The Bitcoin: history and evolution 2/2

Acquiring bitcoins

Bitcoins can be bought and sold (ie. exchanged for real currency) to and from individuals or companies. Most known platforms like Bitstamp, Mt.Gox, Btc-e and BtcChina use a bid / ask system.

Today’s value is $461 US for 1 BTC, but this is subject to high fluctuation.

We have seen this exchange rate going from $5 in May 2012 to $1150 in December 2013.

Legality

The only country where Bitcoin is illegal is Iceland. However, many other states decided to restrict its use. For instance in China, since December 5, 2013, financial institutions are forbidden to handle Bitcoin transactions. They cannot give pricing in Bitcoin or buy and sell the currency. This statement was the cause of a crash of the bitcoin exchange rate.

In Germany, bitcoin has become an official currency, a way for the German government to perceive tax on it. Profits from this money are subject to an income tax granted at a 25% level and businesses that would use this money will be required to pay a VAT amount for each transaction.

In the United States, the Internal Revenue Service announced in March 2014 that bitcoin would be a form of property rather than a currency, meaning that every transaction where Bitcoin is used as payment would be subjected to capital gains tax and that bitcoin mining would be taxed as well.

Finally many Central banks, such as the French one, made a public statement to warn people against the highly speculative characteristic of the bitcoin.

The Silkroad & friends case

Silkroad was an anonymous hidden market place, only accessible through the Tor network (an anonymous network where tracking individuals is not possible).

It was very similar to eBay, sellers could propose goods and buyers pay to get those products delivered at home. All wrapped up in encryption, anonymity and with bitcoin as a payment method.

Quickly, the site became a huge black market where the only goods sold were drugs, fake papers, weapons and contraband products. On October, 2nd 2013, the website and servers were seized by the FBI while Ross William Ulbricht, the alleged owner of Silkroad aka “Dread Pirate Roberts” was arrested in San Francisco. 26 000 bitcoins were seized as well.

A few weeks later, Silkroad 2.0 was launched and never taken down since. Even if it was since hacked and stolen from $2.7 million worth in bitcoins. The owner of Sheep Marketplace, another market place, vanished in December 2013 with $100 million worth in bitcoins, stolen from all the users. They are using it but the Bitcoin is not only used to buy and sell drugs and illegal goods.

The Bitcoin is accepted as payment on many websites.

Here are a few examples:
–       achatnet.pro / Computers
–       la-boutique-du-mineur.com / mining hardware
–       etfett.net / modelism products
–       bitgild.com / precious metals
–       carsforbitcoins.com / cars

In November 2013, Richard Branson announced that Virgin Galactic would accept bitcoin for their space travel tickets.

Two casinos in Las Vegas decided to allow it as well and eBay UK opened a virtual currency section for its users to sell bitcoins.

In Vancouver, the world’s first Bitcoin ATM was installed on October, 29th 2013. It charges 7% per transaction and $1 million has been processed over its first month of use.

Mt.Gox and the transaction malleability

But who says software says vulnerability. Recently Mt.Gox, the biggest exchange platform was forced to declare bankruptcy on February, 28th 2014.

The flaw was known for a while (2011), and named “transaction malleability”. When a bitcoin transaction is made, important information is signed, this includes the amount, the sender and the recipient. Then a unique transaction ID is generated from those data.

But it’s possible to alter this ID. Usually, it is not a problem since the right amount of bitcoins is still moved from the right address to the right receiver. In Mt.Gox’s case, what happened was the site was expecting transactions to show up in the Blockchain under the correct ID. But, when it didn’t, because the ID was altered by an attacker, the system would automatically retry to send it thinking it had failed. This operation repeated over and over led to the theft of £200 million.

Conclusion

Is the Bitcoin a gold mine or a trap? Both views can be argued. Yet, it cannot be denied that it’s expanding rapidly and people are profiting from it. It originates from an experience and seems to confirm that cryptocurrencies can function successfully in real life.

 

Marineo

Marine OGIER
Étudiante en M2 Droit de l’Économie Numérique, passionnée de nouvelles technologies, d’informatique et le droit qui les encadre
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