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24 Jan 2015
The Silk Road trial got under way, with the defense trying to argue that defendant Ross Ulbricht wasn't really the Dread Pirate Roberts, but instead it was Mark Karpeles, of MtGox fame. That approach didn't go so well, but it certainly provided a lot of amusement to reporters and spectators. Slovenian Bitcoin exchange Bitstamp came back on line, after a attacker stole 19,000 bitcoins which even at current sagging prices would be worth about $4 million. They say that they rebuilt all their systems from scratch and everything is fine now, leaving a lot of questions unanswered. The usual suspects have said the expected things ("Bitcoin's last gasp", "nothing to do with Bitcoin's security and shows how great it is", etc.) I'll just note that this reminds us why real payment systems for more than trivial amounts of money need ways to unwind bogus transactions, one of the reasons nobody buys anything legal with envelopes of cash. The Winklevoss twins, undeterred by the flameout of their investment in BitInstant which turned out to be a money laundering front for Silk Road drug deals, and making no headway in their plan to set up a Bitcoin ETF (exchange traded fund) that would let them unload their vast holdings on greater fools, now want to set up a regulated exchange in New York City which will presumably be just like MtGox or Bitstamp only domestic so your money will be 100% safe. Given that they apparently own over 100,000 bitcoins, which are now worth about $50 million less than they were a year ago (or would be if only there were someone willing to buy them), one can understand why they must feel some urgency to create a way to cash out. And finally, last Saturday on the Wall Street Journal's op-ed page, a couple of fanbois wrote Bitcoin and the Digital-Currency Revolution. In keeping with the standards of logical analysis for which the WSJ's editorial page is renowned, they say: ... let's take a single example: buying a cup of coffee at your local coffee shop. If you pay with a credit card, the transaction seems simple enough: You swipe your card, you grab your cup, you leave. ... If all goes well, your bank will confirm your identity and good credit and send payment to the coffee shop's bank two or three days later. For this privilege, the coffee shop pays a fee of between 2% and 3%. And by comparison: Now let's pay in bitcoin, assuming that your favorite coffee shop accepts it (more than 82,000 merchants world-wide already do). ... Uh, wait. Actually there are about 82 merchants world-wide that directly accept bitcoin. (One of them is a coffee shop in Vancouver BC.) The rest of them use bitcoin broker Coindesk, some directly, a growing number through merchant processors like Paypal subsidary Braintree Payments. What they do is to accept the bitcoins from the customer and pay the merchant in real money in the merchant's account two or three days later, minus a fee of between 2% and 3%. Read the article if you want, but beware the hypoxia level.
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