Bitcoin Weekly 2016 June 1: China influences rise in market value, BTC ‘not money’ case, Australia auctioning $11.5M in bitcoins, the DAO comes online

Bitcoin Weekly with SiliconANGLE

It looks like the Bitcoin market value got a sudden shot in the arm as Chinese investments have pushed the price up by almost $100 (see below). During a money laundering court case in Florida, an economics professor argued that bitcoins are “not money” by comparing the cryptocurrency to collectible baseball cards and comic books. In what makes the second largest auction of seized bitcoins, Australian officials will be selling off bitcoins as proceeds to a crime in Sydney to the tune of 24,518 on June 20.

Not quite Bitcoin, but the Ethereum blockchain DAO (or Distributed Autonomous Organization or “The DAO”) has finished its crowdfunding round to become the largest crowdfunded project in history exceeding $167 million USD in funds. The DAO is also an experiment in company-as-code as the entire organization runs using smart contracts and computer code in order to codify its own corporate governance. Read below about the rise of this interesting new class of business, the way it works and the current fears critics have about the future of the project.

This past week Bitcoin market prices got interesting: the market value jumped almost $100 over the three-day weekend. BTC market value currently holds an average price of $536.50 USD (according to BitcoinAverage.com) compared to the $451 reported in last week’s Bitcoin Weekly. The market rise began just after May 25, 2016 and found its peak around May 30 around $550, with a trough and then an uptick.

Speculation contends that Chinese markets are behind this sudden rise in Bitcoin market value with investors coming back to the market once again.

All this and more in this Bitcoin Weekly.

Wall Street Journal reports Chinese influence on Bitcoin market leading to 20 percent rise

Over the past week, Bitcoin market value has seen an almost 30 percent boost and the Wall Street Journal is reporting (warning: paywall site) that the reason may be increased trading and investment from China.

The WSJ reports that two well known Chinese exchanges, Huobi and OKCoin, collectively represent 92 percent of global trading in bitcoin across the time of the price increase.

Other factors may be involved in this value increase as the block reward for Bitcoin miners will be halved soon. In approximately five weeks, the reward for miners “discovering” a new block will reduce from 25 BTC to 12.5 BTC. As the total number of bitcoins available to be mined is predetermined, this event happens periodically until the reward will reduce to zero.

As this event will change the total number of bitcoins flowing in, and also affect the profitability of mining, it may certainly have a market effect.

For more information on “The Halvening,” Joseph Young at Bitcoin Magazine does an excellent job at describing the protocol phenomena and its potential effects.

Bitcoin described as “not money” in Florida money laundering case by economics professor

The debate over if bitcoins should be considered money or not money has constantly caught the attention of the Bitcoin community. The nature of bitcoins as a medium of exchange and store of value (properties of money) speak to the core of its use as a currency; but this also leads to questions as to how its trade will be regulated by governments.

During a recent money laundering case in Florida, the defense for Michell Espinoza, accused of selling laundered $1,500 worth of bitcoins to federal agents, called upon Barry University associate economics professor Charles Evans who claimed that bitcoins are not technically money under local law.

“Basically, it’s poker chips that people are willing to buy from you,” Evans testified.

The irony of this statement is reflected in the fact that Evans received $3,000 in bitcoins as his fee as defense witness.

In addition, Evans argued that no central bank or authority backs Bitcoin within the United States and that the Internal Revenue Service (IRS) considers Bitcoin trading bartering in a commodity. He then went on to compare assigning worth to bitcoins as similar to how collectors determine the value of baseball cards or comic books for purposes of trade.

According to the argument, if bitcoins are not legally money therefore trading in them cannot be money laundering and the defense wants the charges thus dismissed.

A ruling is expected on the defense motion to dismiss in approximately two weeks.

Australia

Photo via Pixabay

Australia to auction off $11.5M in confiscated bitcoins

Approximately $11.5M in confiscated bitcoins will be auctioned off in Sydney, Australia later this month in the first such auction outside of the United States and the second largest ever. The first largest auction of confiscated bitcoins happened in 2014 when the U.S. Marshals auctioned off over 144,000 bitcoins seized the Silk Road dark web marketplace across a series of auctions.

According to CNBC, the sale will take place June 20-21 and involve 24,518 bitcoins. The bitcoins are the proceeds of a crime committed by an unidentified Australian man convicted of commercial drug trafficking in 2014. Australian department of justice officials declined to comment on the case except to confirm the seizure of coins in 2013.

According to Phys.org, officials said registered bidders will be told the name of the person from whom the bitcoins were confiscated.

Bidders may register with Ernst & Young, the financial firm running the auction, until June 7 for the 48-hour sealed auction on June 20.

The lateness of this auction from the apparent confiscation is interesting, but not unknown in criminal trials.

"The DAO has been created." image via the DAO website.

“The DAO has been created.” image via the DAO website.

The Ethereum DAO crowdfunding has ended and it is now up and running

The first Distributed Autonomous Organization (DAO), a fully self-operating and self-governed organization that runs entirely on code and not the governance of people, is now running on the Ethereum blockchain after its initial crowdfunding round.

The crowdfunding round, which ran from late April to May 28, raised more than $167.93 million USD in funds by selling 1172.78 million DAO tokens (a cryptocurrency necessary for participating in the DAO itself) for Ether (ETH), the Ethereum blockchain cryptocurrency. This event makes the DAO crowdfound the largest cryptocurrency crowdfunding experiment ever. It even exceeds the current crowdfund investment in Star Citizen, which is one of the biggest crowdfunded video games in existence at $114.7 million and counting.

The Ethereum DAO is experimental and will be one of the first test cases in what it means to have a fully decentralized autonomous organization that can operate based on its own code, which generates the rules for interaction and governance via UI, computer protocol, programmable API and smart contracts.

The functionality of the DAO itself is quite complex and requires a bit of research to understand read this DAO 101 for details.

“DAOs hold potential to create a new asset class in a new asset class,” said Charles Hayter, CEO of CryptoCompare (Crypto Coin Comparison LTD), “but it’s early days so caution on known unknowns and unknown unknowns has to be advised. Attack vectors to the code, or idealistic rather than practical tools for governance in its coded ‘Articles of Association’ and ‘Shareholders Agreements’ are not tried and tested.”

A comparison of ETH to BTC over the time span leading to the DAO creation. Chart courtesy of CryptoCompare.

A comparison of ETH to BTC over the time span leading to the DAO creation. Chart courtesy of CryptoCompare (ETH overview).

During the DAO token sales, which were exchanged for ETH, the exchange rates for ETH saw a notable increase in both value and volume. Compared to the large crowdfunding for the DAO, this represents an increased interest in ETH during that period.

Hayter’s concerns about the unknown qualities of the DAO’s own coded governance nature have also been spreading through the media during the past week. Mere days after the initial launch of the DAO platform critics began to voice apprehensions.

In fact, May 30 articles appeared on Inverse, Quartz and CryptoCoinsNews voicing those concerns. The biggest on the block, research from cryptocurrency entrepreneur Dino Mark, Ethereum researcher Vlad Zamfir and Cornell University professor Emin Gün Sirer published on May 27, called for an immediate moratorium on the experiment.

“In this paper, we analyze the rules of The DAO and identify problems with its mechanism design that incentivize investors to behave strategically;” the researchers wrote, “that is, at odds with truthfully voting to reveal their preferences. We then outline potential attacks against The DAO made possible by these behaviors.”

The paper then goes on to list nine causes that they expect would lead participants in the DAO to collude and commit to “strategic rather than honest behaviors.” This, the researchers fear, could lead to casual participants in the DAO, who do not vote but instead just want to invest and come along for the ride, to get colloquially taken for that ride.

The DAO is only days old and the functions that it can support and what it will do are still being formulated.

People interested in becoming involved in the DAO now that the initial funding round is complete can still participate. People interested in having the DAO do something (i.e. produce a product, a service, whatever) can submit proposals and have their ideas evaluated for inclusion. Simon Dingle, a fintech podcaster, wrote a very good article on Medium describing this process and the DAO for beginners.

Critics and investors still need to duke it out and the DAO has not yet evaluated or launched any projects using its proposal system. It will depend on the holders of the DAO tokens whether this experiment rises to expectations or smashes on the rocks.

Either will progress expectations for future experiments and push the horizon for using blockchains and smart contracts for future autonomous organizations.

Featured image credit: Bitcoin Logo, https://www.flickr.com/photos/thelastminute/12350379324.