Bitfinex Archives

What people need to understand as difference between Electronic Fiat and Cryptocurrency

Posted on May 1, 2017 | by [email protected]

With the advent of internet and electronic systems, payments and bank transfers for fiat currencies have gone completely digital. With cryptocurrencies like Bitcoin being advocated as simple, quick peer to peer transfer means, people have come to question how cryptocurrencies like Bitcoin and digital payments for fiat currencies are different. The difference lies in the issuance, means of validation, the speed of transfers and how the storage accounts are maintained. Let’s look into what exactly people need to understand as the differences between Electronic Fiat and cryptocurrencies:

Difference between fiat and cryptocurrency:

One major difference is the fact that cryptocurrency reserves are limited and their scarcity provides them with a deflationary outset. In cases like Bitcoin, the currency is set to produce only 21 million coins by 2040. Hence the programmed scarcity ensures that the currency’s journey is deflationary. In the case of fiat currencies, the purchasing power of the currency depends on how the country’s economy is doing. With traditional fiat reserves be it physical or digital, there is no way to tell how much money is circulating, Central Banks can print money on a whim without backing it up with stored Gold or standard reserves. Economists who are against this type of monetary practice believe that the world’s citizens are experiencing a silent robbery called inflation due to central planners unconditionally printing vast amounts of fiat reserves.

The digital payments system and push for a cashless society:

When it comes to physical currency, it becomes difficult to monitor the cash flow. The government has no way to know the amount of money in circulation. Hence there has been a constant push for cashless society amongst various countries of the world. Especially European countries have banned physical currency transfers over a thousand pounds. This has been taken as a step to proactively stop terrorism funding, to monitor the cash flow and be able to avoid transactions that might prove detrimental to the country. The electronic fiat currencies have come to existence from 1975 and now constitute 92% of world’s fiat reserves.

What advantages does Bitcoin provide:

Fiat electronic transactions where major banks or transfer companies act as a custodian or intermediary, there is a chance of censorship. A very good example is the recent Bitfinex’s lawsuit against Wells Fargo where the bank intervened in the business operations by halting the deposits. By placing the power in the hands of a central bank, we are also bidding good bye to financial freedom. Since Bitcoin transactions are decentralized, they don’t depend on any central authority making it a clear tool for financial independence.

Banking problems hound Bitcoin exchanges, force few more exchanges to ban withdrawals

Posted on April 21, 2017 | by [email protected]

Bitcoin exchanges have been plagued by the problem of Commercial banks sometimes denying transfers affecting their functioning. Most of the times, the banks back up their actions by citing that with Bitcoin’s stature still being unregulated, they don’t want to get involved in anything that might turn out to be illegal. Most of the Bitcoin exchanges have great KYC and AML frameworks that allow them to put in the guardrails that prevent their customers from engaging in illicit activities. The question is are the banks really fearing regulation to put an end to transactions related to Bitcoin? Or is just an excuse to hamper the growth of the cryptocurrency that might outplay the banks. Whatever the case might be, the issue has escalated and is taking a toll on traditional Bitcoin exchanges. Let’s delve deeper into the dynamics of the problem and its effects:

Bitfinex’s lawsuit and the implications:

Bitfinex initially took Wells Fargo to the court for having reversed US Dollar cash deposits designated to their customer accounts coming from the exchange. The legal basis for the lawsuit lies in the fact that Bitfinex works with Taiwanese banks, including a bank called ‘Taishin’. Tashin is responsible for relaying the transfers to US customers using Wells Fargo, among others. Wells Fargo recently sent a letter to the Taiwanese bank informing them that they would no longer be accepting the deposits from these accounts until “further due diligence” was obtained.

However a week later Bitfinex withdrew the lawsuit as experts believed there was not enough legal standing for the case. However, they followed up with an announcement which announced that they would be banning withdrawals indefinitely.

Other Exchanges report the same issue:

A couple of days later major Bitcoin exchanges like BTCe and Okcoin reported the same issue. The bitcoin exchange Btc-e has announced on Twitter that it is not accepting U.S. dollar wire transfers until the end of the month. This has been attributed to a bank account problem. Following this Okcoin has also suspended US dollar deposits have been suspended because of issues with intermediary banks. The exchange has also gone on to warn the customers against making any deposits as they might be rejected. The announcement cited that the deposits will resume as the exchange find alternatives for the complication.

Third party banks de-risking or putting up a fight with Bitcoin?

Intermediary banks like Wells Fargo are known as third party banks that are responsible for these transfers. They support international transactions and transaction settlements. Since Bitcoin businesses don’t have a defined regulation, what these major banks are doing can put them in a position of risk. Hence what they are doing can be defined as ‘de-risking’ to avoid any possible legal issues. However, this might also turn out to be a move to hamper Bitcoin’s growth and its growing reputation. How exchanges will circumvent the challenges to operating smoothly again is to be seen.

Wells Fargo and Bitfinex war escalates, Bitfinex shuts down fiat deposits

Posted on April 17, 2017 | by [email protected]

Cryptocurrencies are undoubtedly the future of transactions and Bitcoin is leading the way. With increasing number of Bitcoin and cryptocurrency transactions, the commercial banks are fearing a near replacement. Added to their concerns, they are unsure about how the Bitcoin regulations would shape up in different geographies and are hesitant in aiding their development. Bitfinex that has recently redeemed the hack victims completely has been a victim of one such incident. This time the involved bank was Wells Fargo and the exchange moved on to a lawsuit to avoid any impending repercussions. Let’s dive deep into what exactly happened and how Bitfinex is proposing to tackle the issue:

Lawsuit over embargoed wire transfer:

Bitfinex is taking Wells Fargo to the court for having reversed US Dollar cash deposits designated to their customer accounts coming from the exchange. This is infact a very important law suit for the Bitcoin world as the legality of shutting down bank accounts merely for being related to the use of Bitcoin or cryptocurrency trading has been a grey area. The opening statement makes it clear enough for the court what the issue is:

“Wells Fargo has suspended U. S. dollar wire transfer operations needed to remit to plaintffs’ customers U. S. dollars that the customers deposited with plaintiffs to purchase digital currency, causing imminent and irreparable harm to plaintiffs.”

The legal basis for the lawsuit lies in the fact that Bitfinex works with Taiwanese banks, including a bank called ‘Taishin’. Tashin is responsible for relaying the transfers to US customers using Wells Fargo, among others. Wells Fargo recently sent a letter to the Taiwanese bank informing them that they would no longer be accepting the deposits from these accounts until “further due diligence” was obtained.

Withdrawal of Lawsuit:

Surprisingly, a week after filing, Bitfinex has withdrawn its lawsuit against Wells Fargo for suspending its U.S. dollar transfers. Many believed that Bitfinex had a chance against Wells Fargo, which acted as the company’s correspondent bank. The lawsuit became the cynosure of the cryptocurrency world as that would let everyone know about Bitcoin’s standing. While no statement was issued by Bitfinex, many believe that Bitfinex had no legal standing and banks are allowed to selectively block transactions at their own discretion. Hence Bitfinex would have eventually lost and it was an act to make a statement.

Bitfinex stops accepting Fiat deposits:

After the entire showdown about the lawsuit against Wells Fargo, Bitfinex has announced yesterday that they would stop accepting fiat deposits. The exchange has sighted that the refusal on the part of the banks is one of the major reasons. They said:

“Beginning April 18, 2017, all incoming wires to Bitfinex will be blocked and refused by our Taiwan banks. This applies to all fiat currencies at the present time. Accordingly, we ask customers to avoid sending incoming wires to us until further notice, effective immediately.”

The exchange said this would be an expected delay till they find alternatives to process customer funds and put a framework in place.

Week in Review: Bitcoin has Positive Start for the Month, Scalability Tackled

Posted on April 5, 2017 | by [email protected]

The last couple of weeks towards March’s end saw Bitcoin fighting off scalability issues and ETF rejections that staggered prices. Just when things picked up from the Winklevoss ETF rejection and prices were looking optimistic, the blocksize debate has slipped up the prices again bringing the price to just under $1000 levels. However, in the first week of April, things look very optimistic for the cryptocurrency as Bitcoin prices have increased by 8% with the digital asset trading over $1,100. (Read more reviews about Bitcoin investments here.) Fundamentally there have been many positive re-enforcers during the week for the change in the winds. Let’s dive deep into the most significant positives for the week.

Mexico recognizes Bitcoin as a digital asset

Mexico has had problems arising due to unstructured economic planning. Added to that, it is also the 4^th highest country for inflow of remittances. These characteristics have created an ideal environment for Bitcoin to step up and thrive constructively on these positives. While the idea is certainly positive, the Mexican Government has signed a bill that classifies Bitcoin as a ‘Digital Asset’ and sets forth rules for Bitcoin exchanges. The wide consensus has been noticed in support of the bill among disparate political parties with an eye towards benefits for the economy triggering more foreign investment to help local industries and businesses grow.

Bitfinex redeems its tokens

On August 2nd, 2016, the leading bitcoin exchange by USD volume Bitfinex has suffered a major hack where 119,756 bitcoins were stolen. This forced the exchange to issue “Recovery Rights Tokens” as an IOU to customers. These tokens were set to be traded as BFX tokens and are to be paid back as soon as they hit $1 which is their underlying value. Bitfinex has made good on their promise and as of 4^th of April, the exchange announced that it is now paying off debts in full. Redemption started late last year with BFX tokens trading well below the $1 value and being termed as a scam to buy more time. However, the exchange intermittently reimbursed hacked customers, proving their commitment towards the services they provide.

Forking has reached consensus

After two years of heavy debating, the scalability issue that has plagued Bitcoin in phases has finally found a solution. Bitcoin developers both from Core and Unlimited will merge within two weeks to a maximum block size increase to 4MB. This will then further increase by 25% yearly until 32MB. 4^th of July is the designated date on which Bitcoin will hard fork and any node left on the original Bitcoin network would be cut off. All the nodes are expected to upgrade by this date with the requisite hardware that makes this possible set in place. Since the debate has now become harmless, bitcoin prices are now soaring high and look good for weeks to come.

Bitfinex moves out of Washington State citing regulatory problems

Posted on March 7, 2017 | by [email protected]

Regulations, especially not well thought out might be a hindrance to innovation in any form. Such constricting regulations are hindering the development of fintech companies currently in US. The latest state to join this list is the State of Washington where regulations on digital currency startups have made significant impact on businesses. Owing to these regulations many companies have ceased to serve the residents of the respective region and Washington is no different. The latest to join the list of exchanges pulling out of the state would be the Honk Kong based exchange Bitfinex. After suffering a massive hack in August, Bitfinex has managed to reimburse the stolen money to their clients through redemption tokens and was able to re-establish client’s faith in the exchange. Though the strong reason behind this move is still unclear, let’s look into the details of the exit:

The Regulatory debacle:

A Washington based user has revealed on Reddit that Bitfinex has withdrawn from the State owing to a regulatory debacle which it eventually lost. The statement released by the exchange read as follows:-

“Over the past few months, we have been in discussion with representatives of the Washington State Department of Financial Institutions(DFI) about Bitfinex’s business and specifically to provide Washington customers with service. DFI representatives have made it clear that for offering the services, Bitfinex has to acquire a state money transmitter license.”

Bitfinex’s problem:

The exchange underwent a massive hack attack in August 2016, losing more than $70 Million after which there have been facing consistent trouble. The exchange issued blockchain debt tokens to its users in August as a way to pay them back for losses it incurred in a debilitating hack. The exchange announced that it would purchase the tokens at an above-market value of $1 each. This is roughly double the market value when the redemption took place. The exchange has been good on its promise so far but they have experienced a DDOS attack pretty recently which has been fended off.

Regulations and Bitcoin businesses:

Bitfinex notified that it wouldn’t be obtaining the money transmitter license in Washington and, accordingly, will no longer be doing business with verified Washington customers, effective immediately. Washington-based traders have only until Wednesday to withdraw their funds, Bitfinex added. Earlier last week Coinbase suspended its services for customers in Hawaii owing to authorities intervention. Early December last year, Bitstamp also left Washington State citing regulatory reasons. The problems with regulation for cryptocurrency startups started with BitLicense NewYork which saw the mass exodus of the startups from the state. Whether regulations and business would be able to find a middle ground in US where the innovation would get a push rather than hampering is to be seen.

The longest running Bitcoin Exchange is now open to USA Bitcoin Traders

Posted on November 16, 2016 | by [email protected]

When two-man team from China launched a Bitcoin exchange in Shangai, they certainly didn’t have US markets on their mind. What launched as a Yuan denominated exchange, in an unregulated environment, is now all set to trade with BTC USD. We are talking about BTC China, currently the longest running Bitcoin exchange. With heavy Chinese involvement, it has been the highest in terms of volume and the oldest in terms of running exchanges. Let’s look into its journey and how BTCC got to US Markets:

The History and the growth:

BTC China was one of three major exchanges started in the summer of 2011. Its contemporaries included Slovenian Bitstamp and the Russian BTC-E. Around that time, MtGox in Japan had the highest volumes in bitcoin market for USD trades. The exchange grew quickly in 2012, despite the close monitoring of Chinese officials. Chinese government and Central bank were starting to enforce threatening steps for the growth of Bitcoin. Despite the negativity, the platform being China’s only exchange for trading Yuan for bitcoins garnered positive press coverage on national television. After the fall of MtGox, the exchange has seen steady increase in volumes which was later pushed up by imposition of capital controls in 2015.

Operating structure:

BTC China has been in business since 2011 building an effective customer relationship. While the company offers services to almost every country in the world, 16 countries are excluded. These include the typical outsiders like Iran, Cuba, and North Korea. Accompanying them are residents in the US states of New Hampshire, North Carolina, and New York. Anyone can sign up with a photo of their passport, a selfie of themselves holding the passport. They would also need a third form of identification that can be a driver’s licenses or utility bill.

Benefits over traditional exchanges:

The exchange’s fee structure might really attractive for US Dollar traders. Buyers pay only 0.2 percent of a trade, with a minimum of one penny. This is on par with Bitfinex and better than Bitstamp’s 0.25 percent. Meanwhile, sellers can earn money on each trade, receiving a rebate of 0.05 percent for adding liquidity to the board. This beats both Bitfinex and Bitstamp which still charge money to sellers.

The new real-time exchange, currently in beta, offers Market, Limit, Stop, and One Cancels the Other (OCO) orders for spot trading. The Pro trading platform also provides 25x margin trading. The company now also offers a few other bitcoin services, including a bitcoin wallet, physical bitcoins, and a bitcoin mining pools. This would certainly make it very lucrative option for all the US based traders.

BNP Paribas is tapping blockchain for mini-bonds

Posted on September 19, 2016 | by [email protected]

September has been a fairly positive month for the cryptocurrency with steady adoption and acceptance. With no major fundamental news in the market, the Bitcoin prices have consolidated over $600 level. With the prospects of legislation in the favor of the digital currency and its underlying technology cropping up, the market sentiment has been supportive for the prices. Let’s look into how BNP Paribas is leveraging blockchain and contributing to the growing mainstream adoption this month:

BNP to use ledger technology for mini – bonds:

French bank BNP Paribas’ Securities Services has unveiled their blockchain platform on which they have been working. This platform will enable private companies to lend money to business using mini-bonds in exchange for company shares. The distributed ledger platform that will support and record mini-bonds issued through the platform. BNP is partnering with French crowdfunding startups Enerflip, Lendosphere and Lumo for seamless execution of the platform. BNP Paribas Securities Services’ Innovation & Digital Lab head of business management Marc Younes had positive hopes from the platform. He said that the platform is one that stands to benefit small businesses, while potentially helping standardize mini bond management.

Younes said:

“Blockchain technology is particularly suited to the fundraising needs of private companies as transactions volumes are typically lower than for listed companies.”

Bitfinex updates Bitcoin Hack repayment plan:

Bitfinex has taken new steps to reimburse accountholders who lost funds in an exchange breach earlier this year. In a blog post, the troubled exchange announced two special purpose vehicles (SPVs) would be made available to accountholders. This is for the purpose of exchanging digital assets for interest in iFinex Inc, Bitfinex’s parent company. The exchange issued the assets, called BFX tokens, to accountholders after suffering a 120,000 BTC($72m) hack on 2nd August.

After the hack, Bitfinex has been trying its best to keep up its promise

While people were skeptical towards the issuance of these tokens , Bitfinex has provided accountholders with positive signs. On 1st September they redeemed more than 1% of the tokens for $1, even though it was below market price.

Viatnamese Bitcoin MLM Scheme sees deposit of $ 1 million:

An MLM-based investment scheme that used bitcoin as its transactional currency has gone bust, in Vietnam. A Vietnamese investment scheme used multi-level-marketing (MLM) and bitcoin as its currency to promise investors returns of 144% a month. MLM trading is illegal by law in Vietnam, as deemed by the Vietnam Competition Authority (VCA). But this didn’t stop unsuspecting users from pouring money into the scheme. The Ponzi scheme first surfaced in January this year. It used the domain “fxmt4.us”, seeking participants to register with an account. It demanded a minimum deposit of 1 bitcoin as the buy-in, according to local publication ‘Thanh Hien’.

Early investors saw early returns, fueling the interest among residents. But by May, the scheme was no longer paying out dividends and the domain went offline. A preliminary investigation revealed that the money invested in the scheme is around $1 million.

This shows how nascent cryptocurrencies can be misused for fraudulent activities, especially when their adoption is on the rise.

Why Investors Should Care About Bitcoin Mining Pools

Posted on September 12, 2016 | by [email protected]

What is a Bitcoin Mining Pool?

A Bitcoin mining pool is a group of Bitcoin miners working together to earn Bitcoin. Bitcoin miners use computing power, which is measured in hash rate, to unlock blocks, for which they are rewarded in Bitcoin. Each time a block is unlocked, the Bitcoin system allocates Bitcoin to a miner who participated in unlocking the block. The hash rate of the participating miners determines which miner earns the Bitcoin through random distribution. As the number of miners unlocking blocks increased, miners with low levels of computing power would have to wait extended periods of time, even up to years, to earn Bitcoin rewards. In response to this problem, pools were created to group miners and distribute Bitcoin rewards on a more consistent basis. In other words, pools reduce the “granularity” of the rewards that miners earn.

Source: Blockchain

What are the Largest Bitcoin Pools?

The three largest pools, measured by hash rate, are DiscusFish (also known as F2Pool), AntPool, and BW Pool. These pools compris e approximately 22%, 17%, and 15% of the total hash rate, respectively. DiscusFish is a Chinese mining pool, founded mid 2013. AntPool is owned by Chinese IC design company Bitmain Technologies Limited. BW Pool is also a China based firm.

Why does this Matter to Investors?

The successes and failures of pools could have serious implications for investors. Collectively, these pools make up more than 50% of the total hash rate. If they were to collude, they pose a security risk to the validity of the blockchain. Furthermore, hash rate is important because it indirectly reflects the projected value of Bitcoin. If confidence in the value of Bitcoin is high, people will be more inclined to mine. More mining means a higher hash rate. If these pools disband or suffer from internal error, it could send shockwaves through the Bitcoin community, reflected in its trading value. Given the geographic proximity of these pools, failure of one pool could be shared by others.

In looking at recent history, the primary sources of failure for Bitcoin have occurred during consolidation of information. Two, notable cases of consolidated information failure are the Mt. Gox and Bitfinex exchange incidents. Although pools have not had a severe adverse effect on Bitcoin value yet, investors should monitor the security and growth of pools with wariness.

3 Bitcoin trading events that every Bitcoin investor should know about

Posted on August 31, 2016 | by [email protected]

Getting to know the Bitcoin Market

Given that Bitcoin market is relatively new, investors share uncertainty about its long-term viability. Like other currencies, Bitcoin is susceptible to fluctuations in price and value. However, the mechanisms that govern Bitcoin are radically different than those of traditional currencies. Bitcoin uses peer-to-peer technology, which is a selling point for people hedging their bets against centralized government. However, in the event of a systemic failure, such as a market collapse, there exists no central authority to respond. In a conventional capitalist system, such as the U.S., for example, the Federal Reserve can intervene in times of crisis with monetary policy. The question then becomes: how effective is Bitcoin in times of failure? Although there is no definitive answer to this question, by examining Bitcoin’s historical performance in times of crisis, investors can improve their understanding of the asset.

Three Bitcoin Crises

Three consequential crises of Bitcoin include the regulation of the central bank of China (December, 2013)¹, the collapse of Bitcoin exchange Mt Gox (February 2014)², and the security breach of Bitfinex (August 2016). Each of these events directly impacted the price of Bitcoin, pictured below.

Source: Coinbase

Bitcoin is Risky

In examining each of these failures, investors should consider the recovery process and the probability that a crisis will repeat itself. The regulation of the central bank of China was an unusual event; many investors were forced to exit the market and the remaining pool of investors became increasingly aware of the potential for regulation. The resulting slide in value of Bitcoin reflects the shift in regulatory risk analysis. This shift demonstrates that changes in legislation are often unpredictable and can have severe implications for Bitcoin price. To date, the price has not recovered to its high of December 2013. However, despite regulatory burdens, China has resumed high levels of Bitcoin consumption.

The collapse of Bitcoin exchange Mt. Gox and security breach of exchange Bitfinex demonstrate the market risk of database failures. Importantly, each of these cases was a result of human error. The blockchain did not fail, which possibly contributed to value recovery. In considering the recovery periods of each of these events, Bitcoin price recovered to 100% of its value within three weeks of the Mt. Gox collapse³, and has recovered to 97.5% of its value within a week of the Bitfinex collapse³. Despite lacking a centralized system, in each of these cases, after an initial loss, Bitcoin retained much of its value.

Sources

Library of Congress: Regulation of Bitcoin in Selected Jurisdictions
CoinDesk: Mt Gox: The History of a Failed Bitcoin Exchange
CCN.LA: China now Controls Bitcoin (and that’s just the Beginning)