Weekly Digest: Dark Markets, Dark Wallets and Darker Days for Bitcoin

Bitcoin Weekly Digest

Here at CoinReport, we like to breakdown the week’s bitcoin news and headlines for our readers. This week’s digest, ending May 3rd 2014, has seen the mood surrounding bitcoin darken once more. Regulatory issues and opinions are among the current woes for bitcoin.

More Chinese bitcoin woes

The People’s Bank of China issued further remarks regarding the funding of BTC China by Chinese Banks this week. Whether directly or indirectly providing services to bitcoin related companies, the PBOC has warned that this must be stopped. The effect of this demand was an initial drop in bitcoin price to approximately $450.  Following the announcement,  BTC China halted chinese RMB deposits. BTC China stated:

Because of this morning’s announcement by the China Merchants Bank, BTC China, in the interest of its users and platforms security, has decided to suspend Chinese RMB recharges (deposits).

The decision to halt RMB deposits caused a Twitter backlash for BTC China. The drop in the price of bitcoin, according to decisions made in China, regarding the cryptocurrency, sparked accusations of price fixing by BTC China.

FinCEN Clarifies Position on Mining and Escrow Services

FinCEN issued a statement clarifying their position on escrow and cloud mining services. The release ruled that companies offering these particular services are not considered money transmitters. These businesses are not labelled under the Bank Secrecy Act. FinCEN stated:

“Renting of mining computer systems to third parties does not make the Company a money transmitter under BSA regulations.” With regard to digital currencies being treated as property, FinCEN added “All virtual currency mined by the third party remains the third party’s property, and the Company has no access to the third party wallet, nor receives or pays virtual currency on the third party’s behalf.”

Escrow services are exchanges between two parties, to ensure that both follow through with an arranged transaction, while remaining anonymous. The fact that escrow services physically hold bitcoins until specific conditions are met by both parties is not an activity covered by FinCEN law.

Stateside Warnings Against Bitcoin Usage

More warnings against bitcoin continue to be issued across the United States, this time in Wisconsin. The Wisconsin Department of Financial Institutions Consumers warned individuals considering investing in digital currencies that they could potentially be breaking the law.  Fear surrounding  the volatility of bitcoin and the risk of theft by third party institutions appear to have triggered the warnings.

On a wider scale the NASAA also warned against bitcoin usage.  The president of the North American Securities Administrators Association stated:

“The value of virtual currencies is highly volatile and the concept behind the currency is difficult to understand even for sophisticated financial experts.”

While the statement may be a little unfair to the intelligence of non-financial experts, the warning of bitcoins volatility is warranted. As with any investment, investing in bitcoin requires some homework to be done and some care to be taken. There is still no need to instill fear in potential investors.

Some Positive Outlooks Remain

Like his father Ron Paul, Rand Paul has revealed his outlook for bitcoin is positive. He acknowledged bitcoin does not have the true characteristics of money, but believes there is room for improvement and that technology like this could be beneficial. On the whole his philosophy on bitcoin is forward thinking.

Former United States Deputy Secretary of Treasury, Larry Summers, had some positive words regarding innovative new monetary systems this week. Though he is unsure whether digital currencies as they currently stand will work, he did say that those who rejected innovations in the field are on the “wrong side of history.” He admitted there were problems with the current monetary system and went on to say:

“The people who rejected the Internet as a curiosity for scientists were on the wrong side of history, the people who rejected digital photography as really an artificial thing were on the wrong side of history, and the people who felt that non-gimmicky tennis racquets were made with wood were on the wrong side of history. So it seems to me that the people who confidently reject all the innovation here [in new payment and monetary systems] are on the wrong side of history.”

Uncertainty is rife but it is not all negative. For most, like the Bank of Canada, it is simply too early to tell how successful bitcoin, and cryptocurrencies in general, will be. That is not to say the belief is that digital currencies will fail, just that there is a way to go before more serious discussion regarding new policies are needed.

DarkMarket rebranding to OpenBazaar

This week saw the DarkMarket launch online by developers Amir Taaki and Cody Wilson. The successor to Silk Road may be considered the new online black market. Though the Silk Road was brought down by federal government, the creators of DarkMarket have boldly claimed their site is completely invulnerable to law enforcement. The news may spark controversy for bitcoin as DarkMarket may provide a ground for illegal activity online. Unlike Silk Road, there is no owner, so every user on the peer to peer site would need to be arrested to shut it down. To distance DarkMarket from this illegal image and establish it as a decentralized online marketplace it has since been rebranded as OpenBazaar, following a petition by the bitcoin community on Reddit. The original developers now no longer have any association with the operation.

Following the launch of DarkMarket, or OpenBazaar, Amir Taaki and Cody Wilson released the highly anticipated Dark Wallet, a financial tool aimed at keeping payments and wallet addresses private and anonymous. The wallet, currently in alpha, is aimed at the bitcoin community, and keeps issues like cooperation for regulations in mind. Hopefully this change in name will have the desired effect, that those wanting to call it the Free Market, had in mind.

In Other News

Big news for Scrypt ASICs miners was announced this week. The race for the first ASICs miners capable of mining scrypt based altcoins, like Litecoin, is coming to an end. Scrypt based mining has traditionally been carried out using standard computers with GPU. Now, ZeusMiner have announced they are taking pre-orders on their new range of scrypt-based ASICs miners.

MtGox has also agreed to settle their lawsuit with the class action plaintiffs of the American case . Finally, Robocoin have opened the first global bitcoin bank, providing more familiar online banking service set up, through which customers can manage their accounts. All Robocoin bitcoin ATMs will feed back to the bitcoin bank and users will be able to send, store, and access bitcoins at any Robocoin ATM.

Featured image credit: Siegfried Layda