Monday, January 8, 2018

The $2B Joke

Everything you need to know about cryptocurrency is in Timothy B. Lee's
Remember Dogecoin? The joke currency soared to $2 billion this weekend:
"Nobody was supposed to take Dogecoin seriously. Back in 2013, a couple of guys created a new cryptocurrency inspired by the "doge" meme, which features a Shiba Inu dog making excited but ungrammatical declarations. ... At the start of 2017, the value of all Dogecoins in circulation was around $20 million. ... Then on Saturday the value hit $2 billion. ... "It says a lot about the state of the cryptocurrency space in general that a currency with a dog on it which hasn't released a software update in over 2 years has a $1B+ market cap," [cofounder] Palmer told Coindesk last week.
So blockchain, such bubble. Up 100x in a year. Are you HODL-ing or getting your money out?


  1. Today's headlines.

    Uproar over crackdown on cryptocurrencies divides South Korea:

    "On Thursday the justice minister, Park Sang-ki, sent global bitcoin prices temporarily plummeting and virtual coin markets into turmoil when he said regulators were preparing legislation to halt cryptocurrency trading."

    A Wall Street consultancy eviscerated crypto in a massive report — and it should strike fear into the heart of every bitcoin bull:

    "Quinlan & Associates put out a report Thursday titled "Fool's Gold: Unearthing The World of Cryptocurrency" in which they outline a case for bitcoin dropping to $1,800 by December 2018."

    Bitcoin Rebounds, Still Heads for Weekly Slump as Scrutiny Rises:

    "bitcoin mining -- the process needed to facilitate transactions -- is set to become more expensive as China’s government cracks down on the industry, in part out of concerns about power use."

  2. "One of the biggest cryptocurrency exchanges was down more than 40 hours this week, causing clients to freak out. It was still down as of 4 p.m. Friday.

    San Francisco’s Kraken went offline at 9 p.m. on Wednesday for maintenance that was initially scheduled to last two hours, plus an additional two to three hours for withdrawals, according to an announcement on the company’s website." writes Camila Russo at the San Francisco Chronicle.

  3. Tyler Durden reports that New Survey Reveals Staggering Number Of People Are Buying BitCoin On Their Credit Cards">:

    "nearly a quarter of the folks who bought BitCoin using their attractive 25% loans admitted that they're now stuck rolling their new debt month-to-month..."

    This isn't a joke.

  4. Hackers Hijack DNS Server of BlackWallet to Steal $400,000 is today's heist report from Catalin Cimpanu. $400K seems hardly worth the effort in comparison to recent heists. But I guess it is enough for a Lamborghini or two.

  5. "Based on rigorous analysis with extensive robustness checks, the paper demonstrates that the suspicious trading activity likely caused the unprecedented spike in the USD-BTC exchange rate in late 2013, when the rate jumped from around $150 to more than $1,000 in two months" John Biggs at TechCrunch quotes from the abstract of Price Manipulation in the Bitcoin Ecosystem by Neil Gandal, JT Hamrick, Tyler Moore, and Tali Oberman. Note that the paper is behind Elsevier's paywall.

  6. "Cryptocurrency investors in South Korea will be fined for refusing to convert their virtual accounts into real-name ones, financial authorities said Sunday. ... According to the authorities, cryptocurrency traders will be allowed to convert their virtual accounts into real-name ones within this month, but those who refuse to accede to real-name identification will face fines." according to a report from South Korea's Yonhap News Agency.

    Hat tip to an anonymous /.-er.

  7. It looks like what stopped today's collapse was $100M-worth of Tethers created out of thin air, making $350M printed this month. David Gerard explains Tethers:

    "Tether runs a dollar-substitute blockchain token, the USDT, which is theoretically pegged to the US dollar. The problem is, Tether lost its banking relationships in March 2017 at the same time as Bitfinex — and, in fact, was a co-plaintiff when the Bitfinex companies attempted to sue Wells Fargo in April 2017 for cutting them off — and, since then, has had no visible method of getting US dollars into its claimed reserves backing the USDT."

    See also here.

    So, apparently, despite no banking relationship, someone dumped 350M actual USD into Tether's kitty this month. Or not, as the case may be.

  8. "Chinese authorities plan to widen their crackdown on domestic crypto-trades, by targeting methods including over-the-counter trading, offshore sites used for centralized trading, and peer-to-peer trading of large transactions, according to a report from the state-run Securities Times (link in Chinese) published yesterday (Jan. 16). ... Citing unnamed sources, Bloomberg also reported the same day that officials will block domestic access to local and offshore platforms that provide centralized trading, and target people who provide bids and offers for crypto trades in large amounts." reports Zheping Huang at Quartz.

  9. "Bitcoin’s price swings are so huge that even ransomware developers are dialling back their reliance on the currency, according to researchers at cybersecurity firm Proofpoint.

    Over the last quarter of 2017, researchers saw a fall of 73% in payment demands denominated in bitcoin. When demanding money to unlock a victim’s data, cybercriminals are now more likely to simply ask for a figure in US dollars, or a local currency, than specify a sum of bitcoin." reports Alex Hern at The Gaurdian.

  10. Tony Arcieri's The Tether Conundrum: A Quick Backstory is a must-read dive into the $100M/day in fake currency propping up the Bitcoin price (my emphasis):

    "That’s $450 million dollars in a little less than a week, highly correlated to a “Bitcoin bloodbath” where the cryptocurrency lost nearly 50% of its value since December. $450 million is a roughly a 40% increase in Tether’s previous $1.2 billion market cap, bringing the total to approximately $1.7 billion USD worth of “USDT”. Now let’s keep in mind that Tether insists that they have this much in equivalent USD value their “reserves”, and that they are “subject to frequent professional audits”. But is any of that actually true? I can’t tell you, but if it is I’m curious where they got nearly half a billion dollars in cash this week and would be very interested in the results of a new Tether audit."

    In particular, you want to look at this graph and decide for yourself if it suggests a correlation.

  11. A much more rigorous statistical examination of Tether printing and the market's response concludes:

    * Author’s opinion - it is highly unlikely that Tether is growing through any organic business process, rather that they are printing in response to market conditions.
    * Tether printing moves the market appreciably; 48.8% of BTC’s price rise in the period studied occurred in the two-hour periods following the arrival of 91 different Tether grants to the Bitfinex wallet.
    * Bitfinex withdrawal/deposit statistics are unusual and would give rise to further scrutiny in a typical accounting environment.
    * If there is questionable activity, the author believes a 30-80% reduction in BTC price could be forecast.

    PS - Tether printed another $100M yesterday, adding to this record:

    "Tether Net Annual Issuance

    2014 $100
    2015 $951,550
    2016 $9,000,000
    2017 $1,405,047,515
    2018 $750,000,000"

  12. Nicholas Weaver tweets:

    "At current prices, net new Bitcoin requires $18M of net new $ flowing in to maintain the price. Yet there is a net $100M/day of fake $s in the form of Tethers... If that Tether printing press ever breaks, there will be a true bloodbath on the cryptocurrency prices. Good."

    Nouriel Roubini responds:

    "Indeed Tether/USDT used to manipulate Bitcoin prices. Without this scam Bitcoin price would collapse by 80%. Regulators asleep at the wheel while $2 billion of fake $ created via this scam, half of it since December. Not even North Korea created so many fake $ backed by nothing"

  13. People are figuring out that Tethers are fake money and, as David Gerard documents, the result is huge pressure to sell Tethers for "fiat currency" on Kraken, the only exchange where it is currently possible.

  14. "The U.S. Commodity Futures Trading Commission sent subpoenas last week to virtual-currency venue Bitfinex and Tether, a company that issues a widely traded coin and claims it’s pegged to the dollar, according to a person familiar with the matter, who asked not to be identified discussing private information. The firms share the same chief executive officer." reports Matthew Leising at Bloomberg. Cryptocurrencies down around 10% on the day. Pass the popcorn!

  15. The NYT is a bit late to the party:

    "A growing number of virtual currency investors are worried that the prices of Bitcoin and other digital tokens have been artificially propped up by a widely used exchange called Bitfinex, which has a checkered history of hacks and opaque business practices." writes Nathaniel Potter:

    "In recent months, however, many investors have been raising alarm bells about Tether. Hundreds of millions of dollars worth of new Tether were created; almost always when the prices of other virtual currencies were heading down. The Tether were used on the Bitfinex exchange to make big purchases of Bitcoin and other tokens, helping push their prices back up, according to multiple analyses of data from Bitfinex."

  16. "Basically, you can build things that are really hard to shut down. Who would want that? Not everyone. But almost certainly enough people to ensure that this phenomenon is not going away anytime soon." is the conclusion of a post by Khadim Shubber at Alphaville. It is a good point, but it doesn't justify all the hype around stuff you can do with blockchains. And when Shubber quotes Adam Ludwin at Chain writing:

    "nothing can stop me from sending Bitcoin to anyone I please. Nothing can stop me from executing code on Ethereum. Nothing can stop me from storing files on Filecoin."

    They are both wrong. A majority of the mining power could do each of those things. All that it takes is a majority of the mining power, which could be assembled by a conspiracy among large mining pools, or by a government deciding that it was worth spending a lot of computons to do it, or by a government twisting the arms of the large mining pools.

  17. Crypto Inferno has an interesting alternative theory as to what is going on with Tether/Bitfinex.

  18. "problems could start to crop up during a downturn—in a situation where a company might start to see more people wanting to sell tokens for cash than vice versa. Such a company would have to dip into its financial reserves, and if those reserves started to run out it could create turmoil in cryptocurrency markets. People who thought they were holding dollars would suddenly discover they were wrong. It's hard to predict what would happen next, but it's safe to say it wouldn't be pretty." writes Timothy B. Lee at Ars Technica in Why experts are worried about Tether, a dollar-pegged cryptocurrency.

    As I write this BTC is $7.3K.

  19. The crash of BTC means the market is being flooded with GPU cards that were "slightly used" to mine alt-coins.

  20. "It could be pure coincidence that an influx of over $87 million in potentially unbacked coins was created around the same time the value of almost every one of the top 100 coins began increasing." writes Bryan Menegus at Gizmodo.

  21. "Bitcoin miners who've decided to stay in the game amid plunging prices may soon find that the well has run dry.

    A 70 percent price drop since the heady days of mid-December has cut profitability to the bone. With the cryptocurrency hitting $6,000 on Tuesday, only the biggest and most efficient can stay above water, but even these are balancing on a knife edge, according to a Gadfly analysis." writes Tim Culpan at Bloomberg with some interesting graphs.

  22. "U.S. regulators should investigate those behind Tether for possible violations of Patriot Act provisions on money laundering and other financial fraud laws. Prosecution is likely to inhibit criminal scheming and to substantially disrupt the exchanges that rely on Tether to function." writes Nicholas Weaver at Lawfare

  23. Predicting Random Numbers in Ethereum Smart Contracts turns out to be quite easy according to Arseny Reutov:

    "The Ethereum blockchain is deterministic and as such it imposes certain difficulties for those who have chosen to write their own pseudo-random number generator (PRNG), which is an inherent part of any gambling application. We decided to research smart contracts in order to assess the security of PRNGs written in Solidity and to highlight common design antipatterns that lead to vulnerabilities allowing prediction of the future state."

  24. "Bitcoin-mining operations are set to overtake domestic residential energy consumption in Iceland later this year, according to a local energy company. As a result, one lawmaker is considering what could or should happen if Iceland continues to expand its role as a major bitcoin-mining hub.
    Johann Snorri Sigurbergsson, a manager at energy firm Hitaveita Sudurnesja, told the Associated Press that he expected bitcoin mining to hit 100 megawatts this year.
    Sigurbergsson told the BBC that he expects the bitcoin industry to exceed the roughly 700 gigawatt hours that all Icelandic homes require." Chris Farivar at Ars Technica has the details. At least it is all renewable energy.

  25. "A growing number of Coinbase customers are complaining that the cryptocurrency exchange withdrew unauthorized money out of their accounts. In some cases, this drained their linked bank accounts below zero, resulting in overdraft charges." reports Adrianne Jeffries at The Verge. Good thing that cryptocurrencies mean that there's no need to trust third parties.

  26. David Gerard has posted an extract of his book chapter on Dogecoin. It is a fun read.

  27. "The Zaif exchange, ..., saw the brief glitch last week which enabled traders to make crypto purchases for free, according to Reuters.

    As customers realized the situation, a number attempted to make the most of the 20-minute window for free coins. One, according to the Asahi Shimbun, even placed a order for bitcoin worth 2,200 trillion yen ($20 trillion) at the time; then moving to quickly sell it again.

    Tech Bureau Corp. announced yesterday that the incident had occurred on Feb. 16, detailing that seven customers had obtained cryptocurrencies at zero cost." reports Daniel Palmer at Coindesk.

  28. "More than a dozen crypto-linked companies have shelved plans to raise money from investors after Securities and Exchange Commission officials called them up, Robert Cohen, head of the SEC’s cyber enforcement unit, said Friday. The SEC scrutiny prompted firms to realize their offerings may have violated federal securities laws, he said at a conference in Washington." writes Matt Robinson at Bloomberg.

  29. "Fledgling blockchain startup IOTA has ran into yet another technical issue. Researcher Joseph Rebstock has detailed a vulnerability in its network which makes users susceptible to replay attacks – a common exploit vector in which valid data is erroneously repeated in order to steal cryptocurrency from users." reports MIX at The Next Web

  30. "Tokendata, one of the more comprehensive ICO trackers, lists 902 crowdsales which took place last year. Of these, 142 failed at the funding stage and a further 276 have since failed, either due to taking the money and running, or slowly fading into obscurity. This means that 46% of last year’s ICOs have already failed.

    The number of ICOs that are still a going concern is actually even lower. An additional 113 ICOs can be classified as “semi-failed”, ... This means that 59% of last year’s crowdsales are either confirmed failures or failures-in-the-making." reports Kai Sedgwick.

  31. "China is opening a new front in its battle against cryptocurrencies, targeting platforms that allow the nation’s investors to trade digital assets on overseas exchanges, people familiar with the matter said." according to Bloomberg.

  32. "Back in October, Apple co-founder Steve Wozniak revealed that he was a huge fan of bitcoin ... bitcoin is "genuine and real." The burly multi-millionaire also said that he likes bitcoin because "it is based on mathematics."
    just after Bitcoin hit its all time highs, Wozniak also discovered just how volatile bitcoin was and pulled the cord, bagging a price near the all time high.
    As Wozniak revealed to India's Economic Times, in addition to being volatile, bitcoin is also prone to the occasional theft.

    "I had seven bitcoins stolen from me through fraud. Somebody bought them from me online through a credit card and they cancelled the credit card payment. It was that easy!"
    "And it was from a stolen credit card number so you can never get it back," Wozniak explained further during the Economic Times’ Global Business Summit held in New Delhi." according to Tyler Durden at ZeroHedge.

  33. "Earlier this week, Hydro-Quebec warned that there won’t be cheap power available for every company that wants to set shop in the province and suggested it may set a higher tariff for cryptocurrency miners. On Friday, the government -- the utility’s owner -- questioned the companies’ contribution to the province’s economy." reports Sandrine Rastello at Bloomberg.

  34. "Eleven people have been arrested in Iceland as a result of what local media are calling the “Big Bitcoin Heist”—600 mining computers were recently stolen from Icelandic data centers in four separate burglaries between December 2017 and January 2018." according to Cyrus Farivar at Ars Technica.

  35. "The SEC staff has concerns that many online trading platforms appear to investors as SEC-registered and regulated marketplaces when they are not. Many platforms refer to themselves as "exchanges," which can give the misimpression to investors that they are regulated or meet the regulatory standards of a national securities exchange." SEC Statement on Potentially Unlawful Online Platforms for Trading Digital Assets.

  36. "The largest cryptocurrency dropped as much as 8.6 percent to $9,864 after the SEC statement boosted concern that tightening regulation may limit trading. Bitcoin is down about 50 percent from its high of almost $20,000 in December in part because regulators worldwide have clamped down on trading, mining and initial coin offerings. Adding to concern is speculation that the exchange Binance has been hacked." Bloomberg Bitcoin Dives After SEC Says Crypto Platforms Must Be Registered.


    "Japan’s financial regulator will slap administrative punishment notices on several cryptocurrency exchanges this week and plans to force some to suspend their business" Reuters Japan to punish several cryptocurrency exchanges: sources.

  37. "Most cryptocurrency enthusiasts will agree that people manipulate the Bitcoin market. Even though Bitcoin should be all about a free market, the rich and wealthy -known as whales- are in a position to muck around with the price as they see fit. There are rumors circulating about an entity called “Spoofy”, who is -or are- manipulating the price of Bitcoin. Bitfinex and Tether got tangled in this story somehow as well." is the start of JP Buntinx's Who is Spoofy, and How is He Manipulating Bitcoin’s Price? from last August. It is a must-read for anyone who believes the "price" and "market cap" numbers for cryptocurrencies.

  38. "People's Bank of China (PBoC) governor Zhou Xiaochuan took aim at cryptocurrency projects that have shifted away from their purported use cases in favor of promoting what is essentially market speculation.

    "Lots of cryptocurrencies have seen explosive growth which can bring significant negative impact on consumers and retail investors," Zhou said. "We don't like (cryptocurrency) products that make huge opportunity for speculation that gives people the illusion of getting rich overnight."

    The comment may signal an increasing level of scrutiny down the road by the PBoC over initial coin offerings and trading services that are still available for domestic investors, even after regulators issued a ban on ICOs and essentially pushed fiat-to-crypto exchanges out of the domestic market." reports Wolfie Zhao at Coindesk.

  39. "I believe more than $3 billion of all cryptoassets’ volume is fabricated, and ... OKex, #1 exchange rated by volume, is the main offender with up to 93% of its volume being nonexistent. I’ll endeavour to prove it by analyzing publicly available data." writes Sylvain 'ArtPlay' Ribes in Chasing fake volume: a crypto-plague.

  40. "Plattsburgh residents have seen skyrocketing electrical bills — as much as $100 to $200 increases — as a result of commercial cryptomining operations that mine for cryptocurrencies like bitcoin, according to Plattsburgh Mayor Colin Read, who spoke with Motherboard. The city is taking action to protect its citizens from those rising electrical bills that the city of Plattsburgh says is caused by cryptomining operations." according to Antonio Villas-Boas at Business Insider:

    "The city of Plattsburgh, New York announced on Thursday that it is temporarily banning the commercial mining of cryptocurrency for 18 months.

  41. "Crypto logic 101:
    Bitcoin is worth holding onto because it will become worth more
    Why will it be worth more?
    Because more people will start using it
    But aren't they just holding it, rather than using it?
    Yeah, but eventually we'll use it
    What for?
    To cash out into US dollars" Brett Scott tweeted 11/13/17.

    Tip of the hat to MoneyLab Reader 2: Overcoming the Hype

  42. "BEIJING (Reuters) - China’s central bank will launch a crackdown on all types of virtual currencies this year, a vice governor of the central bank said on Thursday."

  43. Three headlines this morning:

    Crypto Exchanges Charge Millions to List Tokens, Report Says.

    John McAfee charges $105,000 per tweet to promote your ICO.

    What Kind of Hyper-Enthusiastic Market is this that Blindly Keeps Pursuing Scams to Make a Fortune Overnight, even if They Already Crashed the First Time?
    . This one's about Long Island Iced Tea:

    "Shares of “blockchain” company LongFin (LFIN) plunged 17% today to $14.31, the sixth trading day in a row of plunges. Intraday on Friday, March 23, shares still traded at $73. The astonishing thing isn’t that they’ve plunged 81% over those six trading days, but that they had more than doubled over the prior two weeks, and that they’re still trading above penny-stock status to begin with.

  44. "US financial watchdog the SEC has frozen $27m in what it believes are ill-gotten gains generated by a shady cryptocurrency deal.

    The regulator has accused blockchain tech upstart Longfin Corp and four of its officers of awarding and then selling unregistered shares for their own gain. The group is accused of violating the US Securities Act of 1933." reports Shaun Nichols at The Register.

  45. Irony alert! "Indian Bitcoin exchange Coinsecure has mislaid 438.318 BTC belonging to its customers.

    In a statement by parent firm Secure Bitcoin Traders Pvt, posted late on Thursday, the biz said its chief security officer had extracted a bunch of Bitcoin to distribute to punters – and discovered the funds were "lost in the process."

    The vanished Bitcoin stash was worth £2,493,590 ($3,547,745) at the time of publication, and apparently departed Coinsecure's secure coin servers on April 9." reports Richard Speed at The Register.

  46. In the wake of well-founded suspicions about Tether:

    "Enter Basis, a year-old, 10-person, Hoboken, N.J.-based cryptocurrency startup at work on a “stable coin” whose elastic supply will ostensibly expand and contract to keep its value at about a dollar instead of all over the map. The company’s big idea: to develop a new token that people will actually use, instead of use to speculate.

    Investors apparently love what Basis is cooking up. The upstart is announcing today that it has raised a somewhat stunning $133 million in funding from Bain Capital Ventures, GV, longtime hedge fund manager Stan Druckenmiller, one-time Federal Reserve governor Kevin Warsh, Lightspeed Venture Partners, Foundation Capital, Andreessen Horowitz, WingVC, NFX Ventures, Valor Capital, Zhenfund, Ceyuan, Sky Capital, Digital Currency Group and others."

    Timothy B Lee at Ars Technica does a deep dive into how and whether Basis would work:

    "The Basis network doesn't exist yet—the 10-person team expects to launch it in the coming months. All we have now is a white paper describing the team's plans. And that white paper does not give us a whole lot of confidence that the team has figured out how to succeed where previous projects have failed.

    The Basis stablecoin may manage to track the dollar in value for a certain period of time—especially if it's backed by a $133 million warchest. But if confidence starts to falter, the whole project could collapse."

  47. Dogecoin Has More Transactions than Bitcoin Cash. Dogecoin was intended as a joke:

    "Bitcoin Cash, on the other hand, has been called the “real Bitcoin” by its endorsers in the community, being the result of a prolonged disagreement on how to handle the Bitcoin scalability problem. Bitcoin Cash fans argue that it is superior to the original Bitcoin because of its greater transaction speed, thus more likely to be used by merchants and for transactions."

    If everyone is HODL-ing there aren't any transactions, so the increased blocksize is beside the point.

  48. "Bitcoin is optimised for a world where society has collapsed, but the internet still works and there is plenty of cheap electricity."

    @socialtechno sums up cryptocurrency in a single tweet.

  49. Jon Russell & Mike Butcher's Telegram’s billion-dollar ICO has become a mess starts:

    "Telegram’s ICO was supposed to be a record-breaker to develop a platform that brings the decentralized internet to life. Instead, it has become a mess with the tightly controlled fundraising process in disarray as early backers sell their tokens for handsome returns.

    The company recently canceled the public sale piece of its ICO, the Wall Street Journal reported this week, after it raised $1.7 billion from private sale investors, according to SEC filings. ... The result is that the ordinary people can’t buy Telegram’s Gram crypto token until it is released on exchanges. There’s currently no timeline for that. But, with massive demand for the messaging app and deep discounts for early backers, a secondary market for buying and selling tokens early has emerged — with huge returns already realized by some."

  50. Kate Rooney's A blockchain start-up just raised $4 billion without a live product reports:

    "A Cayman Islands start-up has raised $4 billion as of Thursday, eclipsing the world's biggest initial public offerings on stock exchanges this year. But its flagship product is not even live yet. is funding its blockchain platform called eos.ios through a process known as an initial coin offering, or ICO. Its multibillion-dollar fundraising effort more than doubles the next biggest offering of that type. But investors still don't know how the majority of that capital will be used.

    Many have been pouring in money based on hype and a promise that its founders, who have run other well-known blockchain projects, can repeat their success."

    Totally not a bubble.

  51. Bitcoin price manipulation puts trust in cryptos at risk by Neil Gandal and Tyler Moore reports on their research into the Mt. Gox collapse:

    "Our analysis of the data confirmed much of what was reported in the “anonymous” documents. In the paper’s appendix, we go into great detail to show why two trading mechanisms in particular should be considered suspicious. The first, known as the “Markus bot,” involved reporting trades that did not exist. The second, or “Willy bot,” involved trades in which Mt. Gox itself bought Bitcoins from its own customers but did not let many of them withdraw the proceeds from their accounts."