Digital Currency Derivatives Exchanges Prepare for Regulation after CFTC Bitcoin Ruling

Only a week after ruling that bitcoin and other digital currencies are commodities, the U.S. Commodity Futures Trading Commission (CFTC) announced on Thursday that they have settled charges filed against TeraExchange LLC (Tera) for arranging a “non-deliverable forward contract” last October.

Neither of the parties entering the trade were looking to profit off of future bitcoin price changes, but rather to test Tera’s network. However, Tera subsequently released a press release that indicated the pre-arranged swap was a real trade, which would violate both the Swap Execution Facility (SEF) Core Principles found in the Commodity Exchange Act and CFTC regulations.

This was the first charge filed by the CFTC against a bitcoin exchange following last week’s announcement , which gave the CFTC jurisdiction over online bitcoin exchange and derivative markets.

Other digital currency platforms that offer similar services have prepared for this moment. LedgerX applied for both an SEF and Derivatives Clearing Organization license last year but has received only a temporary SEF registration at this point.

In a statement released September 10th, CEO Paul Chao said, “[LedgerX does] not intend to launch with only [an] SEF license… Only with both SEF and DCO licenses from the CFTC can we clear and physically deliver the underlying commodity, offer an order-book trading venue, and attract institutional traders.”

LedgerX has even contracted Ancoa , a surveillance technology provider in order to identify “manipulative behaviors and suspicious trading practices” on the LedgerX platform, according to a statement released earlier this year.

While this type of regulation might seem counterintuitive, as it forces exchanges to push back release dates, industry players welcome the oversight. In a private interview, Alt-Options co-founder Marco Cuesta conveyed that “[the CFTC’s] regulation does positively impact the bitcoin derivative market, since its purpose is to protect clients and their assets. As regulation for the Bitcoin derivative market becomes more aligned with that of traditional financial markets, there should be wider adoption, which is good for the industry.”

Image via CFTC

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FBI Agent Threatens to Kill Silk Road Architect, Ulbricht’s Family for Bitcoin

Diamond, which is believed to be an online alias of an unknown corrupt FBI agent, has been threatening to kill Silk Road Architect Variety Jones and torture Ross Ulbricht’s mother and sister

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Bitcoin Derivatives Company LedgerX Appoints Ex-CFTC Commissioner Wetjen to Board

LedgerX, an institutional bitcoin trading and clearing platform, announced this week that Mark Wetjen, the ex-commissioner of the U.S. Commodity Futures Trading Comission (CFTC), will join its board.

Nominated by President Barack Obama in 2011 and unanimously confirmed by the Senate as one of the five CFTC commissioners, Wetjen both helped to implement the first trading mandate for certain types of interest rate and credit default swaps and pushed the CFTC to undertake approximately 95 enforcement cases under the Dodd-Frank Act and Commodity Exchange Act.

He also served as the acting chairman and sponsor of the CFTC’s Global Markets Advisory Committee, which advises the CFTC on issues relating to the “the integrity and competitiveness of U.S. markets and U.S. firms engaged in global business.”

LedgerX already recruited a CFTC Commissioner to their team: James E. Newsome, Ph.D., an Independent Director at LedgerX, served at the CFTC from 2000 until 2004, when he assumed the role of President and CEO of the New York Mercantile Exchange, which was acquired for $11.2 billion in 2008 by the CME Group, the parent company of the Chicago Mercantile Exchange.

LedgerX applied for both a Swap Execution Facility (SEF) and Derivatives Clearing Organization (DCO) license last year with the CFTC but has received only a temporary SEF registration at this point. LedgerX CEO Paul Chou has publicly stated that “only with both SEF and DCO licenses from the CFTC can we clear and physically deliver the underlying commodity, offer an order-book trading venue and attract institutional traders.”

Following last week’s announcement from the CFTC declaring bitcoin a commodity, the Wetjen’s appointment will certainly help LedgerX navigate the CFTC’s SEF and DCO license application process in order to become a sanctioned bitcoin trading and clearing platform.

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Bitcoin Hardware Wallet KeepKey Launches and Begins Shipping

In a rare move in the Bitcoin space, KeepKey has simultaneously begun to take orders for and to ship their flagship bitcoin hardware wallet. As of Wednesday, customers are able to purchase the USB device for USD$239 on Amazon, or directly from the KeepKey website using bitcoin. Worldwide shipping is included in the cost.

The KeepKey hardware wallet is designed to store and secure bitcoin while protecting them from virtual attacks such as malware and viruses. The device generates and stores bitcoin private keys, never sharing them with the connected computer. Another key feature is a large OLED screen that displays every transaction before it can be approved, thus allowing users to verify that they are sending funds to the correct address and reducing the chance of error.

“Our guiding principle is to empower individuals and organizations with bank-grade bitcoin security,” says Darin Stanchfield, the founder of the company. “This is what our device does, and it is simple to use. Other products that are available require a high level of sophistication to operate. With KeepKey, it is very difficult to do the wrong thing,”

KeepKey currently works with Google Chrome using the KeepKey Wallet Extension . It is also supported by popular bitcoin wallets, including Electrum and MultiBit .

“Our security model was designed to ensure that the user always has complete control over their private keys,” said Ken Heutmaker, a software engineer at KeepKey. “We feel that relying on trusted third parties degrades the security and privacy that the bitcoin ecosystem offers.”

As for KeepKey’s decision not to take pre-orders in order to fund the hardware wallet’s development, Stanchfield cites his own personal experience with being “burned” by other companies who have pre-sold items and then not been able to deliver.

“A customer takes enough risk when they buy any product,” Stanchfield said to Bitcoin Magazine . “We don’t think they should assume the risk of funding manufacturing, too. We made this promise to ourselves early on in development of KeepKey. Fortunately, we have had the finances to pursue this route to get KeepKey to market.”

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Three Bitcoin Finalists Vie for BBVA Open Talent Competition Honors in Barcelona

On September 22nd, the winners of the European division of the BBVA Open Talent Competition were announced in Barcelona, Spain. This year, three of the 15 finalists come from the Bitcoin and blockchain sector: Everledger , Safello and Vaultoro .

The purpose of the competition is to discover and support up-and-coming innovators in financial technology who are poised to “disrupt [the banking] industry in e-commerce, security, mobile payments, data and others.”

The two winners are selected from each of three territories: Europe, Latin America and the United States and the rest of the world. Those six companies not only take home $30,000 each, but also benefit from extensive mentoring and networking support from BBVA in the form of a two-week intensive course.

This year, Everledger was named one of the two European winners.

Based in the U.K., Everledger is a permanent ledger for diamond certification and related transaction history. Using blockchain technology, it acts as a fraud-detection system, overlaying big data from closed sources such as insurers and law enforcement.

“BBVA Open Talent provides an inflection point in the growth curve of Everledger and validates our role in the financial services ecosystem,” Everledger’s CEO Leanne Kemp told Bitcoin Magazine .

“Everledger is a business that will make a difference: At our very core we focus on the ongoing presence of blood diamonds, combatting fraud, theft and counterfeit luxury goods — a problem for consumers, law enforcement and insurers that tops £50 billion a year,” she said. “Blockchain provides a distributed global solution to a fragmented, scattered and complex global problem. With the support from the Barclays Accelerator, and now as a finalist in the BBVA Open Talent Competition, we are having conversations to create new financial and insurance products for diamonds.”

Joshua Scigala, co-founder of Vaultoro, was enthusiastic about the BBVA’s inclusion of his U.K.-based bitcoin and gold exchange.

“We are really proud to be a finalist in the BBVA awards,” Scigala told Bitcoin Magazine . “The developing world skipped the landline and went direct to mobile phones. They are now doing the same with traditional branch banking because it’s just too uneconomical to set up. Vaultoro enables anyone to easily enter the global economy securely by utilizing the native Internet currency, bitcoin, and removing the extreme volatility by combining the security of assigned gold bullion. This will go very far towards ending poverty by including a potential 5 billion people who have no real access to banking.”

Vaultoro is a real-time Bitcoin gold exchange that allows its users to convert their bitcoin instantly to gold and back, alleviating volatility risk for bitcoin users. Its “bank-independent trading” allows users to trade gold in amounts as small as 0.001 gram.

The third bitcoin finalist, Safello, is a Swedish-based exchange that works with a wide network of European banks providing direct payment options, allowing customers to buy and sell bitcoin instantly, thereby avoiding exposure to market volatility.

“What’s most noticeable about this Open Challenge is the sheer amount Bitcoin selected,” Frank Schuil, CEO of Safello, told Bitcoin Magazine . “It shows the dedication from BBVA to embrace blockchain technology. With regards to our selection, of course our recent announcement with Barclays is sparking interest from other financial institutions. The fact that we are essentially building a new type of bank on top of blockchain technology is sparking interest.”

Everledger joins BitNexo , winner of the Latin American regional competition, as the second Bitcoin-based company to take home a BBVA award this year.

“In BitNexo’s mission to bring simplicity, speed and savings to cross border payments for SMBs through the use of blockchain technology, we had the honor of sharing the stage with 13 other amazing FinTech Startups from all around Latin America,” said Darren Camas, CEO and co-founder of BitNexo in a blog post . “To say I was impressed with the level of competition is an understatement.”

Information about all 15 finalists can be found on the BBVA Open Talent competition website .

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Australian Regulators Investigating Banks for Closing Accounts of Bitcoin Companies

The Australian Competition and Consumer Commission has confirmed the launch of a formal investigation about the abrupt termination of banking support for many bitcoin companies in the country.

“It appears to me to be an amazing coincidence that a number of large banks have all of a sudden decided to deny services to fledgling Bitcoin and digital currency operators. They are clearly competitors to their business model, albeit small ones at this stage, and there are clear laws that we’ve got against businesses refusing to supply other businesses if they do so for an anti-competitive purpose.” said Senator Matthew Canavan , who encouraged the ACCC chairman Rodd Sims to lead an investigation on the incident.

Canavan requested an investigation to question the banks’ motive and reasoning behind the blacklisting of bitcoin companies.

“I think the ACCC should be asking the banks some serious questions about why they’ve done this and on what legal grounds they believe that they should not be providing services to Bitcoin operators,” said Canavan.

It has been reported that 17 bitcoin companies in Australia have had their bank accounts closed down, and have been cut off completely from all banking support.

“I’ve been blacklisted from Commonwealth Bank, National Australia Bank, Westpac, St George, Bank of Melbourne, Bank SA, Bank of Queensland, Rams and BT Superfund,” said Bitcoin trader Michaela Juric .

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Bank of England Chief Economist: Blockchain-based Digital Currency Issued by Central Banks Could Replace Cash

In a talk given at the Portadown Chamber of Commerce in Northern Ireland on September 18, Andrew G Haldane , Chief Economist at the Bank of England (BoE), has hinted at the possibility that the U.K. government might issue a digital currency. Though the disclaimer “The views are not necessarily those of the Bank of England or the Monetary Policy Committee” ensures plausible deniability, Haldane’s talk seems to indicate that the BoE is at least seriously considering the possibility.

Haldane is chief economist at the BoE and executive director of monetary analysis and statistics. Listed by Time Magazine in 2014 as one of the 100 most influential people in the world, Haldane is a member of BoE’s Monetary Policy Committee and oversees research and statistics across the bank.

Haldane focuses on the inability of central banks to set negative interest rates to stimulate economic growth, which hinders the effectiveness of monetary policy and is known as the Zero Lower Bound (ZLB) problem.

“A central bank cannot reduce nominal interest rates below zero,” explained a 2014IMF working paper cited by Haldane. “This constraint arises from the existence of an asset, cash, with a guaranteed return of zero. A negative interest rate would mean that someone lends $100 and receives less than $100 in the future. Such a loan would never occur, because the lender could do better by putting cash in a safe deposit box.”

Therefore, Haldane suggests looking for technological means for implementing a negative interest rate on physical currency. More than a century ago, German economist Silvio Gesell proposed a stamp tax on currency to generate a negative interest rate. Modern variants of the stamp tax on currency have been proposed – for example, by randomly invalidating banknotes by serial number.

Another possibility is to abolish paper currency, which would also represent a way to fight criminal activities that rely on cash exchange.

Yet another possibility would be to issue government-backed currency in an electronic rather than paper form.

“This would preserve the social convention of a state-issued unit of account and medium of exchange, albeit with currency now held in digital rather than physical wallets,” says Haldane. “But it would allow negative interest rates to be levied on currency easily and speedily, so relaxing the ZLB constraint.”

Haldane observes that the technology underpinning digital currencies has changed rapidly over the past few years, due to the emergence of Bitcoin and crypto-currencies.

“What I think is now reasonably clear is that the distributed payment technology embodied in Bitcoin has real potential,” says Haldane. “On the face of it, it solves a deep problem in monetary economics: how to establish trust – the essence of money – in a distributed network. Bitcoin’s “blockchain” technology appears to offer an imaginative solution to that distributed trust problem.”

Whether a variant of this technology could support central bank-issued digital currency, and whether the public would accept it as a substitute for paper currency, are, according to Haldane, open questions that do not have easy answers.

“That is why work on central bank-issued digital currencies forms a core part of the bank’s current research agenda,” concludes Haldane. “Although the hurdles to implementation are high, so too is the potential prize if the ZLB constraint could be slackened. Perhaps central bank money is ripe for its own great technological leap forward, prompted by the pressing demands of the ZLB.”

In a previous presentation, Haldane stated that digital currencies are “harder money” than a gold standard, because “sustained adoption would see ongoing deflation.” A few months ago the Bank of England published a research paper titled “Innovations in payment technologies and the emergence of digital currencies .”

“The distributed ledger is a genuine technological innovation that demonstrates that digital records can be held securely without any central authority,” reads the conclusion of the paper. A recent U.K. Treasury document titled “Digital Currencies: Response to the Call for Information ” shows that the British government is interested in supporting and understanding blockchain-based digital fintech, and understands the potential benefits it could bring to society.

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Sig3 Launches an Automated Policy-Based Transaction Cosigner for Multisig Bitcoin Transactions

Bitcoin startup Sig3 has introduced an independent third-party automated co-signer which automatically co-signs transactions based on the policies and criteria implemented by its users.

With Sig3, users can customize and set their own policies to determine the criteria for transaction authorization and verification. Based on the policies implemented by the user, Sig3 automatically co-signs the transaction, adding another layer of security on top of the multi-sig transaction.

“Sig3 is at the intersection of security and usability. We’re redefining what it means to transact simply and securely with bitcoin. In order to have a truly secure and well functioning blockchain application, developers need to incorporate multi-sig technology and multi-sig services like Sig3 need to provide a user friendly interface to increase adoption,” said Sig3 CEO Brian Nelson in an email to Bitcoin Magazine.

The platform is currently integrated with Copay, an open-source multi-signature wallet from leading bitcoin processor BitPay. With Copay, users will be able to send secure transactions by distributing three private keys between Copay, Sig3 and themselves. Since all three private keys held by the user, Copay and Sig3 are required to send or settle a transaction, it creates a whole new level of security limited with other multi-signature platforms available in the market.

“Sig3’s goal is to make transacting with bitcoin as easy as it used to be, but with the security of the future,” explains the Sig3 team.

The startup has begun developing an API for developers and for easier integration process. Sig3 will also be integrating more multi-signature wallets to its platform, to provide its users with a variety of options.

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BitGo Processes Over $1 Billion in Bitcoin Transactions in Third Quarter

Leading bitcoin security platform and multi-signature / P2SH (pay-to-script hash) bitcoin wallet provider BitGo has transacted more than $1 billion worth of bitcoin transactions in a single quarter.

“BitGo was the first to pioneer the secure, multi-signature wallet platform for bitcoin,” said BitGo CEO and co-founder Mike Belshe. “Security is never a finished feature, so we’re continually raising the bar. As we reach this billion-dollar milestone, we’re happy know so many customers are seeing the value of our solution.”

The BitGo wallet platform and API have not experienced a single breach or theft of bitcoin since its launch in 2013. The company has been focused on creating the world’s most secure bitcoin wallet, prioritizing security and multi-signature solutions.

The platform’s API services and products designed for both developers and institutions enable users to create hundreds of thousands of addresses, with a real-time view of digital asset transactions and settlements.

“For the sake of accuracy, our metrics do not count change address outputs. As an example, if a user sends someone $13 from a wallet with $17 in it, we only count the $13 transaction and not the transfer of $4 back into the wallet.” said Regina Scolaro, Director of Marketing for BitGo. “We have chosen to use this methodology because we believe that in order to get a true sense of activity within the Bitcoin space, this should be the standard measurement.”

Furthermore, the BitGo platform has secured its bitcoin wallets with multi-signature pay-to-script hash technology, also known as P2SH, allowing users to send bitcoin to addresses secured in various unusual ways without knowing much about the security details, thus creating completely unique transactions and settlements.

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Storj Network Passes 1 Petabyte Storage Space

Decentralized cloud storage provider Storj Labs Inc. has announced that its second round of network testing called “Test Group B” has reached the 1 petabyte milestone of managed storage space.

Test Group B is an in-depth test of the platform’s storage client DriveShare , a software that enables users to earn money by sharing extra hard drive space. The Storj Test Group B has reached 1,173 terabytes in storage space and currently supports 293 users online.

“We’re extremely pleased by the support and validation we’ve received from our community,” said CEO Shawn Wilkinson in a statement. “We’re excited to release the world’s first crowdsourced cloud storage platform.”

The Test Group B network test is set to run until late October, with increased rewards and test group participants. In recognition of the 1 petabyte milestone, Storj Labs has increased the testing rewards pool from 100,000 Storjcoin X (SJCX) to 1 million SJCX, which is currently worth around $16,000.

DriveShare is an open-source software powered by the Storj network that is a part of the startup’s successful crowdsale campaign. The DriveShare client allows users to rent out unused hard drive or cloud storage space at the rates of Dropbox, Mega, Box and many other cloud platforms.

Photo Ludovic.ferre / Wikimedia (CC)

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Bitcoin and Gold Exchange Vaultoro Reaches $1 Million in Gold Trading Volume

Real-time bitcoin-to-gold exchange and banking 2.0 Vaultoro has reached a significant $1 million milestone in gold trading volume, recording an average monthly trading growth rate of 91 percent.

The exchange has seen a rapid increase of its user-base, especially in developing countries such as India, which are severely underbanked or unbanked.

“The developing world skipped the landline and went direct to mobile phones. They are now doing the same with traditional branch banking because it’s just too uneconomical to set up,” said Vaultoro CEO and co­founder Joshua Scigala in a statement.

“Vaultoro enables anyone to easily enter the global economy securely and privately by utilizing the native Internet currency bitcoin and removing the extreme volatility by combining the security of assigned gold bullion. This will go a long way towards ending poverty by including a potential 5 billion people who have been left behind by traditional banking,” Scigala added.

Crowdfunding Campaign

In conjunction with the announcement, Vaultoro has launched an equity crowdfunding campaign on BNK TO THE FUTURE, to maintain its growth and to expand its services throughout underbanked regions in Asia and Latin America.

The startup has offered 25 percent equity for $785,000 , enabling anyone to fund the project and profit from the platform. Currently, Vaultoro has raised $236,000 from 149 international backers. With the new financing, the startup plans to redevelop its mobile application, and offer a multi-lingual platform for its users.

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Bitcoin According to Regulators: Money, Currency, Property, and Now a Commodity

Bitcoin is now officially a commodity according to U.S. regulators, Bloomberg Business reports . The Commodity Futures Trading Commission (CFTC) announced on Thursday that it had filed and settled charges against a Bitcoin exchange for facilitating the trading of option contracts on its platform.

“In this order, the CFTC for the first time finds that Bitcoin and other virtual currencies are properly defined as commodities,” notes the CFTC press release .

The U.S. Commodity Futures Trading Commission is an independent agency of the U.S. government created in 1974, which regulates futures and option markets that are subject to the Commodity Exchange Act . By this action, the CFTC asserts its authority to provide oversight of the trading of cryptocurrency futures and options, which will now be subject to the agency’s regulations.

“While there is a lot of excitement surrounding bitcoin and other virtual currencies, innovation does not excuse those acting in this space from following the same rules applicable to all participants in the commodity derivatives markets,” said CFTC’s Director of Enforcement Aitan Goelman.

The CFTC action targets Bitcoin exchange Coinflip, which operated the Bitcoin financial derivatives market Derivabit, and its chief executive officer Francisco Riordan, for “conducting activity related to commodity options transactions without complying with the Commodity Exchange Act (CEA) and CFTC Regulations, specifically, by operating a facility for the trading or processing of commodity options without complying with the CEA or CFTC Regulations otherwise applicable to swaps or conducting the activity pursuant to the CFTC’s exemption for trade options.”

The website derivabit.com hasn’t been active since mid-2014. A September 2014site snapshot on Internet Archive advertised Derivabit services as “Financial derivatives to manage exposure to Bitcoin volatility – Buy & sell option contracts to control your Bitcoin risk” and listed ongoing trades. Later snapshots just said “Not Currently Accepting Customers,” and the domain was announced for sale on Bitcointalk with the source code in January 2015. More information on Derivabit services is available in this discussion thread on Hacker News .

The CFTC press release notes that Coinflip and Riordan cooperated with the Division of Enforcement’s investigation.

“The cease and desist was a fair settlement,” said Riordan to Bloomberg Business , and added that customer funds had been refunded in July 2014, before the CFTC made contact with the company: “There wasn’t enough trade volume for the site to sustain itself.”

A follow-up Bloomberg Business article lists reactions and comments to the CFTC claim from notable members of the Bitcoin community.

“There are so many regulators in the U.S., and they all want more jurisdiction, which leads to a constant stream of bizarre rulings,” said Bitcoin developer Mike Hearn. “None of them has much work to do because there’s not a whole lot of financial innovation happening in the States. So when they find a small one-man startup they can’t resist giving themselves work to do – so they go in and whack it, especially in California.”

Heard added that he is not terribly surprised and not terribly worried.

“I think the CFTC has a very weak case here and it’s a very creative reinterpretation of what the word commodity means,” he said. “The ruling will be challenged, and judges will apply common sense and decide it to be a currency.”

Some commentators said that compliance with the Commodity Exchange Act and applicable CFTC regulations would be too costly for many Bitcoin startups, with the predictable result that many innovative U.S. companies will be forced to move offshore.

Others, in agreement with Hearn, noted that the CFTC claim is inconsistent with related decisions by regulatory agencies in the United States and other countries.

Journalist David Seaman summarized the situation in a tweet : “To commodities regulators, Bitcoin is a commodity. To bank regulators, it’s a bank. To stock regulators, it’s a stock. Everyone wants ‘in.’”

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