small community via mailing lists. Though the team was open-sourced, Nakamoto took care never to reveal anything personal, cementing the ambiguity surrounding Nakamoto's identity. Eventually, Nakamoto faded from the community. On April 23 2011, Nakamoto sent one final communication to the team, stating simply that Nakamoto had "moved on to other things."<ref>{{cite web|url=https://www.coindesk.com/information/who-is-satoshi-nakamoto/|name=Who is Satoshi Nakamoto?|org=Coindesk.com|date=February 2, 2018}}</ref>
  
The very first blockchain component, or "Genesis Block," was recorded on January 3, 2009.<ref>{{cite web|url=https://blockexplorer.com/block/000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f|name=Block #0|org=Block Explorer|date=February 2, 2018}}</ref> This coincided with the release of the original bitcoin software client. The first recorded cryptocurrency transaction occurred on January 12, 2009.<ref>{{cite web|url=https://blockchain.info/nl/tx/f4184fc596403b9d638783cf57adfe4c75c605f6356fbc91338530e9831e9e16|name=Blockchain|org=Blockchain|date=February 2, 2018}}</ref><ref>{{cite web|url=https://themerkle.com/hal-finney-received-first-non-mined-bitcoin-transaction-eight-years-ago/|name=The First Bitcoin Transaction Happened Exactly 8 Years Ago|org=The Merkle|date=February 2, 2018}}</ref> By 2011, multiple prominent Internet-based institutions began accepting donations through Bitcoin, including WikiLeaks,<ref>{{cite web|url=https://www.forbes.com/sites/andygreenberg/2011/06/14/wikileaks-asks-for-anonymous-bitcoin-donations/#5e79c8794f73|name=WikiLeaks Asks For Anonymous Bitcoin Donations|org=Forbes|date=February 5, 2018}}</ref> FreeNet,<ref>{{cite web|url=https://freenetproject.org/pages/donate.html|name=Donate: How Can I Donate?|org=FreeNet.com|date=February 5, 2018}}</ref> the Internet Archive,<ref>{{cite web|url=https://archive.org/donate/index.php|name=A Message from Internet Archive Founder, Brewster Kahle|org=The Internet Archive|date=February 5, 2018}}</ref> and the Free Software Fondation.<ref>{{cite web|url=https://www.fsf.org/about/ways-to-donate/|name=Free Software Foundation: Donate Page|org=The Free Software Foundation|date=February 5, 2018}}</ref> By 2012, the Orlando-based bitcoin payment processing company [[BitPay]] announced that over 1,000 merchants had signed up for its service within the previous year. By 2017, a number of extremely high-profile companies, including Microsoft, Expedia, Subway, and Newegg.com had begun accepting Bitcoin payments.<ref>{{cite web|url=http://www.businessinsider.com/bitcoin-price-8-surprising-places-where-you-can-use-2017-10/#expediacom-1|name= 8 surprising places where you can pay with bitcoin|org=Business Insider|date=February 5, 2018}}</ref>
+
The very first blockchain component, or "[[Genesis Block]]," was recorded on January 3, 2009.<ref>{{cite web|url=https://blockexplorer.com/block/000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f|name=Block #0|org=Block Explorer|date=February 2, 2018}}</ref> This coincided with the release of the original bitcoin software client. The first recorded cryptocurrency transaction occurred on January 12, 2009.<ref>{{cite web|url=https://blockchain.info/nl/tx/f4184fc596403b9d638783cf57adfe4c75c605f6356fbc91338530e9831e9e16|name=Blockchain|org=Blockchain|date=February 2, 2018}}</ref><ref>{{cite web|url=https://themerkle.com/hal-finney-received-first-non-mined-bitcoin-transaction-eight-years-ago/|name=The First Bitcoin Transaction Happened Exactly 8 Years Ago|org=The Merkle|date=February 2, 2018}}</ref> By 2011, multiple prominent Internet-based institutions began accepting donations through Bitcoin, including WikiLeaks,<ref>{{cite web|url=https://www.forbes.com/sites/andygreenberg/2011/06/14/wikileaks-asks-for-anonymous-bitcoin-donations/#5e79c8794f73|name=WikiLeaks Asks For Anonymous Bitcoin Donations|org=Forbes|date=February 5, 2018}}</ref> FreeNet,<ref>{{cite web|url=https://freenetproject.org/pages/donate.html|name=Donate: How Can I Donate?|org=FreeNet.com|date=February 5, 2018}}</ref> the Internet Archive,<ref>{{cite web|url=https://archive.org/donate/index.php|name=A Message from Internet Archive Founder, Brewster Kahle|org=The Internet Archive|date=February 5, 2018}}</ref> and the Free Software Fondation.<ref>{{cite web|url=https://www.fsf.org/about/ways-to-donate/|name=Free Software Foundation: Donate Page|org=The Free Software Foundation|date=February 5, 2018}}</ref> By 2012, the Orlando-based bitcoin payment processing company [[BitPay]] announced that over 1,000 merchants had signed up for its service within the previous year. By 2017, a number of extremely high-profile companies, including Microsoft, Expedia, Subway, and Newegg.com had begun accepting Bitcoin payments.<ref>{{cite web|url=http://www.businessinsider.com/bitcoin-price-8-surprising-places-where-you-can-use-2017-10/#expediacom-1|name= 8 surprising places where you can pay with bitcoin|org=Business Insider|date=February 5, 2018}}</ref>
  
 
Since 2011, thousands of cryptocurrencies have been created, many of which have since failed. At time of writing (February 28, 2018), there are currently 2943 in-market cryptocurrencies worldwide, including bitcoin, ethereum, and ripple.<ref>{{cite web|url=https://coinmarketcap.com/all/views/all/|name=Cryptocurrency Market Capitalizations|org=Coinmarketcap.com|date=February 26, 2018}}</ref>
 
Since 2011, thousands of cryptocurrencies have been created, many of which have since failed. At time of writing (February 28, 2018), there are currently 2943 in-market cryptocurrencies worldwide, including bitcoin, ethereum, and ripple.<ref>{{cite web|url=https://coinmarketcap.com/all/views/all/|name=Cryptocurrency Market Capitalizations|org=Coinmarketcap.com|date=February 26, 2018}}</ref>

Revision as of 10:45, 2 July 2018

CMW Banner 728-90.jpg

A cryptocurrency is a virtual, or digital asset that uses cryptography for security. The most-well known cryptocurrency thus far is bitcoin, but others include:

Overview

float

Cryptocurrency uses a decentralized, digital system within a massive shared network, called a blockchain, to manage, archive, and execute transactions between users. In order to carry out a transaction moving cryptocurrency from one user to another, first a user's information - how much of a given cryptocurrency they possess, how much they are attempting to send to another user, technical details between users' digital addresses, and so on - must be verified by everyone within the network. Normally, in a centralized system for example, this process would be carried out automatically by a powerful central computer or server - in a decentralized system, that task is carried out by hundreds, if not thousands of individual computers globally through the Internet.

The data is sent out, verified by each user's computer or computers, and if verification is successful, the data is added to a "chain" of transactions using complex algorithmic cryptography. Each transaction stored in a data cluster, or "block," contains a code, or "hash" of the previous transaction, and each time a block is created, a new one is generated that contains a hash of itself.[1] The identity of users involved is never used, nor are their IP addresses; each user, or "node," uses a unique 30+ character alphanumeric identification code. Because each transaction is linked to the one that came before it, digital records of transactions cannot be altered.[2]

Blockchain is a form of distributed ledger technology. This technology uses complex mathematical algorithms in place of third-party financial institutions like banks or government agencies to regulate themselves. Cryptocurrencies are therefore independent, as they are not issued by any government or central authority, though this may differ from cryptocurrency to cryptocurrency.[3] For example, the blockchain platform EOS is not directly governed by block.one, the company that developed it. It is governed by representatives elected by its own community, who vote on major decisions, form network-wide consensus, and verify transactions on the EOS blockchain. This process is known as delegated proof-of-stake, a variant of the proof-of-stake model used by platforms like Ethereum.[4] Block.one does, however, hold a minority voting stake in major decisions made within the EOS ecosystem.[5]

It is theoretically not impossible to "crack" the blockchain; however, this technology was deliberately designed to be "computationally impractical to reverse," so success in cracking it is very, very unlikely, at least in theory.[6]

Key differences to fiat currency

Cryptocurrencies differ from traditional currencies, also called fiat currencies, in a number of ways. They are not subject to governance standards, accountability and oversight, or regular reporting of trading and related financial data. Although advocates first spoke of cryptocurrencies as an alternative method of payment to currencies like the dollar and the euro, they later drew interest as an investment asset in addition to alternative means of exchange.[7] Notable cryptocurrency proponents include Twitter founder Jack Dorsey, Wall Street Executive Blythe Masters, Overstock.com founder and CEO Patrick Byrne, and the Winklevoss Twins.[8][9][10][11]

The market value of cryptocurrencies is determined by multiplying the number of digital coins in existence by their price, although many question whether that is the right way to value them.[12]

History

The concept of cryptographically untraceable payments was introduced in 1982 by David Chaum, from the Department of Computer Science at the University of California, Santa Barbara. In his paper, "Blind Signatures for Untraceable Payments," he introduced the cryptographic concept of "blind signatures," which he argued could be applied to payment systems for "improved auditability and control compared to current systems."[13] He took his theory further in 1990, publishing another paper describing the creation of the world's first cryptographic anonymous cash system, based on the principles of blind signatures.[14] Chaum's company Digicash attempted to create a digital currency, called eCash, which would be capable of carrying out anonymous transactions that was compatible on Mac, PC, and Unix systems.[15] Digicash declared bankruptcy in 1998. According to Chaum, the company had difficulty convincing both merchants and individuals to abandon credit cards in favor of the new eCash system.[16] That same year, computer engineer Wei Dai published an essay describing an anonymous, distributed electronic cash system, which he named b-money. Dai argued that such a currency could create a functioning economy without the necessity of intervention by third-parties, such as government or financial institutions. [17][18][19]

The United States National Security Agency (NSA) published "How to Make a Mint," a paper describing a hypothetical cryptocurrency system, in 1996.[20][21]

Nick Szabo, a noted essayist, computer scientist, law scholar, and cryptographer, later published an essay about the concept of "Bit Gold," which many consider the precursor to bitcoin and blockchain.[22][23]

The recipient of the very first bitcoin transaction, Hal Finney, allegedly met and collaborated with both Wei Dai and Szabo. For a time, he also communicated regularly with the anonymous creator of bitcoin, Satoshi Nakamoto.[24]

The first decentralized cryptocurrency, bitcoin, was allegedly created by Satoshi Nakamoto in October of 2008.[25] Using the NSA-developed SHA-2 cryptographic hash function as a proof-of-work function,[26][27] Satoshi created a system that could run on almost any platform to carry out anonymous, secure transactions that are extremely difficult to forge.[28]

Using the Cryptography Mailing List on metzdowd.com, Nakamoto published the bitcoin whitepaper entitled, "Bitcoin: A Peer-to-Peer Electronic Cash System" in October 2008.[29][30] In 2009, Nakamoto released the first bitcoin software client, as well as the first mined bitcoins, marking the start of the bitcoin cryptocurrency. Until 2010, Nakamoto collaborated with an initially small community via mailing lists. Though the team was open-sourced, Nakamoto took care never to reveal anything personal, cementing the ambiguity surrounding Nakamoto's identity. Eventually, Nakamoto faded from the community. On April 23 2011, Nakamoto sent one final communication to the team, stating simply that Nakamoto had "moved on to other things."[31]

The very first blockchain component, or "Genesis Block," was recorded on January 3, 2009.[32] This coincided with the release of the original bitcoin software client. The first recorded cryptocurrency transaction occurred on January 12, 2009.[33][34] By 2011, multiple prominent Internet-based institutions began accepting donations through Bitcoin, including WikiLeaks,[35] FreeNet,[36] the Internet Archive,[37] and the Free Software Fondation.[38] By 2012, the Orlando-based bitcoin payment processing company BitPay announced that over 1,000 merchants had signed up for its service within the previous year. By 2017, a number of extremely high-profile companies, including Microsoft, Expedia, Subway, and Newegg.com had begun accepting Bitcoin payments.[39]

Since 2011, thousands of cryptocurrencies have been created, many of which have since failed. At time of writing (February 28, 2018), there are currently 2943 in-market cryptocurrencies worldwide, including bitcoin, ethereum, and ripple.[40]

In June 2017, the market cap for all cryptocurrencies surpassed $100 billion, due to a 300% increase that occurred in just over 2 months.[41]

Legality

The United States Internal Revenue Services (IRS) defines cryptocurrency, or virtual currency, as "a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value." It also specifies that, although in certain circumstances it can function as a currency, bitcoin and other cryptocurrencies do not have legal tender status in the United States.[42] Employees paid in cryptocurrency, such as bitcoin, must file these wages as taxable income on a W-2, and are subject to federal income tax withholding and payroll taxes.[43]

In August of 2013, the German Ministry of Finance announced its official recognition of bitcoin as a legal currency, classifying it as "private money."[44] This made it the first country in the world to create clear-cut legislature spelling out its embrace of bitcoin.[45]

In November 2013, a committee under Delaware Senator Tom Carper asked the Law Library of Congress to survey over 40 countries worldwide, to see how many of them had regulations in place for bitcoin and altcoins. The LoC reported that surprisingly few, notably China and Brazil, had legislation specific to cryptocurrency use, despite bitcoin being over 5 years old at the time. The report also cited "widespread concern about the bitcoin system’s possible impact on national currencies, its potential for criminal misuse, and the implications of its use for taxation." [46]

On March 25, 2014, the IRS announced that for U.S. tax purposes, cryptocurrency would be treated like an asset such as property, rather than an "actual currency," citing its lack of status as legal tender in any governing jurisdiction.[47] The news was mostly met positively, as it meant not only did the IRS officially recognize bitcoin and, by extension, other cryptocurrencies as legal investments, but also that now, cryptocurrencies would be able to benefit from the U.S. long-term capital gain rate, as well as other tax benefits.[48] Others rejoiced due to the implication that regulations on cryptocurrencies would increase; some had speculated that the instability of bitcoin and altcoin prices were due, in part at least, to a lack of regulation.[49]

Despite the growing support for cryptocurrency on the global market, investors and policymakers alike are concerned with the potential of cryptocurrencies for use in money laundering or other illicit activity, due to the anonymity of crypto transactions.[50][51] While some countries have tentatively embraced bitcoin and other cryptocurrencies, others remain unconvinced of its safety and validity. The Chinese government has not only banned Initial Coin Offerings (ICO's) as well as domestic bitcoin exchanges, but also reported that it will also enlist its "Great Firewall" to block anyone in the country from accessing websites that offer cryptocurrency services.[52]

The prices for digital currencies are set by trading on spot platforms, many of which are based offshore and none of which are registered with the Commodity Futures Trading Commission or the Securities and Exchange Commission.[53]

In 2017, a pro-cryptocurrency independent expenditure-only committee (Super PAC) called the "Cryptocurrency Alliance" was created by cryptocurrency and blockchain advocate, Casey Botticello.[54] According to their website, the CA was created to advocate politically for cryptocurrency consumers, to educate the general public about cryptocurrencies and blockchain technology, and to counter propaganda against cryptocurrency.[55]

In January 2018, Facebook announced a blanket ban on all ads "binary options, initical coin offerings and cryptocurrency, in an effort to block ads for financial products and services "that are frequently associated with misleading or deceptive promotional practices."[56]

In February 2018, the United States Senate hosted a public hearing in Washington, D.C. to discuss the cryptocurrency market and its relationship with the U.S. government going forward. Jay Clayton, chairman of the U.S. Securities and Exchange Commission, mentioned that the federal government may step in to provide extra regulation, but when pressed on the issue he said he could not give a definitive answer. Among those in favor of additional regulation from the U.S. government was Senator Sherrod Brown of Ohio, who expressed concern that "scam artists and hackers know more about [cryptocurrency] than most market participants."[57] However, Brian Quintenz, a member of the Commodity Futures Trading Commission, called on the cryptocurrency industry to create a self-regulatory organization, addressing concerns from within the industry that the CFTC aimed to step in to create regulatory laws.[58] That same month, the CFTC released a document entitled, "Guidance Regarding Ethics Laws and Regulations Related to Employee Holdings and Transactions in Cryptocurrencies," outlining precautions that employees of the CFTC, or any potential investor should consider before investing in cryptocurrency.[59]

Brad Garlinghouse, the CEO of Ripple, stated that he believed much of the market's current volatility is due to its undergoing an "adolescent stage", and that he did not believe the cryptocurrency industry could possibly exist outside of a regulatory framework, despite some in the crypto community championing "anarchistic, libertarian views." He went on to say that "the revolution that is enabled by blockchain technologies is not going to happen from outside the system, it's going to happen from within the system." He then expressed Ripple's intention to continue working with banks and regulators, citing the Bank of England as a "paid customer" of Ripple.[60]

Regulation

United States federal law does not provide for direct, comprehensive oversight of underlying Bitcoin or virtual currency spot markets. As a result, U.S. regulation of virtual currencies has evolved into a multifaceted, multi-regulatory approach. State banking regulators, the Internal Revenue Service (IRS), the United States Treasury's Financial Crimes Enforcement Network (FinCEN), and the Securities and Exchange Commission (SEC) monitor bitcoin and cryptocurrency trading to enforce state money transfer, tax, anti-money laundering, and fraud protection laws.[61]

On March 25, 2014 the Internal Revenue Service announced that bitcoin should be viewed and taxed as property and not as currency. This meant that employers who pay wages in bitcoins would have to report those wages like any other payment made with property, and that bitcoin income will be subject to federal income withholding and payroll taxes. The agency's official statement declared, “it does not have legal tender status in any jurisdiction."[62]

In May 2014 the U.S. Federal Election Commission voted to allow political committees to accept bitcoin donations.[63]

In March of 2017 the SEC refused to grant an exemption that would have let the Winklevoss Bitcoin Trust ETF trade on the Bats BZX Exchange.[64]

Bitcoin is classified by the Commodity Futures Trading Commission (CFTC) as a commodity, under the Commodity Exchange Act (CEA). The CFTC enforces all bitcoin derivatives contacts in the U.S., as well as all fraud and manipulation protection laws.[65][66]

In June 2018, the SEC announced it had appointed Valerie A. Szczepanik as its first-ever senior advisor for digital asssets and innovation.[67] Two days later, SEC Chairman Jay Clayton announced that the SEC would not be changing its definitions of what a security is for the sake of easing the regulation of cryptocurrency.[68]

Fraud

Because much of the bitcoin and cryptocurrency trading that occurs happens via cash markets, the dark web, or other online methods which may not be totally secure or regulated, potential investors or traders of such should be highly vigilant of fraud. Buyers can verify whether a party offering bitcoin or other cryptocurrency options or futures services are registered with the CFTC using SmartCheck.gov, a consumer protection website owned and operated by the United States federal government.[69]

As with regular brokers and investment professionals, consumers can use the CFTC's website Smartcheck.gov to look up investment professionals to see if they are registerd and accredited by the CFTC.[70]

Pump-and-dump schemes

Similar to "boiler room" fraud schemes, which aggressively pushed penny stocks on investors by misleading them about their potential future value, some individuals or organizations have used social media to mislead victims into investing their money in altcoins, or alternative cryptocurrencies. These "pump-and-dump" ICO scams use misinformation to trick large numbers of people into investing in a new digital asset with the promise of huge returns, then sell all of their shares once its price reaches a certain point, causing a significant price drop, leaving investors with essentially worthless digital tokens. Some use false news reports, testimony from fake "experts," and other unscrupulous means to accomplish their goals. The CFTC warns potential investors that they should be especially wary of very new cryptocurrencies, and that extensive research on a particular company or coin is imperative for potential investors. Fraudulent digital asset scams can be reported at Whistleblower.gov.[71]

"IRS-approved" Digital Asset IRA's

Some frauds have advertised "IRS-approved" IRA funds and similar services involving digital assets. These typically rely on misinforming potential investors (for one thing, the IRS never endorses investments). Because self-directed IRA's can hold unregistered investments and are not taxed until withdrawn from an IRA account, they make for attractive, if false, potential investments to the unwary consumer.[72]

Initial Coin Offerings (ICO's)

An Initial Coin Offering (ICO), sometimes called an Initial Token Offering (ITO), is a method of crowdfunding a new project, such as a new form of blockchain or distributed ledger technology, a new platform or service, even a new cryptocurrency. It works to provide capital for cryptocurrency startups by collecting money from investors with the promise of returning some sort of profit.[73] The likelihood of this happening, of course, depends on the individuals running the company that launches the ICO. [74] According to the UK Financial Conduct Authority, investing in ICOs is considered a high-risk and speculative investment, as ICOs are currently not subject to regulation and, in most cases, do not offer protection to investors.[75]

ICO Bans

The Chinese government has been perhaps the most outspoken of ICOs, not to mention cryptocurrency in general. The People's Bank of China, the nation's centralized, national bank, announced on September 4, 2017 that buying and selling cryptocurrency is "illegal and disruptive to economic and financial stability." This caused a $35 billion decrease in global cryptocurrency markets within four days.[76] Some market analysts believe this move was made in order to protect China's economy from the looming threat of a potential popping of what many consider to be the crypto market "bubble." It may also have been a move to counter a broad swathe of "scam" ICOs by outlawing ICOs altogether, or even simply a move akin to "hitting the pause button" for awhile, until the crypto market matures. Other analysts criticize the move, saying any attention, be it regulation or outright banning, offers validation to something like cryptocurrency. Besides this, they argue, banning ICOs will not completely eliminate their presence, and lack of regulation from the government will only increase the volume of "shady" crypto market activities, as well as preventing China from reaping the benefits of investing in the integration of crypto technology.[77][78]

The same month China announced its ban, the South Korean government announced a similar ICO ban, citing a wave of recent arrests and closures of companies capitalizing off of fake cryptocurrencies, which occurred amidst a surge in cryptocurrency trading. The statement promised "stern penalties" on violators of the new laws.[79] In December later that year, South Korea's Financial Services Commission (FSC) announced that the ban would be lifted, and that new regulations would be put in place "to curtail money laundering and tax dodging." The new regulations would also likely include the laws that would prevent all but professional investors from participating in ICOs for startups and the financing of companies using cryptocurrency. FSC vice-chairman Kim Yong-beom said of the issue, "Bitcoin is complicated in its technology and investment method. So considering its risk and technology expertise, it is right for professional investors to do an ICO, not regular citizens who are not informed of its technology and complicity."[80][81]

ICO Regulation

ICOs functionally work in a manner similar to IPOs.[82] ICOs are a popular method for new cryptocurrency startups because they do not require existing capital.[83] However, a number of reported ICO-based scams, colloquially referred to as "pump and dump" ICOs, have led to a significant loss of public confidence in ICOs as a whole. In 2017, the United States Securities and Exchange Commission (SEC) announced that ICOs technically fall under the category of securities under U.S. law, and that the SEC should have the power to apply these regulations to ICOs.[84] Earlier that year, the Canadian Securities Administration released a public notice that specified legal requirements to those participating in ICO/ITOs in Canada.[85]

In October 2017, President Vladimir Putin personally approved a timeline for the creation of a regulatory framework for ICOs in Russia. Among the directives and regulations laid out by the Kremlin's official statement, bitcoin and other cryptocurrency miners in Russia will have to register with the government. Furthermore, Russian Prime Minister Dmitry Medvedev and central bank chief Elvira Nabiullina were tasked with drafting policies for taxation on income gained from cryptocurrency, as well as ascertaining the status of cryptocurrency in relation to the ruble, the "only legal tender in the Russian Federation." The report also mentions the Russian government's plan to establish a "regulatory sandbox" for states within the Eurasian Economic Union (EAEU), in order to create and test regulatory measures for cryptocurrencies and other fintech products, as well as creating a "single payment space" for EAEU nations.[86] Some countries, such as the United Kingdom, have created similar "sandboxes", which successfully attracted a number blockchain-centric startup companies to participate.[87][88]

Criminal Activity

The anonymity of crypto transactions has revolutionized digital criminal activity. One study at Newcastle University reported that following the dawn of bitcoin, malware and ransomeware attacks have increased. There have also been attacks by malware designed to mine bitcoins from victims' computers without their knowledge, though such attacks have declined in recent years.[89]

A "bitcoin bank robbery" took place in late 2013, in which a small, Australia-based website run by an 18 year old entrepreneur was hacked, leading to over $1 million worth of bitcoins being digitally robbed. Since transactions can't be reversed once they are completed, and Australia's government lacked regulatory policies, the stolen bitcoins were never recovered.[90][91]

On January 27, 2014, BitInstant founder Charlie Shrem was arrested at JFK International airport returning from a conference in Amsterdam. His company, which allowed users to digitally exchange bitcoins for fiat currency, had knowingly transferred money for criminals trading on the Silk Road website. Although Shrem had been aware of this, and sent an email to the user telling them, "you better stop", Shrem did not inform Federal authorities. This led to BitInstant closing its doors for good, and Shrem sentenced to two years in prison. Shrem became the first high-profile cryptocurrency luminary to be convicted on felony charges.[92][93]

One month later, Tokyo-based Mt. Gox, the world's first cryptocurrency exchange, closed down after a devastating $460 million worth of bitcoin was stolen via the bank's bitcoin wallets. Mark Karpelès, CEO and founder of Mt. Gox, attributed these to "weaknesses in our system." Karpelès added that he and everyone at Mt. Gox were "deeply sorry for what has happened."[94] Later, evidence surfaced that Karpelès was guilty of embezzling cryptocurrency from his own company, which led to his arrest.[95] In July 2017, he plead "Not Guilty" in Japanese court.[96] This was not the first time Mt. Gox had found itself on the wrong side of the judicial system, however; in 2013, the U.S. Department of Homeland Security seized millions from Mutum Sigillum LLC, a subsidiary of Mt. Gox. This was due to failure on MS's part to register with FinCEN as a money services buisness, which violates U.S. law.[97]

Cryptocurrency theft has not been limited to the digital realm, however. On January 22, 2017, three armed men broke into the home of cryptocurrency trader Danny Aston in Moulsford, Oxfordshire, England, demanding at gunpoint that Aston hand over hard drives containing a fortune in bitcoin.[98][99]

Coincheck, a Tokyo-based cryptocurrency exchange lost $534 million worth of XEM, the cryptocurrency used by NEM. This happened on January 26, 2018, making it the largest "crypto heist" to date.[100] In response to this, the Japan Blockchain Association (JBA) and Japan Cryptocurrency Business Association (JCBA) announced they would begin pooling efforts to create Japan's first self-regulatory cryptocurrency body in late February of 2018.[101][102]

Darknet Markets

Cryptocurrency has been used widely by criminals in the digital realm. This is especially the case in "Darknet" markets, or digital markets hidden from search engines like Google or Bing and thus available only to a select group of people - those "in the know."[103] In 2013, the FBI arrested Ross William Ulbricht (styling himself "Dread Pirate Roberts"), boss of the anonymous online drug marketplace, the Silk Road. Along with Ulbricht, they seized over 26,000 bitcoins, which were apparently the currency of choice for the illegal digital drug market. At the time, the seized amount equated to roughly $3.6 million. On what was to be done with the seized bitcoins, FBI officials stated, "this is kind of new to us...we'll probably just liquidate them."[104]

Criminology researchers Judith Aldridge and David Décary-Hétu published a paper in 2014 focusing on the incident as a case study for the impact cryptocurrencies have had on criminal activity, especially digital crime. The study explored how the Silk Road created a virtual market that significantly reduced the risk involved with criminal activity. Not only did it provide a method to move capital from vendor to buyer without it moving through a central authority like a bank, it also removed the necessity of being in the physical presence of a drug dealer.[105] Because of this, an estimated 1,200 deaths may have been prevented, though these figures are extremely difficult to verify.[106][107] For a time, this system worked so well, Ulbricht was able to carry out his daily operations from his personal laptop while sitting in the Science Fiction section of his local library, connected to its WiFi network.[108]

Since the Silk Road was taken down, there has been a sizable influx of sites offering similar services using the site's model. Consequently, the online drug marketplace has become decentralized.[109] Most transactions carried out over the Silk Road service occurred over TOR, a browser jointly developed by U.S. and Swedish government agencies in a U.S. Naval research lab.[110][111] Using TOR, users' identities and activities are well-protected from network surveillance, as well as third parties. Between the privacy afforded by the TOR service and the anonymity of bitcoin and altcoin services, not to mention the marked decrease of risk inherently involved with participating in criminal behavior,[112] Darknet markets have thrived.

Law enforcement agencies have had an exceptionally difficult time keeping up with the market's constantly-changing nature.[113] Users and vendors have begun to feel so safe, in fact, websites offering illicit services have been able to post publicly without incriminating individual users. In a bizarre development, the dichotomy of being able to operate within the opacity of services like TOR and financial systems based on bitcoin, combined with the resulting transparency of services provided and discussed throughout the broader criminal community (some users have posted experiences they had with drug and weapons dealers, even the results of chemical tests performed on contraband they purchased), customer service and product quality have become key aspects of competition between vendors of illegal goods and services like never before.[114]

References

  1. What is hashing?. Blockgeeks.com.
  2. The Truth About Blockchain. Harvard Business Review.
  3. How Cryptocurrencies Could Offer Independence From Banks. Cointelegraph.
  4. Understanding EOS and Delegated Proof of Stake. Steemit.
  5. EOS.IO Technical White Paper v2. github.
  6. Bitcoin: A Peer-to-Peer Electronic Cash System. Bitcoin.org.
  7. Bitcoin futures soar amid frenzy over virtual currency. Chicago Sun Times.
  8. Twitter CEO Jack Dorsey Hopes Bitcoin Will Become the Internet's Own Currency. Fortune.
  9. Swaps Pioneer Blythe Masters to Lead Virtual Currency Startup. Bloomberg.
  10. Patrick M. Byrne. Independent Institute.
  11. Why Cameron Winklevoss drives an 'old SUV' even though the twins are bitcoin billionaires. CNBC.
  12. Bitcoin tumbles as cryptocurrency sell-off intensified. WHBL radio.
  13. Blind Signatures for Untraceable Payments. Department of Networked Systems and Services (Hungary).
  14. Untraceable Electronic Cash. Springer Link.
  15. Untraceable Electronic Cash. Wired.
  16. Requiem for a Bright Idea. Forbes.
  17. "Wei Dai:" B-Money. WeiDai.com.
  18. One Does Not Simply Find Satoshi Nakamoto. coindesk.com.
  19. Who is Satoshi Nakamoto? Bitcoin creator whose identity is unknown but could be one of the world’s richest people. The Sun.
  20. HOW TO MAKE A MINT: THE CRYPTOGRAPHY OF ANONYMOUS ELECTRONIC CASH. National Security Agency.
  21. How to Make a Mint: The Cryptography of Anonymous Electronic Cash. Washington College of Law.
  22. Bitcoin: The Cryptoanarchists’ Answer to Cash. Spectrum.
  23. Bit Gold. Unenumerated.blogspot.com.
  24. Hal Finney received the first Bitcoin transaction. Here’s how he describes it.. The Washington Post.
  25. Regulators Are Looking at Cryptocurrency. The Wall Street Journal.
  26. What Is SHA-256 And How Is It Related to Bitcoin?. MyCryptopedia.com.
  27. A distinguisher for SHA256 using Bitcoin (mining faster along the way). SensePost.com.
  28. On the Secure Hash Algorithm family. WebArchive.org.
  29. Bitcoin: A Peer-to-Peer Electronic Cash System. Bitcoin.org.
  30. Bitcoin P2P e-cash paper. The Mail Archive.
  31. Who is Satoshi Nakamoto?. Coindesk.com.
  32. Block #0. Block Explorer.
  33. Blockchain. Blockchain.
  34. The First Bitcoin Transaction Happened Exactly 8 Years Ago. The Merkle.
  35. WikiLeaks Asks For Anonymous Bitcoin Donations. Forbes.
  36. Donate: How Can I Donate?. FreeNet.com.
  37. A Message from Internet Archive Founder, Brewster Kahle. The Internet Archive.
  38. Free Software Foundation: Donate Page. The Free Software Foundation.
  39. 8 surprising places where you can pay with bitcoin. Business Insider.
  40. Cryptocurrency Market Capitalizations. Coinmarketcap.com.
  41. What the hell is happening to cryptocurrency valuations?. techmunch. com.
  42. A CFTC Primer on Virtual Currencies. CFTC.
  43. IRS Virtual Currency Guidance : Virtual Currency Is Treated as Property for U.S. Federal Tax Purposes; General Rules for Property Transactions Apply. IRS.
  44. Bitcoin recognized by Germany as 'private money'. CNBC.
  45. Germany officially recognises bitcoin as "private money". Coindesk.
  46. Bitcoin's Legality Around the World. Forbes.
  47. IRS Virtual Currency Guidance : Virtual Currency Is Treated as Property for U.S. Federal Tax Purposes; General Rules for Property Transactions Apply. United States Internal Revenue Service.
  48. 3 Reasons The IRS Bitcoin Ruling Is Good For Bitcoin. United States Internal Revenue Service.
  49. Is Bitcoin the Only Cryptocurrency in the Town? Economics of Cryptocurrency And Friedrich A. Hayek. Institute of Economic Research Kunitachi, Tokyo, Japan.
  50. Australian researchers say nearly half of all Bitcoin transactions are for illegal activity. Business Insider.
  51. Using Bitcoin Or Other Cryptocurrency To Commit Crimes? Law Enforcement Is Onto You. Forbes.
  52. China Enlists Its 'Great Firewall' to Block Bitcoin Websites. Fortune.
  53. Regulators Are Looking at Cryptocurrency. Coindesk.
  54. Cryptocurrency Alliance. Federal Election Commission.
  55. Cryptocurrency Alliance. The Cryptocurrency Alliance.
  56. Facebook ban on bitcoin ads is the latest in a very bad day for cryptocurrencies. CNBC.
  57. Crypto Should Try Self-Regulation, CFTC Commissioner Says. Coindesk.
  58. New Regulation for Crypto? Senate Hearing Sees Debate. Coindesk.
  59. Guidance Regarding Ethics Laws and Regulations Related to Employee Holdings and Transactions in Cryptocurrencies. CFTC.
  60. Ripple CEO: Crypto can't live outside regulatory framework. Forbes.
  61. CFTC Backgrounder on Oversight of and Approach to Virtual Currency Futures Markets. CFTC.
  62. IRS Says Bitcoin Should Be Considered Property, Not Currency. New York Times Dealbook.
  63. Election Commission Votes to Allow bitcoin donations. The New York Times.
  64. What the hell is happening to cryptocurrency valuations?. SEC.
  65. Bitcoin Basics. CFTC.
  66. Customer Advisory: Understand the Risks of Virtual Currency Trading. CFTC.
  67. SEC Names Valerie A. Szczepanik Senior Advisor for Digital Assets and Innovation. SEC.
  68. SEC chief says agency won’t change securities laws to cater to cryptocurrencies. CNBC.
  69. Customer Advisory: Understand the Risks of Virtual Currency Trading. CFTC.
  70. CFTC Smart Check. CFTC.
  71. Customer Advisory: Beware Virtual Pump-and-Dump Schemes. CFTC.
  72. Customer Advisory: Beware “IRS Approved” Virtual Currency IRAs. CFTC.
  73. CSA Staff Notice 46-307: Cryptocurrency Offerings. University of New South Wales Business School.
  74. ICO Bubble? Startups Are Raising Hundreds of Millions of Dollars Via Initial Coin Offerings. inc.com.
  75. Initial Coin Offerings (ICOs): Risks, Regulation, and Accountability. University of New South Wales Business School.
  76. China's ICO Ban: Understandable, Reasonable and (Probably) Temporary. Coindesk.
  77. How Will The China And South Korea ICO Bans Impact Cryptocurrencies?. Forbes.
  78. China's ICO Ban: Understandable, Reasonable and (Probably) Temporary. Coindesk.
  79. South Korean Regulator Issues ICO Ban. Coindesk.
  80. SSouth Korea’s Financial Services Commission Plans To Reverse ICO Ban. Cointelegraph.
  81. Korean Regulator Hints at Reversing ICO Ban & “Stringent” Bitcoin Regulation. CNN.
  82. CSA Staff Notice 46-307: Cryptocurrency Offerings. University of New South Wales Business School.
  83. ICO Bubble? Startups Are Raising Hundreds of Millions of Dollars Via Initial Coin Offerings. inc.com.
  84. Initial Coin Offerings (ICOs): Risks, Regulation, and Accountability. University of New South Wales Business School.
  85. CSA Staff Notice 46-307: Cryptocurrency Offerings. Ontario Securities Commission.
  86. Putin Approves Framework for ICO, Cryptocurrency Regulation. CNN.
  87. Vladimir Putin Mandates New Rules for Cryptocurrencies and ICOs. Coindesk.
  88. Financial Conduct Authority provides update on regulatory sandbox. Financial Conduct Authority.
  89. Bitcoin: Perils of an Unregulated Global P2P Currency. Coindesk.
  90. Bitcoin's Legality Around the World. Forbes.
  91. Hackers steal $1.2 Million of bitcoins from Inputs.io, a supposedly secure wallet service. Coindesk.
  92. A 26-year old Bitcoin entrepreneur was handed prison time, and the experience only confirmed his belief in the cryptocurrency. Business Insider.
  93. What a 20-something bitcoin millionaire learned from going to prison and starting over. CNBC.
  94. THE INSIDE STORY OF MT. GOX, BITCOIN'S $460 MILLION DISASTER. Wired.
  95. Head of Mt Gox bitcoin exchange on trial for embezzlement and loss of millions. The Guardian.
  96. Mark Karpeles, CEO of Defunct Bitcoin Exchange Mt. Gox, Pleads Not Guilty in a Japanese Court. Fortune.
  97. Government seized $2.9 Million from bitcoin exchange Mt. Gox. Coindesk.
  98. Bitcoin gunpoint theft-bid suspects' e-fits issued. BBC.
  99. Hunt to find gang wanted over Britain's first Bitcoin heist. Metro UK.
  100. Hunt to find gang wanted over Britain's first Bitcoin heist. Forbes.
  101. Japan's cryptocurrency exchanges to form new self-regulating body: sources. Business Insider.
  102. Japan’s Cryptocurrency Exchanges Self-Regulate After $530 Million NEM Theft. CNN.
  103. What is the Darknet?. Technopedia.
  104. The FBI's Plan For The Millions Worth Of Bitcoins Seized From Silk Road. Forbes.
  105. Not an 'Ebay for Drugs': The Cryptomarket 'Silk Road' as a Paradigm Shifting Criminal Innovation. Judith Aldridge (University of Manchester), David Decary-Hetu (University of Lausanne).
  106. Bitcoin: Perils of an Unregulated Global P2P Currency. Newcastle University.
  107. How Many Lives Did Silk Road Save?. Coin Report.
  108. Bitcoin: Perils of an Unregulated Global P2P Currency. Newcastle University.
  109. Bitcoin: Perils of an Unregulated Global P2P Currency. Newcastle University.
  110. The Silk Road, Bitcoins and the Global Prohibition Regime on the International Trade in Illicit Drugs: Can this Storm Be Weathered?. Glendon Journal of International Studies.
  111. Who Uses Tor?. The Tor Project.
  112. Not an 'Ebay for Drugs': The Cryptomarket 'Silk Road' as a Paradigm Shifting Criminal Innovation. Judith Aldridge (University of Manchester), David Decary-Hetu (University of Lausanne).
  113. The Silk Road, Bitcoins and the Global Prohibition Regime on the International Trade in Illicit Drugs: Can this Storm Be Weathered?. Glendon Journal of International Studies.
  114. Bitcoin: Perils of an Unregulated Global P2P Currency. Newcastle University.
| style="height:100px; width:100px; text-align:center;"|
We visit more than 100 websites daily for financial news (Would YOU do that?). Read the John Lothian Newsletter.

|}