Original author: Stan Higgins
Coin News
Original author: Pete Rizzo
Original author: Stan Higgins
James Downer is a student of International Relations and Computer science, and is interested in the collision between the two. Here, he discusses bitcoin’s growing role in Argentina and the nation’s thriving black market for dollars.
The US dollar black market doesn’t just thrive in Buenos Aires, it’s published in the paper every morning.Swinging by one of the city’s newsstands, you’ll find the official peso to dollar rates published next to the ‘dólar blue’ rates at the top of the morning edition of La Nacion, and if you walk downtown to Calle Florida, the arbolitos (street traders of black market currency, literally ‘little trees’) that stand planted on the busy commercial street greet any foreigner they see with barks of “Cambio! Cambio! Cambio!”.Currency restrictions have become more stringent in Argentina in recent years as the government struggles to prop up confidence in the peso by restricting the dollar. These restrictions have held the official rate down to around 8 to 1, but the blue rate at around 10 to 1 is so favourable that dollars determine tourism prices and denominate everything from technology purchases to property.A history of inflationConfidence in the dollar and lack of faith in the domestic peso is deeply woven into the culture of Argentina. While it strikes foreigners strange that a vast portion of the country thinks in dollars, periods of inflation are so frequent in Argentinian history, those who don’t have an escape from the inflationary currency are quickly left behind.Inflation over the past year reached 100% by private estimates, but that pales in comparison to the economic crisis of 2001, when Argentina declared bankruptcy and ruptured peso parity with the US dollar, freezing bank accounts for many. At the peak of the crisis, when one woman couldn’t get money from her account, she doused herself in gasoline in the middle of the bank floor and set herself on fire.Before that, back in the late ’80s, Argentina saw one of the worst periods of inflation in modern history, reaching 5,000% over the course of 1989, resulting in massive food shortages and riots around the country. Haunted by decennial crises, Argentinians rationally hoard dollars, with a sum total of around $50bn allegedly hidden in walls and under sofa cushions.Hoarding bucksThose who have the means and access look for banks outside the country dealing in dollars or euros, and some choose to invest in domestic property (also denominated in dollars, or pesos at the blue rate), but many turn to cuevas (underground exchange houses, literally ‘caves’) or arbolitos to guard their savings in physical dollar bills.This means that the black rate is dependent on the flow of physical dollars into the country. Each physical dollar needs to come from abroad, either withdrawn from an ATM in Uruguay and brought back across Rio de la Plata, or flown in from the US or Europe stored in wallets and stuffed in underwear.
Bitcoin boomBy the 2010 Argentine census, the Greater Buenos Aires area had a population a shade over 12.8 million people. Each marker on the map above (numbers denote a collection of sites) represents a point where bitcoin is accepted in Buenos Aires as reported on Coinmap.Within the cryptocurrency community, Coinmap is widely used to identify bitcoin-accepting sites around the world. The total number of sites in the Buenos Aires area is 78. To scale the number of sites to the size of the city, we can divide the sites by the number of people, making the index for Buenos Aires 6.1 sites for every million inhabitants.Argentina leads Latin America by leaps and bounds for bitcoin development. São Paulo with a population of 20.8 million shows 16 sites (0.8 sites per million), Mexico City with 21.2 people shows 14 reported sites (0.7 sites per million), and Santiago with 6.3 million reports 6 (1.0 sites per million).But how does Buenos Aires compare as an early adopter to an area which brought us Bell Labs and the Manhattan project?
New York currently has 111 sites in the metropolitan area of 23.4 million people. With an index of 4.7 sites per million, Buenos Aires still comes out ahead with a notable adoption advantage.Premium priceSo bitcoin is certainly seeing accelerated adoption in Argentina. Potential reasons why include everything from high Internet penetration, to the ideological base which drives many bitcoiners: that the central bank and politicians are not to be trusted.And while not one of the half dozen arbolitos I interviewed had heard of bitcoin, there is a community eagerly buying up bitcoins for pesos, and bitcoin adoption, while the majority of the public is still not aware of it, is growing quickly.In addition to the stats published by Coinmap, BitPay, a bitcoin payment implementation service, has just opened offices in Argentina.Without access to an exchange, the best way to get a bitcoin in Argentina is to find someone online interested in selling and meet in a cafe for a quick conversation to switch a pile of pesos for the digital currency.This naturally means the data is scattered, but the several sites that act as dealers or deal facilitators (such as digicoins.tk, unisend.com, localbitcoins.com and the lively Bitcoin Argentina Facebook group) publish daily buy/sell rates for bitcoin.These numbers are naturally a bit subjective, but provide a historical metric to compare what people are willing to pay for a bitcoin compared to the dólar blue.For 54 of 72 days with data since the beginning of the year, the per dollar cost of a bitcoin exceeded the dólar blue rate, meaning people were paying a premium of up to 30% above the 20% extra a dollar cost to buy dollars. The relation in price makes sense, as those providing currency from abroad frequently have access to both bitcoins and dollars, but the degree is startling. 
Bitcoin Blue price in dollars minus the price paid for Dólar BlueLiquid assetWhat’s the connection between the rise of bitcoin in Argentina and encroachment on the black market? While bitcoin still exists as an outside method of payment, a core group of passionate developers have identified its utility as a protocol and are willing to brave the swinging volatility that has brought the price down 50% since the start of 2014, but up nearly 6,000% since a year ago.A traditional currency should be widely accepted and a relatively constant store of value, but a significant advantage of bitcoin is its liquidity. Entirely legal and giving more diverse options, bitcoin can be used less as a currency and more as a protocol.What’s driving this boom? Many in the community here speculate that philosophy and frustration with the government is driving adoption.Whatever the cause, bitcoin won’t change the world overnight, but it has a distinct adoption advantage in certain sectors. The black market in Argentina may well just be one such area.This article was previously published on Medium. Republished here with permission.Disclaimer: CoinDesk founder Shakil Khan is an investor in BitPay. Buenos Aires image via ShutterstockArgentinablack marketpesopricesvolatility
The US dollar black market doesn’t just thrive in Buenos Aires, it’s published in the paper every morning.Swinging by one of the city’s newsstands, you’ll find the official peso to dollar rates published next to the ‘dólar blue’ rates at the top of the morning edition of La Nacion, and if you walk downtown to Calle Florida, the arbolitos (street traders of black market currency, literally ‘little trees’) that stand planted on the busy commercial street greet any foreigner they see with barks of “Cambio! Cambio! Cambio!”.Currency restrictions have become more stringent in Argentina in recent years as the government struggles to prop up confidence in the peso by restricting the dollar. These restrictions have held the official rate down to around 8 to 1, but the blue rate at around 10 to 1 is so favourable that dollars determine tourism prices and denominate everything from technology purchases to property.A history of inflationConfidence in the dollar and lack of faith in the domestic peso is deeply woven into the culture of Argentina. While it strikes foreigners strange that a vast portion of the country thinks in dollars, periods of inflation are so frequent in Argentinian history, those who don’t have an escape from the inflationary currency are quickly left behind.Inflation over the past year reached 100% by private estimates, but that pales in comparison to the economic crisis of 2001, when Argentina declared bankruptcy and ruptured peso parity with the US dollar, freezing bank accounts for many. At the peak of the crisis, when one woman couldn’t get money from her account, she doused herself in gasoline in the middle of the bank floor and set herself on fire.Before that, back in the late ’80s, Argentina saw one of the worst periods of inflation in modern history, reaching 5,000% over the course of 1989, resulting in massive food shortages and riots around the country. Haunted by decennial crises, Argentinians rationally hoard dollars, with a sum total of around $50bn allegedly hidden in walls and under sofa cushions.Hoarding bucksThose who have the means and access look for banks outside the country dealing in dollars or euros, and some choose to invest in domestic property (also denominated in dollars, or pesos at the blue rate), but many turn to cuevas (underground exchange houses, literally ‘caves’) or arbolitos to guard their savings in physical dollar bills.This means that the black rate is dependent on the flow of physical dollars into the country. Each physical dollar needs to come from abroad, either withdrawn from an ATM in Uruguay and brought back across Rio de la Plata, or flown in from the US or Europe stored in wallets and stuffed in underwear.Bitcoin boomBy the 2010 Argentine census, the Greater Buenos Aires area had a population a shade over 12.8 million people. Each marker on the map above (numbers denote a collection of sites) represents a point where bitcoin is accepted in Buenos Aires as reported on Coinmap.Within the cryptocurrency community, Coinmap is widely used to identify bitcoin-accepting sites around the world. The total number of sites in the Buenos Aires area is 78. To scale the number of sites to the size of the city, we can divide the sites by the number of people, making the index for Buenos Aires 6.1 sites for every million inhabitants.Argentina leads Latin America by leaps and bounds for bitcoin development. São Paulo with a population of 20.8 million shows 16 sites (0.8 sites per million), Mexico City with 21.2 people shows 14 reported sites (0.7 sites per million), and Santiago with 6.3 million reports 6 (1.0 sites per million).But how does Buenos Aires compare as an early adopter to an area which brought us Bell Labs and the Manhattan project? New York currently has 111 sites in the metropolitan area of 23.4 million people. With an index of 4.7 sites per million, Buenos Aires still comes out ahead with a notable adoption advantage.Premium priceSo bitcoin is certainly seeing accelerated adoption in Argentina. Potential reasons why include everything from high Internet penetration, to the ideological base which drives many bitcoiners: that the central bank and politicians are not to be trusted.And while not one of the half dozen arbolitos I interviewed had heard of bitcoin, there is a community eagerly buying up bitcoins for pesos, and bitcoin adoption, while the majority of the public is still not aware of it, is growing quickly.In addition to the stats published by Coinmap, BitPay, a bitcoin payment implementation service, has just opened offices in Argentina.Without access to an exchange, the best way to get a bitcoin in Argentina is to find someone online interested in selling and meet in a cafe for a quick conversation to switch a pile of pesos for the digital currency.This naturally means the data is scattered, but the several sites that act as dealers or deal facilitators (such as digicoins.tk, unisend.com, localbitcoins.com and the lively Bitcoin Argentina Facebook group) publish daily buy/sell rates for bitcoin.These numbers are naturally a bit subjective, but provide a historical metric to compare what people are willing to pay for a bitcoin compared to the dólar blue.For 54 of 72 days with data since the beginning of the year, the per dollar cost of a bitcoin exceeded the dólar blue rate, meaning people were paying a premium of up to 30% above the 20% extra a dollar cost to buy dollars. The relation in price makes sense, as those providing currency from abroad frequently have access to both bitcoins and dollars, but the degree is startling. Bitcoin Blue price in dollars minus the price paid for Dólar BlueLiquid assetWhat’s the connection between the rise of bitcoin in Argentina and encroachment on the black market? While bitcoin still exists as an outside method of payment, a core group of passionate developers have identified its utility as a protocol and are willing to brave the swinging volatility that has brought the price down 50% since the start of 2014, but up nearly 6,000% since a year ago.A traditional currency should be widely accepted and a relatively constant store of value, but a significant advantage of bitcoin is its liquidity. Entirely legal and giving more diverse options, bitcoin can be used less as a currency and more as a protocol.What’s driving this boom? Many in the community here speculate that philosophy and frustration with the government is driving adoption.Whatever the cause, bitcoin won’t change the world overnight, but it has a distinct adoption advantage in certain sectors. The black market in Argentina may well just be one such area.This article was previously published on Medium. Republished here with permission.Disclaimer: CoinDesk founder Shakil Khan is an investor in BitPay. Buenos Aires image via ShutterstockArgentinablack marketpesopricesvolatilityOriginal author: James Downer
Bitcoin exchanges have further to go to prove their good standing to customers, say the experts that inspected them – but solutions are just around the corner.Last week, CoinDesk explored bitcoin exchange Kraken, and showed you how the company did its best to prove it possessed the bitcoins it claimed.Bitcoin luminary Stefan Thomas used cryptographic proofs to confirm that the US exchange wouldn’t be caught short if there was a run on its bitcoins, and that it wouldn’t suddenly be embarrassed, Mt. Gox-style, to find that a hacker had secretly been stealing its coins.Kraken passed the inspection with flying colours, as have others. But did the inspections go far enough? How in-depth should an audit be, and what else should it cover?Why improvements are neededThe audit that Thomas conducted focused on how many bitcoins the exchange possessed, and how many it owed to customers. In a legitimate exchange environment, the former should be greater then the latter.The Kraken audit followed a flurry of activity in the wake of the Mt Gox debacle, in which exchanges rallied to reassure customers that they had the bitcoins they claimed.“It’s a reaction to Mt Gox,” says Thomas. The company, which suspended withdrawals and then said that it had lost hundreds of thousands of bitcoins, left angry users in its wake.Things used to be even worse, Thomas told CoinDesk, stating:“I remember when these services were run anonymously and the MyBitcoin.com calamity happened, and then almost no one would use an anonymously run service anymore.”This was a reference to the anonymously operated wallet that claimed to have lost just over half its users’ bitcoins.He added: “In future, people won’t use exchanges that don’t allow any form of audit.”These inspections were a best-effort attempt to deliver something tangible in a short timeframe, but they are unlikely to be the ultimate solution.When is an audit not an audit?Jesse Powell, CEO of Kraken, says that he’s already planning a follow-up to his exchange’s initial audit in the near future.“Traditionally, this skill set is not what accounting firms are known for.”A spokesperson from Coinbase, which also carried out a third-party inspection of its bitcoin reserves, added that it, too, is conducting more comprehensive follow-up inspections.What should such inspections cover, and what was omitted the first time? We can learn a lot from Andreas Antonopoulos, Chief Security Officer at Blockchain, who was called in to inspect Coinbase’s bitcoin reserves back in February.‘Audit’ isn’t a throwaway word, said Antonopoulos, who specifically didn’t refer to his inspection as an audit the first time around.He prefers to call it a spot check, adding: ”I purposefully used less strong language, because in my mind an audit is far more comprehensive and rigorous. If you see an audit that takes less than three or four weeks, it isn’t an audit.”“[In an audit] they take visits to the sites, and they have teams to create a comprehensive report, and to sign off on that.”Implementing comprehensive auditsA proper audit wouldn’t focus solely on the bitcoin reserves, continued Antonopoulos, arguing that there are three broad areas a satisfactory bitcoin exchange audit would require:Auditing the bitcoin reserves proves that the exchange has the bitcoins it claims to.An unscrupulous exchange without enough bitcoins to cover its customers’ accounts could simply buy more of them with dollars or another currency, and hiding any gaps in its accounts by simply moving money from fiat currencies to bitcoin and back again. Auditors of a bitcoin exchange would ideally nose through the company’s fiat accounts to spot if this is happening.Checking the firm’s current cybersecurity systems would confirm that nothing had been visibly hacked.However, these points alone do not satisfy Antonopoulos’ criteria for a true audit.Companies don’t stand still, and a proper audit would include an element of future proofing. So, he divides each of these three areas into a further two areas: immediate checks, and forward governance.That gives us a structure like this one (pictured), which, he said, any truly comprehensive bitcoin audit would have: 
(Click to enlarge)There are challenges in both the spot check and the governance areas. For a start, a truly comprehensive bitcoin audit would span multiple disciplines.There are a lot of very good bitcoin technologists in the world, and there are a lot of good accountants, but there isn’t much of an overlap.“It is a business that could generate a lot of revenue and create a useful service to the industry,” said Antonopoulos. “It would be a business combining CPAs and financial auditors, security auditors for infosecurity and knowledge of cryptographic currencies, and it would be able to do specialised audits for these kinds of businesses.”Right now, this is something that exchanges must cobble together for themselves, however.Jesse Powell, who said that he is working on audits covering the fiat side of his operation, elaborated on Antonopoulos’ ideas:“The firm would need to independently have a strong grasp of bitcoin, crypto, the ability to review code or write their own, be aware of opportunities for either party to compromise the audit and have the ability to prevent those compromises. Traditionally, this skill set is not what accounting firms are known for.”Kraken’s future audit will take these issues into account. The firm is working towards a fiat-based audit, he said, explaining:“The next one will be comprehensive, including all cryptos, and fiat. Following that would be other types of audits on the company as a whole, [including the] management team, security, etc.”Coinbase has also confirmed that it’s focusing on both fiat and cryptocurrency checks for its next audit.This challenge is daunting enough for exchanges trying to grow their business and deal with a plethora of regulatory and technical hurdles. And, this is just one snapshot in time. Audits are supposed to happen repeatedly to ensure that businesses remain compliant.Why exchanges need repeat auditsAs it stands, Kraken and Coinbase’s proof of reserves are ageing: they’re snapshots taken in the past. The older those snapshots become, the less relevant they are. Repeat audits keep validating the exchange, which assures customers their funds are safe.However, there’s another reason why audits should be repeated, says Thomas: having subsequent audits handled by different parties reduces the need to place trust in one expert, such as himself.“The way you get trust in these audits is that they’re repeated by different people. It seems to be less likely that the exchange will lie, or bribe the auditor.”To this end, he has resolved not to carry out any follow-up audits for Bitfinex or Kraken, because he wants to encourage the firms to use other third-party auditors. Although he has none planned at present, he is happy to conduct audits for other exchanges, though.There are ways to increase the ongoing impact of an audit, by ensuring good governance, and this can be done across several of the audit areas highlighted here.On the cybersecurity side, white-hat programs are certainly laudable ways to find software bugs, but it’s also important to check that companies have sufficient controls in place to avoid getting hacked in the future. There are well-established standards for this, such as the ISO 27000 series, and COBIT.On the bitcoin reserves side, it should be possible to conduct regular automated spot checks that are automatically updated each day, suggested Antonopoulos.An exchange could automatically hash the Merkle root for its cold storage, to create a proof of its assets – the bitcoins it has in hand.It could also hash the balance of user accounts to create a Merkle root for the bitcoins held in its customers’ accounts, which would be a proof of liability.These two Merkle roots could then be compared together.How would the users automatically check that their balances were included in the proof of liabilities, though? They could use the same feature implemented during the Kraken audit, whereby users can personally check that their address was included in the tree that created the Merkle root.Automating the processThe problem is that currently, an exchange’s users have to be technically adept to carry out these checks, meaning that many of them won’t. Instead, this check could be done for them using independently verified software, Antonopoulos said:“One of the things we might want to see in the industry is essentially a much more user-friendly widget. Let’s imagine that you have a third-party JavaScript widget that pops up inside the page from a third-party service, that runs the crypto check for you. You get a green check mark with the balance.”The bitcoin community doesn’t stand still for long and at least one such system already exists. This proof of solvency system can be plugged into exchanges to offer both proof of liability and proof of solvency, says its creator.And, yes, there is a browser-based widget designed to automatically check that a user’s balance has been included in a hash representing an exchange’s liabilities.Bitcoin exchanges that have made an effort to reassure customers in this way are headed down the right track, but conducting a financial audit is a daunting task when you’re a new organisation dealing with an entirely new asset class that many accountants don’t even understand.Hopefully, more exchanges will soon step up to prove not only their bitcoin reserves, but also their good governance in other areas. Like the bitcoin network and business ecosystem itself, exchanges’ ability to prove their good standing to customers remains a work in progress.Tools image via ShutterstockAndreas AntonopoulosauditsCoinbaseKrakenOriginal author: Danny Bradbury
Original author: Pete Rizzo
Original author: Nermin Hajdarbegovic
Original author: Pete Rizzo