Following a 20% decline in the price of bitcoin this week, uncertainty continues to cast a shadow on broader market activity.

Bitcoin prices fell to a low of $480 on Tuesday amidst news Hong Kong exchange Bitfinex had lost nearly 120,000 BTC in a high-profile hack. But while the price has recovered to $580 at press time, the $68m loss and the subsequent shutdown of the exchange has sent shockwaves throughout the industry.

Days after Bitfinex first halted trading, much about the path forward for the company remains unknown, including whether it will be able to reimburse investors who lost funds in the incident.

All of this is creating a difficult market for traders, according to Petar Zivkovski, director of operations for bitcoin trading platform Whaleclub.

Zivkovski told CoinDesk:

"Rumors are flying about who and how much has been stolen and what the future of Bitfinex holds. Will it continue operations? Will the exchange cover customer funds? Will it go bankrupt like Mt Gox?"

Zivkovski's statements paint a picture of the state of mind of market observers, many of whom are concerned about whether Bitfinex, a firm that was previously vocal about the strength of its security measures, will continue to operate at all.

Still, others argue the exchange has done its part to stem the damage.

Zane Tacket, the exchange's director of community, for example, has been active in providing updates through social media, a development market observer Jacob Eliosoff believes has helped calm concern somewhat.

Mt Gox fears

Still, market observers are beginning to weigh the potential impact of the ultimate closure of the exchange and what it could mean for the ecosystem.

Unsurprisingly, many market observers were quick to draw comparisons to now-defunct Japan-based exchange Mt Gox, which collapsed in 2014 after it was robbed of 744,408 BTC (worth $350m at the time).

"I'll be surprised if anything other than Bitfinex is a major price mover for the next few days," Eliosoff said. "This is a major event, the worst since Mt Gox. And unlike Mt. Gox, Bitfinex had a pretty good reputation."

Olaf Carlson-Wee, founder of digital asset hedge fund Polychain Capital, also spoke to the key role that Bitfinex has played in bitcoin markets, emphasizing its departure would likely lead to diminished volumes.

He noted that beyond a potential reduction in transaction activity, there is concern about how effectively other market operators can perform their roles.

Carlson-Wee was certainly not the only one who spoke to bitcoin’s potential headwinds going forward, as Eliosoff stated that he expects the Bitfinex hack "will be a damper on the price for months".

Zivkovkski went a step further, telling CoinDesk that "a Mt. Gox style bankruptcy" could put a huge amount of sell pressure on price.

Still, he emphasized his expectation that the situation’s uncertainty will resolve soon as the Bitfinex team clarifies "where it stands". Should Bitfinex succeed in answering big questions, Zivkovkski said the price could again stabilize.

Long-term bulls remain

Others sought to stress that, given the potential for the bitcoin market to grow, the hack is unlikely to have an impact on the value of bitcoin long term.

While the Bitfinex hack has certainly helped place downward pressure on current bitcoin prices, market observer Joe Lee noted the silver lining.

He told CoinDesk:

"The price recovery following Bitfinex’s bad news reflects a strong level of interest in holding bitcoin for the purpose of long-term investment."

Lee, founder of leveraged derivatives trading platform Magnr, stated that the recent recovery in bitcoin prices reflects awareness of the strength of bitcoin as a technology, and that the platform "remains robust" despite the ongoing issues at Bitfinex.

Crash test dummy image via Shutterstock

BitfinexMt GoxPrices

Original author: Charles Bovaird

The investment branch of Sweden's SEB Group has been investing in what it calls "deep technology" startups for over 20 years.

Since 1995, it has been investing in a wide range of startups through SEB Venture Capital, including management app Tink and post-trade securities startup Information Mosaic. In 2010, CA Technologies purchased SEB investment Arcot for $200m, and in 2014, Cisco purchased SEB investment Tail-f for $175m.

But when it came to backing its first bitcoin business, the team of nine investors with an allocation of about $250m (2bn SEK) from SEB Group didn’t want to rush the process.

Head of SEB Venture Capital, David Sonnek, acknowledged the investment is "purely financial", but stressed the addition of digital currency processor Coinify to its portfolio is about more than an exit strategy.

He told CoinDesk:

"This kind of platform really unleashes the innovation of us all, and that may be the most important aspect."

That said, SEB will also be taking a bigger role at the startup as part of the $4m investment, also participated in by SEED Invest Denmark

SEB's investment manager Stefan Olofsson will serve on Coinify's board of directors, and Filip Petersson is now the startup's deputy director.

Sonnek said his team doesn't intend to get involved with the digital currency processor's day-to-day operations, but indicated larger strategy will be discussed. For example, there are now plans to expand Coinify's business to Asia.

But, Sonnek said he imagines the information exchange will be a two-way process.

"We want to help grow the company," said Sonnek, "and become a more tech savvy bank."

In this way, Sonnek said he hopes the time and money being invested in the developing startup will have ripple effects across the entire SEB Group.

Sonnek concluded:

"It will take time to see what they are going to inspire."

Image of SEB facade via SEB

BankingCoinifySEB

Original author: Michael del Castillo

Jacek Czarnecki is an attorney at Warsaw-based law firm Wardynski & Partners, where he specializes in areas including FinTech, digital currencies and blockchain.

In this opinion piece, Czarnecki discusses recently released documents suggesting the EU may consider registering digital currency users, arguing the proposal is more nuanced than it may have initially appeared to be.

The European Union's proposal to bring digital currency exchanges and custodial wallet providers under the scope of its anti-money laundering (AML) and countering terrorist financing (CTF) laws has many interesting and important aspects.

One of them is a proposed legal definition of "virtual currency", the first such to be introduced in EU law. As we've detailed previously, this has a potential to have a great impact on how laws will be applied to digital currency issues in all member states.

But, the definition is far from the only impactful implication.

Another controversial aspect of the proposal that has emerged is the alleged European Commission plan to build a database of digital currency users to force their compulsory registration.

As one might imagine, the suggestion does not sit well with the technology's typically privacy-conscious users.

Is this plan real?

The commission's proposal does give us an idea that it is considering different options, but it mainly describes bringing the exchanges and some wallet providers under AML and CTF rules.

Still, it also suggests more time is needed to consider others options, including a voluntary self-identification system that would track virtual currency users.

It further mentions that the possibility to allow users to self-declare to designated authorities on a voluntary basis should be assessed.

This has been reflected in the proposal to add a new paragraph to the provision that requires the commission to draw up a report on the implementation of the law (called 4AMLD) by June 2019.

The proposed content reads:

"The report shall be accompanied, if necessary, by appropriate proposals, including, where appropriate, with respect to virtual currencies, empowerments to set up and maintain a central database registering users' identities and wallet addresses accessible to FIUs, as well as self-declaration forms for the use of virtual currency users."

This sounds serious.

However, in order to fully assess the commission's intentions, one has to go into details and examine the documents accompanying the proposal.

The proposal itself does not give a full picture of what regulatory options were considered.

Fighting anonymity

Many important details follow from the impact assessment.

One of the aims of the new law, for example, is to deal with the perceived lack of sufficient monitoring by the authorities of suspicious transactions made through virtual currencies. The commission is seeking solutions that would improve the detection of suspicious virtual currency transactions.

The main issue is that digital currency users are usually practically unidentifiable.

What is notable is that the commission explicitly stated that contacts with the digital currency industry indicated that a large part of the sector would welcome EU legislation in the field.

The commission came to a conclusion that reducing or lifting anonymity related to the use of digital currencies can be done through targeting three types of players: users, exchange platforms and custodial wallet providers.

Then, six options were developed:

Targeting users:

Option A: Lift anonymity through the mandatory registration of users Option B: Reduce anonymity through the voluntary self-registration of users.

Targeting exchange platforms:

Option C: Regulate exchange platforms under the 4AMLD Option D: Guard against anonymity through the regulation of virtual currency exchange platforms under the revised Directive on Payment Services (PSD2).

Targeting custodial wallet providers:

Option E: Regulate custodial wallet providers under 4AMLD Option F: Regulate custodial wallet providers under PSD2.

Two options have been examined but discarded. The first one was a full prohibition of use of digital currencies in the EU, but it was considered detrimental for digital innovation and progress. The second was the regulation of miners, but the commission stated that it would generate enforcement problems and stifle innovation.

As we can already see, the options that were adopted were those that targeted exchange platforms. Option B was chosen as preferred, but will be further elaborated.

The possible implementation of option A in the future has been left open (as mentioned such a proposal can be included in the report due in June 2019). But, the 174-page long impact assessment is worth looking at and full of useful information, including assessment of effectiveness, costs and opportunities of all above options, as well as data about digital currency environment in the EU.

It also contains a lot of insight into the EU and its member countries' public policy preferences towards digital currency sector.

For example, all EU’s member states were consulted, and all but one supported option C and not option D, which would entail much heavier regulatory burdens.

Further action

What has been the result of these considerations?

Some media outlets are reporting in a somewhat panicky way that the EU is planning to introduce an obligatory register of digital currency users. Analysis of the commission’s proposal shows that this is not necessarily the case.

The commission wanted to address the perceived "anonymity problem" related to digital currency from three angles: exchanges, custodian wallets and users.

The first two have been dealt with by extending the EU's AML and CTF laws to cover the industry. As far as users are concerned, for the time being, the commission believes that a voluntary self-registration of users with relevant national authorities is the best option (details are to be assessed and revealed in the future).

The commission has foreseen that these conclusions can change over time.

This is why the report in June 2019 should take this issue into account. Potentially, a new recommendation can emerge that will mean a mandatory registration of digital currency users. It should be remembered, however, that there is a low probability that this will be considered before 2019.

As anyone following the industry knows, much can happen in the digital currency sector before then.

Database image via Shutterstock

Disclaimer: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, CoinDesk.

EuropeRegulation

Original author: Jacek Czarnecki

UK banking giant Barclays and University College London have set forth their initial vision for smart contracts in a new position paper.

Released this week, the 15-page research effort explores the definitions of key terms surrounding the emerging blockchain application and its terminology, aiming to cut through the layers of hype that have arguably lead to irrational market expectations for the technology today.

Barclays investment bank CTO and report author Lee Braine said the aim was to search for "narrower definitions" of commonly used terms such as "automation" and "enforceability" as a means of moving forward with its work on smart contract templates for use by institutions.

In this light, the position paper can be viewed as a necessary step back, one that finds the bank and its partner university examining how smart contracts will be used, and how they can be best architected to meet those anticipated needs going forward.

Braine told CoinDesk:

"We were looking to consider the terminology, the wording of smart contract. We asked, ‘What were some of the key features?’, and we give definitions."

Braine said that this exercise proved useful in exposing some of the problematic thinking that has developed around the nascent concept. While he didn’t name The DAO specifically, Braine hinted that the public blockchain space offered examples of challenges inherent in the deployment of smart contracts today.

For example, Braine cited the idea that smart contracts should be "tamper-proof", arguing that while contracts that are resistant to change may be preferred in some instances, in others it could prove problematic.

"How would you stop such a smart contract from executing if it was necessary? How would you change its behavior to reflect a defect that had been fixed, and you then need to deploy a corrected version?" Braine asked.

Braine noted that this is relevant to Barclays and its work developing smart contract templates, as these scenarios are likely to occur frequently for regulated entities.

For the bank, the paper marks a continuation of an investigative process it began at the end of last year with the intent to create a smart contracts proof-of-concept.

That project, which leveraged then-new technology from banking consortium R3CEV, was eventually demoed in April during a exhibition at its accelerator in London.

Language-level innovation

Ultimately, the paper puts forth the idea that Barclays believes it will need to encourage innovation in smart contracting languages in order to best develop the tech it believes could be leveraged in global finance.

He noted that while there are existing languages (Java) and new languages (ethereum's Solidity) that have been created or that can be used for this purpose, the market will perhaps best benefit from a healthy competition between alternatives.

"One of the things we were aiming to do was to remain agnostic of the target platform. This means remaining agnostic of the target language of the detailed business logic," Braine said, adding:

“We should assume there will be more progress and more variety and what we need to do is construct interoperability.”

Braine suggested that Barclays foresees a world where a diversity of smart contract languages could be used to create implementations on platforms as diverse as R3’s distributed ledger, Corda, public blockchains like ethereum and consortium efforts like Hyperledger.

"As long as they conform to the smart contract, the prose could delegate to the implementation," he continued.

Legal considerations

On the business side, the paper also aims to ensure that the technology is being developed in a way that is "faithful" to existing processes for legal documentation.

As such, it states that it believes the term "smart contracts" should encompass two definitions – executing both obligations, possibly within a shared ledger framework, as well as informing operational aspects such as how legal contracts are written and their prose interpreted.

The paper’s definition of smart contracts reads:

"A smart contract is an agreement whose execution is both automatable and enforceable. Automatable by computer, although some parts may require human input and control. Enforceable by either legal enforcement of rights and obligations or tamper-proof execution."

Elsewhere, the paper makes a distinction between "smart legal contracts" and "smart contract code" in statements that arguably move away from the idea popular in the open-source community that code can serve as law.

In this way, it is seeking to encourage a definition of smart contracts in which traditional means of enforcement, such as a court of law, are considered.

Work ahead

Going forward, Braine said Barclays and its partners intend to pursue a strategy that encourages open innovation, and he cited this new paper as evidence it is seeking to give back to those working to move forward smart contracts in other ways.

For example, Braine said that Barclays intends to put out another paper this year that will expand on the CLACK language being developed by report co-author Christopher Clack of University College London.

Barclays, he said, also intends to leverage its network to capture more mindshare for smart contracts development. To date, this has included working with the R3 consortium, which it joined in September of last year, and presenting its work to consortia such as the Post-Trade Distributed Ledger Group.

He concluded:

"We’re looking at the foundations and the structure and we’ll be sharing more research as it becomes available."

Legal tech image via Shutterstock

Academic ResearchBarclaysEuropeLawSmart Contracts

Original author: Pete Rizzo

Coinbase wallet and exchange users will soon be able to withdraw classic ethers.

The San Francisco exchange announced today that it intends to let users access and withdraw classic ether balances, a move that comes amid a minor outcry over how the exchange should handle the currency's sudden creation.

While a number of exchanges have moved to support ethereum classic in recent weeks, Coinbase quickly emerged as a voice of caution, noting again today it does not want to offer trading in both ethereum and ethereum classic.

Complicating matters was that, due to the specifics of how the ethereum blockchain split, Coinbase has found itself the de-facto holder of customer funds in a currency it never sought to support.

Though Coinbase gave no specific date for the ETC release, it said it was moving "swiftly" to provide the functionality.

Coinbase said in a statement:

"It is important to us that our customers trust Coinbase to safeguard digital currency assets. Therefore, Coinbase customers will be credited the full amount of ETC associated with their account. We are working as swiftly as possible to create a simple process which will allow users to send an ETC credit to an off-platform ETC address of your choosing."

The company reiterated that, at this stage, it isn’t planning to enable trading or storage services for ETC, and released a similar statement outlining how it would enable ETC withdrawals for exchange customers.

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Coinbase.

Image via Office Snapshot

CoinbaseExchanges

Original author: Stan Higgins

Bitfinex is planning to slowly re-enable user access following its announcement that it had been hacked and robbed of nearly 120,000 bitcoins earlier this week.

In a new message today, the exchange reiterated past statements that it is in the midst of bringing the exchange online, a process that would include allowing users to check balances. Trading, withdrawals and deposits will remain suspended.

"The first step is bringing the site online and allowing users to login and view the state of their accounts," the exchange said.

Bitfinex closed its trading platform on Tuesday after revealing that it had lost 119,756 BTC, an amount worth roughly $69.5m at current prices.

Notably, the statement did not detail how the exchange will handle user losses – an aspect representative Zane Tackett indicated via social media would be outlined in greater detail in a statement expected later today.

Bitfinex’s announcement included the prices at which it would settle margin positions live on the site at the time of its closure. Among these were standing bitcoin prices of $604.06 per bitcoin and $10.19 per ether.

The exchange also said that withdrawals, open orders and funding offers will be cancelled.

News of the hack and theft sparked broad debate across the bitcoin industry, given the exchange’s high profile as a global bitcoin exchange and the amount lost in the incident. The hack revived memories of Mt Gox, the Japanese bitcoin exchange that collapsed in early 2014 and resulted in hundreds of millions of dollars in client losses.

BitfinexHack

Original author: Stan Higgins