Read This! As Bitcoin Bubble Loses Air, Frauds and Flaws Rise to Surface - The New York Times
(nytimes.com)
An advertisement in Hong Kong for high-speed computers used to trade Bitcoin and other virtual currencies. The currencies’ plunging values has exposed a variety of problems in the industry. Credit Alex Hofford/European Press photo Agency
One challenge facing regulators is that it is unclear how much of the deceptive activity they can legally control.Some online groups openly try to manipulate the prices of digital tokens in what are known as pump-and-dump schemes.
Similar schemes involving stocks are illegal, but people operating the groups recently told BuzzFeed that they did not think the same rules applied to virtual currencies.
Many schemes have been able to expand quickly because they do not use bank accounts and therefore do not have to win approval from established institutions.
Instead, they are able to use virtual currency “wallets” without any approvals. And virtual currency transactions cannot be reversed like normal bank or even PayPal transfers.
With regulators slow to crack down, the private sector has taken on a more important role. Facebook announced last week that it would no longer allow advertisements for virtual currency projects.
On Friday, JPMorgan Chase and Bank of America said they would bar customers from using credit cards to purchase virtual currencies; Citigroup followed suit on Monday.For investors, some of what has caused the most concern are well-intentioned businesses set up in a hurry with little outside oversight or time to work out kinks.
Coincheck, which until last month was one of the largest exchanges in Japan, announced on Jan. 26 that it had lost nearly half a billion dollars of a virtual currency known as NEM, in what appeared to be the largest hack to hit the industry.
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Traders have been particularly worried about the largest Bitcoin exchange in the world, Bitfinex, an unregulated operation that has provided few details about its operations, raising concerns about whether it is insolvent or involved in price manipulation.
In the United States, even the most widely used virtual currency company, Coinbase, has struggled to keep up with demand, shutting down trading for hours at particularly important moments, and attracting widespread complaints about its customer service.
But the biggest number of incidents have cropped up around so-called initial coin offerings, in which entrepreneurs sell custom virtual currencies to investors to raise money for software they are building. About 890 projects raised over $6 billion last year, a 6,000 percent increase over the year before, according to Icodata.io, which tracks the offerings.
The $240 million raised through one of the most successful initial coin offerings last year, Tezos, is already frozen in a dispute between the founders of the project and the board they created in Switzerland.
Even established companies like Kodak have ended up chasing the riches without doing proper due diligence. The company delayed its own initial coin offering after it was revealed that the people assisting the venture had problematic histories and little relevant experience.
Most of the newer virtual currency projects borrow their basic design from Bitcoin, which uses a network of computers to maintain its records so that no central government or authority is needed. That design has allowed Bitcoin and other virtual currencies to grow as fast as they have with no regard for international borders, attracting followers from Zimbabwe to South Korea.
It has also allowed some of the most talked-about uses of the technology, helping people escape hyperinflation in Venezuela or transfer money across borders with lower fees.
But it has also allowed in a lot of bad actors.“It is a perfect storm for the kind of scammy activity we are seeing, and it’s not obvious to me how that is easily removed,” said Fred Wilson, a partner at the venture capital firm Union Square Venture and one of the earliest advocates of Bitcoin in Silicon Valley.
“Regulation, ideally prudent and informed regulation, can help. But we may also need to have a big correction to really clean things up.”
This has been a report of the New York Times. Discover even more insights and stories you should know about and subscribe here: https://www.nytimes.com/2018/02/05/technology/virtual-currency-regulation.html
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One challenge facing regulators is that it is unclear how much of the deceptive activity they can legally control.Some online groups openly try to manipulate the prices of digital tokens in what are known as pump-and-dump schemes.
Similar schemes involving stocks are illegal, but people operating the groups recently told BuzzFeed that they did not think the same rules applied to virtual currencies.
Many schemes have been able to expand quickly because they do not use bank accounts and therefore do not have to win approval from established institutions.
Instead, they are able to use virtual currency “wallets” without any approvals. And virtual currency transactions cannot be reversed like normal bank or even PayPal transfers.
The New York Times Explains...
- What Bitcoin is and how it works: click here »
- What Ethereum is and how it works: click here »
- What an initial coin offering is and how it works: click here »
With regulators slow to crack down, the private sector has taken on a more important role. Facebook announced last week that it would no longer allow advertisements for virtual currency projects.
On Friday, JPMorgan Chase and Bank of America said they would bar customers from using credit cards to purchase virtual currencies; Citigroup followed suit on Monday.For investors, some of what has caused the most concern are well-intentioned businesses set up in a hurry with little outside oversight or time to work out kinks.
Coincheck, which until last month was one of the largest exchanges in Japan, announced on Jan. 26 that it had lost nearly half a billion dollars of a virtual currency known as NEM, in what appeared to be the largest hack to hit the industry.
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Traders have been particularly worried about the largest Bitcoin exchange in the world, Bitfinex, an unregulated operation that has provided few details about its operations, raising concerns about whether it is insolvent or involved in price manipulation.
In the United States, even the most widely used virtual currency company, Coinbase, has struggled to keep up with demand, shutting down trading for hours at particularly important moments, and attracting widespread complaints about its customer service.
But the biggest number of incidents have cropped up around so-called initial coin offerings, in which entrepreneurs sell custom virtual currencies to investors to raise money for software they are building. About 890 projects raised over $6 billion last year, a 6,000 percent increase over the year before, according to Icodata.io, which tracks the offerings.
The $240 million raised through one of the most successful initial coin offerings last year, Tezos, is already frozen in a dispute between the founders of the project and the board they created in Switzerland.
Even established companies like Kodak have ended up chasing the riches without doing proper due diligence. The company delayed its own initial coin offering after it was revealed that the people assisting the venture had problematic histories and little relevant experience.
Most of the newer virtual currency projects borrow their basic design from Bitcoin, which uses a network of computers to maintain its records so that no central government or authority is needed. That design has allowed Bitcoin and other virtual currencies to grow as fast as they have with no regard for international borders, attracting followers from Zimbabwe to South Korea.
It has also allowed some of the most talked-about uses of the technology, helping people escape hyperinflation in Venezuela or transfer money across borders with lower fees.
But it has also allowed in a lot of bad actors.“It is a perfect storm for the kind of scammy activity we are seeing, and it’s not obvious to me how that is easily removed,” said Fred Wilson, a partner at the venture capital firm Union Square Venture and one of the earliest advocates of Bitcoin in Silicon Valley.
“Regulation, ideally prudent and informed regulation, can help. But we may also need to have a big correction to really clean things up.”
This has been a report of the New York Times. Discover even more insights and stories you should know about and subscribe here: https://www.nytimes.com/2018/02/05/technology/virtual-currency-regulation.html
Help friends or someone you care about discover blockchain and
cryptocurrencies, by simply sharing this page. Don't keep it to
yourself.....share Blockchain Company (BC).
Did You Know About This?
You can curate a Personal Blockchain Page right here on Blockchain Company ( BC ) like these 2 great user examples here:
http://www.blockchaincompany.info/Paula
http://www.blockchaincompany.info/Francisco
Show
your blockchain page off to your employer, colleagues and friends. It
demonstrates your professional awareness and competency of this
revolutionary paradigm changing the world. It's free if you are a
consumer user. Just Create your Account here in less than 3 mins!
Or
Click Create Account above in the upper right corner. Instructions how
to curate your blockchain page from information you discover on BC, is
sent in your email after you sign up.
You might be able to capture your ' first name " unique url for your blockchain page too! Like : http://www.blockchaincompany.info/robert
You
may be entitled to cryptocurrency tokens, offers and discounts at any
time in the future once you are a user on our platform.