Banking giants Bank of America and HSBC have teamed up with the Singapore government’s IT and telecom agency on a project that applies blockchain to trade finance.

Announced today, Bank of America, HSBC and the Infocomm Development Authority of Singapore (IDA) revealed they have built a blockchain application based on the Hyperledger protocol that aims to replicate the letter of credit (LC) transaction process between banks, exporters and importers.

The trial finds the financial firms seeking to explore how a distributed ledger could establish trust between parties that today need to rely on banks to issue and recognize paper documents as a means of facilitating trade.

According to International Business Times, the proof-of-concept involves a seven-step process that showcases how a distributed-ledger system can be used for data authentication.

In statements, HSBC lauded the experiment as an “exciting” step that validates how the technology could come to be used more widely.

"Many people are talking about the theory of blockchain, but for the first time we can start to see how this technology might be used to solve the real world challenges our customers face," Vive Ramachandran, global head of product for HSBC’s trade finance business, said.

The trial is one of a number to be launched with a focus on supply chain and trade finance in recent months. Notably, both Bank of America and IDA have previously been reported to have been working on similar projects.

For a detailed overview of this use case, read our full research report here.

Shipping container image via Shutterstock

Bank of AmericaHSBCSupply ChainTrade Finance

The price of bitcoin has begun to test $600 following a high-profile exchange hack that left a wake of uncertainty for traders last week.

Bitcoin prices reached a high of $598.64 this weekend, but since then have largely traded tightly in the $560 to $580 range, CoinDesk USD Bitcoin Price Index (BPI) figures reveal.

These figures were much improved over the low of $480 observed last week and come amid new transparency from Bitfinex, the troubled exchange that lost 120,000 BTC (worth more than $60m) in a theft that has to date attracted ample mainstream media attention.

For traders, however, it's the potential recovery from the subsequent 20% decline that is starting to become the biggest topic of interest.

Analysts were quick to compare last week's drop to one observed earlier this year when high-profile Bitcoin Core developer Mike Hearn exited the project, prompting sharp losses in the digital currency's price.

Tim Enneking, chairman of cryptocurrency investment manager EAM, was keen to highlight that the Bitfinex hack in and of itself did nothing to change bitcoin's perceived value among traders, even if general public perception could be impacted.

Rather, he expects traders to see this as an opportunity.

Enneking told CoinDesk:

"It's logical to see a temporary drop in price, but it’s also logical that a relatively short period of time will see a recovery and another test of $800."

Mean Reversion

Petar Zivkovski, director of operations for bitcoin trading platform Whaleclub, described bitcoin’s price recovery as a mean reversion, stating that the price declined "too quickly" following the hack.

To Zivkovski, the decline was primarily caused not by traders who had given up on bitcoin's value, but on margin calls for long positions held by those who were "surprised by the hack and did not have much reaction time".

Because the Bitfinex hack helped trigger fear and uncertainty, the BTC/USD pair plunged below $500, Zivkovski said.

He emphasized that the pair recovered nicely from its lows below $500, a sign that speaks to market confidence.

Enneking further spoke to how bullish wagers helped cause this rise, noting that "we have been strongly leveraged long since the low $500s".

This robust sentiment coincided with bitcoin’s rise from their post-hack low of $480 on 2nd August to more than $580 on 4th August.

Bitfinex response

While Zivkovski and Enneking spoke largely to market sentiment, Arthur Hayes, CEO of bitcoin leverage trading platform BitMEX, said that Bitfinex’s response has played a role in buttressing bitcoin prices.

"It seems that Bitfinex will not choose the bankruptcy route which would have been very price negative," he explained.

Hayes also spoke to how Bitfinex's expected reopening will likely help provide support for bitcoin prices.

"Bitfinex is expected to reopen in the coming days, once they allow trading many traders will attempt to purchase bitcoin with any dollars they have on the platform and withdraw," he stated, adding:

"That will push up the bitcoin price on Bitfinex and drag the rest of the market up as well."

Zivkovski emphasized that market observers should get greater clarity on the effects of the exchange’s hack soon enough.

He concluded:

"Price action over the next few days will further elucidate the true impact the Bitfinex hack has on the market."

Dollar bill on hook image via Shutterstock

BitfinexPrices

As news major bitcoin exchange Bitfinex was robbed of more than $60m continues to echo across the media, less clear for many is who – and what – is at the center of this story.

Based in Hong Kong, Bitfinex was the largest bitcoin exchange by US dollar volume prior to the hack. Since opening in 2012, the exchange has attracted a clientele looking to corner a piece of the growing market for leveraged trading amid declining volatility in the bitcoin price.

The exchange would go on to develop a positive reputation among traders for peer-to-peer margin trading facilities that offered users access to a key source of liquidity. According to exchange and trading experts, it was this aspect that both fueled interest in the platform and gave traders a reason to first engage on the website.

BTC VIX, an admin at bitcoin trading club Whale Club, believes that this innovation helped boost the exchange's profile.

He told CoinDesk:

"That was extremely valuable because it wasn't just, we're allowing margin trading and margin comes from some magic funds. We actually saw that people were willing to lend their funds and have other people engage in margin trading.”

At the same time, recurring platform issues drew criticisms, sparking the moniker "Bugfinex" among some segments of the community on social media.

Bitfinex also made a name for itself by way of its staff and the connection with Whale Club (not to be confused with trading platform Whaleclub), the bitcoin-centric trading community that, more often than not, hosted exchange staffers for chats about the marketplace.

Beyond an exchange, Bitfinex became a focal point for the development of bitcoin’s trading market, perhaps exemplifying both the best and the most controversial aspects of the space.

But that success now hangs in the balance.

Last week, the exchange lost nearly 120,000 bitcoins in a hack observers say has led Bitfinex into uncharted waters on legal and regulatory fronts.

A new plan to effectively bail-in the service by forcing a 36% haircut – while also issuing a cryptographic token tied to future revenues – has also raised questions across the industry.

Strange beginnings

The origins of Bitfinex start with a lesser-known exchange called Bitcoinica.

Bitfinex is essentially the reborn version of that earlier exchange, as it used its source code as a basis for its platform. Sources at the time indicate that it was less than a year after Bitcoinica's fall that Bitfinex opened for business.

Launched in late 2011, Bitcoinica sought to position itself as a location for sophisticated trading activities, offering leveraged trading options to users.

Yet within a year of its launch, the exchange suffered a debilitating theft that resulted in the loss of more than 43,000 BTC (worth $200,000). As Ars Techina reported at the time, the incident included the theft from the platform itself. Other users are believed to have lost smaller amounts.

But the thefts didn’t end there.

Weeks later, a second incident resulted in the loss of more than 18,000 BTC (worth close to $90,000 at then-current prices). Bitcoinica was subsequently taken offline, and soon after accusations began to fly that founder Zhou Tong himself was behind the theft.

Ultimately, the exchange’s collapse sparked civil litigation.

Traders in the community say one of Bitfinex’s early moves as an exchange was to build its order book, a process that essentially entailed drawing liquidity from bitcoin exchange Bitstamp. The exchange would go on to alter the code and later looked at using AlphaPoint for its back-end infrastructure, though that initiative fell to the wayside during initial testing.

Exchange at a glance

Prior to going offline, Bitfinex offered trading between digital and government-issued currencies. The exchange primarily served as a place for the trading of bitcoin and US dollars, though other digital currencies like litecoin and ether (and later ethereum classic) were ultimately added.

Users can deposit funds and trade between those pairs, or borrow funds from one another in a peer-to-peer fashion to engage in that activity as well.

But while this information is public, the exchange was not the most open in its public presence.

It's since come to light that Bitfinex, according to its now widely circulating terms of service, is registered in the British Virgin Islands under the name iFinex Inc, with subsidiaries Bitfinex in Hong Kong and BFXNA in the US.

More is known about its team, some of whom were vocal on message boards and other focal points for traders.

Data from LinkedIn points to a globally distributed Bitfinex team, including founder Raphael Nicolle, who is based in France, and director of community and product development Zane Tackett, based in San Francisco.

Several executives and others tied to the exchange are also based in the California region. These include director of applications Drew Samsen, based in Orange County, and Craig Sellars, who has advised the exchange in the past.

Others in the Bitfinex orbit are based elsewhere in the world, including CSO Phil Potter, based in New York, and director of infrastructure Adam Chamely, who is in Atlanta, LinkedIn profiles reveal.

Representatives have said in the past that the exchange is self-funded, a position driven by trading volume and the fees collected over time.

Further, the exchange has moved to invest in other services in the digital currency ecosystem. These include ShapeShift, the digital currency exchange that raised $1.6m in funding last September, and Netki, an identity-focused startup that raised $3.5m in July.

Operational problems

For all its success in attracting users to the platform, Bitfinex was dogged by technical issues, a characteristic that traders say fostered concerns among some segments of the community and, ultimately, led others to look for alternatives in the exchange ecosystem.

The exchange experienced periods of downtime that it attributed to data center problems, API issues and data corruption. While any website is prone to technical problems, it was the recurring nature of these situations that led to the "Bugfinex" moniker.

Some of these problems have impacted the price of bitcoin itself.

In August of last year, Bitfinex closed its order books due to what it said were post-processing problems, a move that came a week after a "flash crash" on the exchange sent bitcoin markets nosediving. Issues reported at the time were attributed to the AlphaPoint integration Bitfinex had undertaken.

That integration itself would prove problematic, traders say, though the justification was clear – the platform needed to be scaled.

Though parts of the system were brought online, issues with how the integration affected the exchange's ordering system are said to have doomed the initiative.

Continued criticism

Day-to-day problems aside, the exchange has has stoked its share of criticism and controversy since it first opened its doors.

Commentators took issue with Bitfinex’s use of the Bitcoinica source code soon after it entered beta testing. In early 2015, some in the bitcoin trading community sharply criticized Bitfinex CSO Phil Potter after he disclosed that he was trading on the exchange during a conversation on Whale Club.

Exchange representatives later moved to clarify Potter’s remarks, saying that they believed its staff can and should have access to the trading platform, albeit under the supervision of administrators.

Still, the exchange faced accusations of privileged trading, evoking memories of Mt Gox and allegations of manipulated trading that were later confirmed after the Japanese bitcoin exchange collapsed.

In late 2015, rumors surfaced that the exchange was being investigated by the US Commodity Futures Trading Commission after a leaked email began circulating via social media.

The agency, one of several that regulates commodities trading in the US, would go on to fine Bitfinex $75,000, drawing issue with how it held custody over user funds prior to the settlement.

Uncharted waters

One way to look at the history of bitcoin is through the success (and failures) of its exchange ecosystem, and for better or for worse, Bitfinex now occupies a controversial spot in that history.

Last week’s theft is unlikely to immediately spell doom for the exchange, traders say, though the success or failure of its recovery plan and the controversial token it has issued will no doubt have a significant impact.

In the immediate term, from the trader perspective, getting access to as-yet-unreleased funds is the key factor.

Bitfinex could continue to operate given the attractiveness of the kind of margin trading it offers, but whether traders will move to pull funds or continue to support the company remains to be seen.

Wilting Bitfinex logo via cryptograffiti 

Correction: This article has been updated to correct information regarding Bitfinex's corporate registration and subsidiary structure.

BitfinexExchangesHack

Russia's tax agency is encouraging its citizens to report the purchase or sale of digital currencies as currency transactions.

In a tax letter obtained by CoinDesk dated this May, the Ministry of Finance's Federal Tax Service responded to an electronic query on the subject in which it issued new guidance. The statements come amid larger debates domestically about whether bitcoin and other digital currencies should be banned entirely or allowed for specific uses.

The letter includes language describing how the agency treats the purchase and sale of digital currencies between Russia citizens and non-citizens as currency transactions.

A translated copy of the letter states:

"Consequently, the transactions of purchase and sale of cryptocurrency (virtual currency) between residents and non-residents, with the utilization of currency valuables and (or) currency of the Russian Federation, are, in fact, currency transactions."

The letter is notable given how the exact definition of a digital currency remains largely in flux globally.

While in some countries units of blockchain-based code are considered a form of payment instrument, some US agencies consider it a commodity or form of property.

The letter goes on to stipulate that Russian citizens are required to report any currency movements to or from a bank outside of the country to local tax agencies.

It further predates comments from deputy finance minister Alexei Moiseev, who in an interview last month said that the Russian Ministry of Finance is becoming supportive of the idea of amending proposed legislation to allow for the use of digital currency as a kind of foreign currency.

"We are formulating the law in such a way in order to allow buying cryptocurrencies for foreign operations and allow Russian citizens to sell bitcoins for profit reasons in foreign countries," he told state-owned newspaper Rossiyskaya Gazeta.

A copy of the letter can be found below:

RF Federal Tax Service Letter by CoinDesk on Scribd

Rubles image via Shutterstock

RegulationRussiaTax

An ex-cop in New Jersey indicted last year for trying to sell stolen bitcoin mining equipment has reportedly plead guilty.

Regional news service NJ.com reported today that Vincent Saggese plead guilty to official misconduct and receiving stolen property after being caught in a sting operation last year.

Saggese was charged in April 2015 after attempting to sell a collection of stolen computer equipment that included mining products from KnCMiner.

A 10-year veteran of the Plainfield Police Department, Saggese faces a sentence of as much as five years probation and mandatory community service.

Handcuff image via Shutterstock

CrimeLawMining

A technology initiative backed by the Dubai government has launched a $275m startup investment fund (1bn AED) organizers say will likely back blockchain projects.

Announced last week, the Dubai Future Foundation officially opened the Dubai Future Accelerators initiative, a 12-week startup program based in the United Arab Emirates that will seek to encourage innovation in "strategically important" sectors.

A partnership with global investment firm Dubai Holding, the effort is centered around promoting the development of business ideas around six "challenges" in areas like transportation, law, education and public utilities.

The program is now accepting applications from companies seeking to prove a product-market fit for their ideas. Approved applicants, in turn, will spend three months developing pilot projects that are then eligible for additional funding.

Organizers said initial applications include efforts centered on smart meters, smart cities and business process improvements using blockchain.

The move is the latest that finds the Dubai Future Foundation promoting blockchain development. The agency has been among the more active government agencies globally to begin examining blockchain technology, most notably through the Global Blockchain Council (GBC) overseen by its Museum of the Future project.

Earlier this summer, the GBC unveiled seven pilot projects built by prominent area businesses and startups.

For more on the initiative, read our latest feature here.

Image via Museum of the Future

DubaiFundingInvestorsMiddle EastMuseum of the Future