Seeing Through the Smoke: A Look At the Good News for Bitcoin
There can be no doubt that the Bitcoin ecosystem has been hit hard this past month. Canadian financial regulators, long held as the paragons of a light and wait-and-see approach to the Bitcoin economy, began to move towards a more active stance, and a particularly ominous passpge from the FINTRAC report even suggests that the agency can potentially “choke bitcoins oxygen (sic)” by denying Canadians access to the foreign exchange market. BMO, the last Bitcoin-friendly bank in Canada, shut down the account of Cointrader, a Vancouver-based Bitcoin exchange, soon after that, although fortunately Cointrader’s claim that this is part of a general shift to an anti-Bitcoin stance does not seem to be corroborated by reports from other Bitcoin businesses. On the other hand, somewhat less fortunately, the Russian government simply banned Bitcoin entirely.
Around the same time, Silk Road 2 was hacked, likely by its own owners, and $2.5 million worth of BTC was stolen and the marketplace shut down. An old but poorly understood property of the Bitcoin protocol, transaction malleability, led to several major Bitcoin exchanges shutting down for several days, as well as a major denial-of-service attack that caused the greatest disruption to the Bitcoin network since the blockchain fork last year in March. Finally, worst of all, MtGox, once by far the largest exchange in the Bitcoin economy, has disabled all withdrawals, and prices on the exchange have tumbled more than 85% amid fears that the exchange is insolvent. Among all this, it can be hard to see any bright future for Bitcoin whatsoever.
However, among the setbacks, we have seen a surprisingly large amount of positive news for the Bitcoin economy, much of which has been tragically unnoticed over the past few weeks. Among the important items are:
1. The January 31 CNY deadline came and went, and Bitcoin in China is stronger than ever. When the Chinese government made its first regulatory push against Bitcoin, moving to forbid banks from directly offering Bitcoin services, the government gave the banks a deadline of Jan 31 to stop working with Bitcoin. Many people interpreted this deadline as a date for when a further push against Bitcoin would be forthcoming, perhaps further banning Bitcoin trade or Bitcoin exchange. However, the deadline passed and… nothing happened. No crackdown whatsoever. Instead, when the deadline hit, BTCChina actually resumed accepting cash deposits, and soon after that China once again took first place as the country with the largest number of BitcoinQt downloads.
2. The porn industry is seizing upon Bitcoin like wildfire. Porn.com became the first major porn site to accept Bitcoin in December, and in mid-January the site announced that Bitcoin was responsible for 25% of its earnings. A week after that, porn.com was joined by Naughty America, and now very recently in February the list grew to include I Know That Girl (all links safe-for-work), a site owned by the same company that runs Pornhub. It seems like it’s actually porn, not gambling, that’s becoming the first industry to embrace Bitcoin in the mainstream.
3. Bitcoin exchange reopens in Thailand. When the Thai central bank announced that essentially any Bitcoin activity was illegal last July, many people were already skeptical, pointing out that the Thai central bank had no authority to ban Bitcoin by itself. Now, however, the main Thai Bitcoin exchange reopened its operations upon receiving another letter from the bank stating that Bitcoin exchange does not fall under foreign currency exchange regulations. The status of Bitcoin exchange is still contentious, as the Thai central bank now argues that Bitcoin exchange might be illegal because, if combined with foreign Bitcoin exchanges, it makes it too easy to bypass foreign exchange restrictions and convert Thai baht into other national currencies, but nevertheless substantial progress has been made.
4. Balanced Payments is moving to support Bitcoin. Balanced Payments, a popular credit card payment processor, has announced a partnership with Coinbase which will allow online marketplaces using their platform to easily also receive Bitcoin payments. Currently, the integration is in a private alpha mode, with Bitcoin payments only available for CrowdTilt and Gittip, but it will soon expand to other businesses as well.
5. California just clarified that Bitcoin is legal. Recently, Bitcoin users noticed a section of California law saying that “no corporation, flexible purpose corporation, association, or individual shall not issue or put in circulation, as money, anything but the lawful money of the United States”, and became concerned that this might apply to Bitcoin. So what did the Bitcoin community do? Well, they pointed the issue out to the state legislature, and soon enough a bill came along to clarify that Bitcoin was, in fact, perfectly legally okay. And, guess what: one week later the bill was unanimously passed.
6. The Winklevoss SEC filing is moving forward smoothly. The Winklevoss twins, famous for their role in Facebook, announced last July that they would start a Bitcoin investment fund, which institutional investors could use to invest in Bitcoin as part of their portfolios. Up until this point, the process has actually been moving forward quite nicely; yesterday the Winklevoss twins made their major filing with the Securities and Exchange commission. The approval process is still expected to take several months, and perhaps longer, but this is only to be expected; normally, starting a new exchange-traded fund takes years.
Eventually, MtGox will either declare bankruptcy or reopen deposits, and the particular shadow that currently hangs over our community can begin to withdraw. When that happens, the sky will clear, and we’ll see that the number of Bitcoin transactions is still rising, the search volume on Google Trends is no longer dropping and has been stable for about a month, the number of Coinbase wallets is approaching 1 million and companies taking advantage of tools such as multisignature transactions to help alleviate the problems with consumer protection and security that Bitcoin still has are just around the corner. Welcome to an exciting 2014.