Joel Flickinger’s two-bedroom home in the hills above Oakland, Calif., hums with custom-built computing gear. Just inside the front door, in a room anyone else might use as a den, he’s placed a desk next to a fireplace that supports a massive monitor, with cables snaking right and left toward two computers, each about the size of a case of beer. Flickinger has spent more than $20,000 on these rigs and on a slower model that runs from the basement. They operate continuously, cranking out enough heat to warm the house and racking up $400 a month in electric bills. There isn’t much by way of décor, other than handwritten inspirational Post-it notes:
“I make money easily,” one reads.
“Money flows to me.”
“I am a money magnet.”
Flickinger, 37, a software engineer and IT consultant by trade, doesn’t leave the house much these days. He’s a full-time Bitcoin miner.
Bitcoin is the digital currency that thrills nerds, inspires libertarians, and incites the passions of economists who debate the value of money made from nothing but ones and zeroes. Devotees watch the fluctuations of Bitcoin’s price with a fanaticism typically reserved for college football scores. Alternative currency startups are being lavishly funded by venture capitalists while visionaries gush about the world-changing possibilities of money free from government control. Silicon Valley is the natural center for Bitcoin mania. An advocacy group named Arisebitcoin recently put up 40 billboards around the Bay Area with messages such as: “The Revolution has started?…?where do you stand?”
As with an actual precious metal, Bitcoins are in limited supply—they must be “mined.” Unlike with precious metals, this mining is done purely by computer. Miners set their machines to run a series of complex calculations that tally up and certify all the transactions of other Bitcoin holders around the world. If the miner’s computers complete these calculations and solve a complex mathematical puzzle before anyone else, he earns about 25 Bitcoins as payment. It’s a nice haul: With the price of each Bitcoin nosing up near $1,000, that’s $25,000 for 10 minutes or so of work. For the moment at least, miners are the rare grunts who can also get rich.
Over the past six months the price of a Bitcoin has shot up, dived, shot up again—and kept on rising, making Bitcoin mining one of the most frenzied corners in technology. Engineers are racing to design and build unique chips that crunch Bitcoin algorithms at high speeds. Thousands of entrepreneurs like Flickinger are betting that their ability to harness these complex computer systems will make them rich—and maybe create a new world order along the way.
Joel Flickinger, in his Oakland (Calif.) home, which doubles as a Bitcoin mine Jake Stangel for Bloomberg Businessweek
Flickinger is part of a group called Give Me Coins that pools together its computing power to have a better shot at verifying transactions and solving the cryptographic puzzles first. He spends much of his time chatting online and monitoring his account on Give-Me-Coins.com, which shows the group’s progress and his share in the work. His setup currently accounts for about 10 percent of its total computing muscle.
One of the first things he does in the morning is check the temperature of his mining rigs. Processing chips calculate faster when they’re hot, but not too hot—the optimal temperature is around 73.5C (164.3F). If it goes much higher, the machine can overheat and malfunction, but Flickinger likes to push the limit. Occasionally, he says, he stuffs the air holes of his machines with paper to bring up the temperature. “There is serious money in this,” he says, noting that he’s earned 100 Bitcoins over the past few months from mining and other transactions. He estimates his two fastest computers will earn him $150,000 each this year. “It takes up a lot of time, but I have no kids. I have no life. I have a cat.”
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The Bitcoin system was introduced in 2008 by a shadowy figure who went by the name of Satoshi Nakamoto. To this day no one knows if Nakamoto is a man or a woman or some sort of cabal, though few deny the ingenuity of the creation. Digital currencies had been devised before—DigiCash and Bit Gold, for example—and never took off. Nakamoto started with the best ideas behind these earlier currencies, added a few of his own, and wove it all together with technical elegance. The biggest achievement was solving a long-standing problem of borderless digital money: With no government oversight or central database to track transactions, how do you prevent fraud?
Nakamoto’s solution has two important parts. The first is a public ledger, shared across the Internet, which is a way to validate all Bitcoin transactions and eliminate counterfeiting. Every time someone makes a purchase or exchanges Bitcoin for another currency, that transaction is broadcast to anyone running open-source Bitcoin software. Some users run a highly specialized version of the software, which brings us to the second part of Nakamoto’s solution: mining. Bitcoin miners are, in a sense, both maintainers of the public ledger and expanders of the virtual money supply. One more twist: The Bitcoin system makes sure the money supply expands gradually. The maximum number of minable Bitcoins worldwide is currently 25 every 10 minutes. It’s like a worldwide math competition that resets six times an hour. There are a total of 21 million possible Bitcoins; about half are currently in circulation. The last will be mined in about 2140 at the earliest.
Nakamato’s puzzles—akin to searches in a digital haystack for fiendishly long numbers preceded by strings of zeroes—were easy to solve at first. Miners used standard laptops and desktops to complete calculations and earn their Bitcoins. The currency was mined and traded in small volumes and relative obscurity. It garnered attention as a popular method of payment on the online black market Silk Road, a bazaar for illegal drugs, and for the enthusiasm of high-profile backers such as Cameron and Tyler Winklevoss, the twin brothers better known as Mark Zuckerberg’s legal adversaries. It’s accepted as payment by online dating service OKCupid, at a cafe in the Netherlands, and by Richard Branson’s Virgin Galactic. There’s now a Bitcoin ATM in Vancouver and another one planned for Hong Kong.
As the currency has gathered momentum, miners have piled in. But, because Nakamoto’s puzzles are designed to get more difficult over time, solving them requires ever-escalating computing capacity. It’s an ingenious trick, like a Rubik’s cube that gets more complicated as more people try to solve it. By 2010 the puzzles grew too difficult for ordinary desktops. Miners needed souped-up systems with fast graphics processors, typically used for playing high-performance video games or conducting intense scientific research, or they needed to distribute the problem among dozens of computers at once.
It’s not clear whether Bitcoin’s inventor, who disappeared from the Internet in mid-2010, was prophetic enough to imagine what happened last year. The value of Bitcoin exploded, with the price of an individual coin jumping from $100 in July to $200 in October to more than $1,000 as of this month. Economist Paul Krugman, among many other critics wearing the dour goggles of history, argued that it was little more than the latest speculative mania, no less ridiculous than the Dutch fever for tulips in the 17th century. But the miners showed up anyway. And an industry of microprocessor manufacturers has sprung up to serve them. No matter what the fate of Bitcoin, one consequence of the race to mine it will probably be faster chips.
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In July 2013, an anonymous geek going by the name Bitfury proposed a chip design tailored to the problem of mining Bitcoins. Little is known about Bitfury; collaborators say he’s a brainy Ukrainian now living in Russia who taught himself microprocessor engineering and designed his chip by hand at his kitchen table. ?Dave Carlson, a serial entrepreneur from Seattle, says he first met Bitfury in an online forum devoted to Bitcoin. Backed by a Polish investor, Carlson and Bitfury started a company called MegaBigPower, selling computers based on Bitfury’s chips for as much as $11,000 each. Carlson says he’s never actually seen his partner in person, but they’ve formed a frenetic, virtual working relationship. “We had a Skype session that never closed for two months,” says Carlson. “It was like a war room.”
Carlson also operates what he says is North America’s largest Bitcoin mine, an array of Bitfury-designed rigs in a warehouse. Inside the facility, which is in the Pacific Northwest—he asks that the exact location remain undisclosed—row after row of Bitcoin computers sit on cheap metal racks he bought at Home Depot. Industrial fans on the floor keep the machines cool. Carlson says he generates 100 to 300 Bitcoins a day, and he’s hanging on to them because he believes their value will only increase.
Carlson sells Bitcoin rigs and has his own mining operation on the side Jenny Riffle for Bloomberg Businessweek
Carlson plans to sell sophisticated Bitfury arrays to other Bitcoin enthusiasts, charging upwards of $1 million for a mine that can mint $150,000 in Bitcoin a day. He needs the money. He’s still recovering financially from his previous venture, an advertising firm that collapsed, and is so strapped for conventional money he may lose his house. Still, he’s not willing to cash out of his mined currency. “I am riding this Bitcoin wave,” he says.
Eduardo de Castro runs HashFast Technologies, a mining startup founded in early 2013. Sitting in a cafe in Mountain View, Calif., in September, de Castro, too, displays feverish signs: He had a house fire the night before, which he mentions dismissively only after being asked about the bandages on his arms and face. His company is sprinting to design, manufacture, and sell specialized high-performance computers to Bitcoin miners. At the heart of the computers made by HashFast and similar startups such as KnCMiner and Butterfly Labs is a chip known as an ASIC, or an application specific integrated circuit. Unlike the general purpose Intel (INTC) chip powering a PC or an ARM (ARMH) processor in a smartphone, an ASIC typically performs a single function extremely well. A security company might make an ASIC to speed up the encryption of data, for example. For Bitcoin-mining toolmakers like HashFast, the goal is to make an ASIC that is precisely tuned to crunch Nakamoto’s algorithms. “It would take 70,000 of Intel’s fastest chips to match one of ours,” de Castro says.
A typical company might take a year to 18 months to design and manufacture such a custom chip. De Castro and his partner, Simon Barber, a former engineer at the Palo Alto Research Center, tried to pull it off in a few months. They hired a team of 20 engineers and consultants and hunkered down for weeks in the offices of a local chip design consulting firm. Bills for those services ran into the millions, though HashFast had raised only $600,000 from friends and family. (Several family members balked at investing in what they called “Monopoly money,” de Castro says.) The HashFast partners raised the rest by preselling $15 million worth of mining rigs on the idea alone, without even a prototype. Naturally, the company took payment in Bitcoin.
De Castro (left) and Barber of HashFast, makers of Bitcoin-mining gear Jake Stangel for Bloomberg Businessweek
It was a perilous move. Customers, for example, could pay the equivalent of $5,000 upfront for a HashFast machine. As the price of Bitcoin tripled during the year, they discovered they had paid $15,000. Worse, Bitcoin’s increasing value drew more interest to mining, which made the field even more crowded and lowered the odds of solving the underlying puzzles. De Castro is confident his computers will still be profitable for customers and cheerfully calls his strategy “aiming the car straight at the biggest wall we could find and gunning it.” HashFast promised delivery of its systems by the end of the year and missed its own deadline. De Castro, still optimistic, cites production delays but says they are close to shipping units. Meanwhile, the company faces angry customers, demands for refunds, constant complaints on Bitcoin bulletin boards, and threats of a lawsuit.
In August, Austin (Tex.)-based CoinTerra announced two Bitcoin computer designs, which it dubbed GoldStrike and TerraMiner. So far the company has $20 million in presales. Ravi Iyengar, a veteran chip designer, runs the startup. Iyengar has worked at Intel, Nvidia (NVDA), Qualcomm (QCOM), and, most recently, Samsung (005930:KS), where he led a team that developed chips for the company’s phones and tablets. After hearing about Bitcoin, Iyengar quit his job to use his experience to outrace other Bitcoin-mining startups. Iyengar has watched Intel, IBM (IBM), Apple (AAPL), Samsung, and other heavyweights slug it out in the chip business for years. “No arms race in the history of the chip industry even comes close to this,” he says.
The most secretive of the new mining companies is Silicon Valley-based 21e6; its name refers to the scientific notation for 21 million, the maximum number of Bitcoins. According to regulatory filings, the startup raised $5 million in April to build what’s believed to be one of the fastest mining chips in the world. Among investors are the Winklevoss twins; Marc Andreessen and his venture capital firm, Andreessen Horowitz; early Tesla Motors (TSLA) backer Bill Lee; PayPal (EBAY) mafia member David Sacks; and Naval Ravikant, founder of AngelList, a social network for investors and entrepreneurs. (Bloomberg LP, the parent of this magazine, is an investor in Andreessen Horowitz.)
Balaji Srinivasan, a former lecturer of computational biology at Stanford University, is one of the founders of 21e6. He also runs a Bitcoin club at Stanford for students and faculty and last month became a partner at Andreessen Horowitz. Srinivasan made headlines in October when he suggested at an industry forum that Silicon Valley secede from the U.S. He now says he was misquoted and meant only that avid technologists should forge their own Internet-centric communities. “Imagine a society of Inverse Amish that lives nearby, peacefully, in the future,” he wrote recently in a blog post. “A place where Google Glass wearers are normal, where self-driving cars and delivery drones aren’t restricted by law, and where we can experiment with new technologies without causing undue disruption to others.”
Srinivasan says Bitcoin would be useful to the Inverse Amish. In an interview, he calls the currency “the missing piece of the Internet” that will make transactions frictionless. Yet when he’s asked about 21e6, Srinivasan goes silent. A PR representative interrupts to say that the company is in stealth mode. People familiar with 21e6, who asked not to be named because they weren’t authorized to speak on the matter, say the company plans to keep its superfast computers for itself, just as a hedge fund might trade on its own proprietary algorithms. It wants to build the world’s largest Bitcoin mine—a virtual money printing machine.
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Supermine projects like 21e6 wrap up all the promise and danger of the libertarian sensibility that underlies Bitcoin. For HashFast and other miners, trying to corner the market in the world’s most successful virtual currency is a Dr. Evil-patting-the-cat move. Bitcoin true believers will tell you they aren’t—or aren’t completely—about the money. They dream of building a system free from the narrow interests of governments or the wealthy, allowing individuals greater freedom to move their capital around, whether it’s to avoid credit card fees, shop anonymously, or evade repressive regimes.
The fear is that an organization with piles of capital and not much idealism can buy enough computational might to corner the market and box out the individual miner. That may already be happening: Websites such as Bitcoin Watch that track the total computing power of miners have started to show large, mysterious spikes in capacity.
Even some Bitcoin entrepreneurs think mining has become a sucker’s game. Fred Ehrsam is a former Goldman Sachs (GS) trader and co-founder of Coinbase, a Bitcoin startup making wallet software that allows people to trade and store Bitcoins, and which recently raised $25 million in venture capital. Ehrsam is committed to Bitcoin but pessimistic about underfunded prospectors making any money. “This is very much a fad that is going to die soon, if it’s not even dead already,” he says. But that’s not the same as saying individual mining will end. He suggests that the next generation of miners might run their computers for ideological purposes—to support the currency and be a disruptive force in global finance—even if doing so has become unprofitable.
“Mining was supposed to be a democratized thing, but it’s now only accessible to the elite of the elites,” says Chris Larsen, CEO of Ripple Labs, which has introduced a virtual currency called Ripple. It’s similar to Bitcoin but without the mining. (The company gradually hands out increments of the currency to supporters.) “Hordes of brilliant engineers are raising money for mining equipment that regular folks can’t compete with,” Larsen says.
For idealists not swimming in startup capital, it’s still possible to join the Bitcoin rush, mostly by adding power to a distributed array of processors. Craigslist is full of miners selling their old rigs, and there are peripherals that cost about $250—they look like USB thumb drives, plug into standard PCs, and are mostly ineffective. Online calculator sites like BitcoinX let prospective miners enter processor speed, current Bitcoin exchange rate, electricity costs, and other variables to figure out whether their investment makes any financial sense. Most of these calculators suggest that even miners with older, specialized Bitcoin machines can still make a little money as long as the price for a Bitcoin is above $700. Members of mining groups are rewarded according to the amount of work they contribute.
Jake Stangel for Bloomberg Businessweek
That’s basically Flickinger’s arrangement with Give Me Coins. The collective has dozens of members scattered around the world and successfully mines Bitcoins every few days. Flickinger says he’s uneasy about the volatility of Bitcoin prices, which dropped 20 percent in the month after Beijing said it was banning Chinese payment processors from working in the currency. It topped $1,000 again in January when the game company Zynga (ZNGA) announced it would accept Bitcoins. He’s also tired of the scammers, and there are a lot of those. He recently paid one huckster on Craigslist $14,000 for two rigs that never arrived and now keeps an eye out for similar cons. “If I see anyone doing this kind of thing, I will warn people,” he says. “I’ve been doing my part.” He’s still mining, though, doing his daily server ministrations, redlining his chips above 73.5C, and writing himself inspirational Post-its. “I don’t fully understand how Bitcoin works,” he says. “But then, I don’t get Miley Cyrus either.”
Existing investors Union Square Ventures and Ribbit Capital will contribute some cash, as well. And Union Square’s Fred Wilson and Andreessen Horowitz’s Chris Dixon are taking seats on Coinbase’s board of directors.
Coinbase currently employs only eight people, but will add significantly to that total. It may also start to buy advertising to promote itself and bitcoin.
Bitcoin is often described as a digital currency and also as a payment network, though you can find people who say it behaves more like a commodity, or even a security. No matter what you call them, each bitcoin consists of a long digital string of characters, and the network consists of a decentralized sprawl of computers that approve transactions and solve increasingly complex math problems to create — or “mine” — new bitcoins.
Coinbase plays a few roles in this ecosystem. It is best known as a so-called bitcoin wallet, which bitcoin owners use to store the digital currency in the cloud so they don’t have to worry about safeguarding it from, say, hackers, on their own computers. It says it currently holds more than 600,000 bitcoin wallets.
The startup also helps people buy and sell bitcoins, working as an intermediary between individuals and bitcoin exchanges. It charges a one percent transaction fee for buying and selling bitcoins.
Lastly, Coinbase helps businesses accept bitcoins as a payment method, and takes a one percent cut if a merchant wants to exchange the bitcoin for its local currency (the fee kicks in only after a merchant uses Coinbase to process $1 million in bitcoins.) Atlanta-based BitPay, backed by Founders Fund, is probably the best-known bitcoin payment processor right now.
Over the last two months alone, the price of a bitcoin has soared from a little more than $100 to north of $1,000 (it was around $900 at the time I wrote this), boosted in some part by U.S. Senate hearings that took on a much more positive tone .. http://www.washingtonpost.com/blogs/the-switch/wp/2013/11/18/this-senate-hearing-is-a-bitcoin-lovefest/ .. than many observers had expected. Along the way, media attention focused on the digital currency has intensified.
Different people see different potential in bitcoin.
Some see it as an attractive payment method for small businesses to accept, since bitcoin transactions inherently carry no, or tiny, transaction fees compared to the two percent to three percent fees for debit or credit card transactions. (Bitcoin processing companies typically charge businesses around one percent to turn bitcoins into cash deposits.)
Others see potential for the bitcoin network to become a competitor to companies such as Western Union, as a cheaper alternative to send funds to people overseas.
There’s also a large group of people right now that view it strictly as a speculative bet — let’s buy it today, hope its value increases, and sell it for a profit down the line.
Up to now, Coinbase has found that about 80 percent of its bitcoin wallet customers are viewing bitcoin as an investment, since they have simply been storing the currency, according to co-founder and CEO Brian Armstrong. But Armstrong and co-founder Fred Ehrsam are betting that in, say, five years, the use case will shift, and 80 percent will be using it for commerce.
Either way, the currency still faces myriad questions.
When will the drastic increases and dips in price stop?
What’s to stop the price from crashing to the ground?
As the number of bitcoins in circulation nears the maximum of 21 million, will its value soar? If so, will hoarding reign supreme?
What’s the incentive for people to pay for products and services in bitcoins, especially while there’s the chance that a bitcoin worth $900 today could be worth $1,500 tomorrow?
How will the earliest bitcoin community members, who built the currency in part on a foundation of anonymity, respond to an increasingly aggressive drive to link identity to bitcoin ownership?
I could go on for days. The Coinbase guys think they have answers for some of these. On the topic of price volatility, for example, Armstrong insists it is a “self-correcting problem.”
“Over time, more and more transactions happen on bitcoin, and more people become aware of it,” he said. “So any given news event … is going to affect the overall market less.”
But Ehrsam admits that future government decisions around bitcoin in the U.S., while having the potential to boost the currency’s credibility, could also deal the ecosystem significant setbacks. Certain tax treatments, for example, could make the currency less attractive, he said.
In reality, many of these questions won’t get answered anytime soon. But now, Coinbase has the cash to build a business for awhile, as some answers start to emerge.
And its VC backers have placed an early bet in an incredibly young sector, on a company that is probably the best-known bitcoin consumer brand in the U.S.
That could mean nothing, should the bitcoin bubble burst as quickly as it has expanded. Or it could mean a whole lot, if some of bitcoin’s long-term potential comes to fruition.
Bitcoin’s largest exchange is dying. Here’s why that’s not a problem for Bitcoin.
By Timothy B. Lee February 15 at 4:45 pm
The Japanese exchange Mt. Gox has long been one of the Bitcoin community's most prominent institutions. It has also been one of its biggest PR headaches.
In 2011, the value of a bitcoin soared from less than $1 to more than $32. Much of this trading occurred on Mt. Gox, which found itself unable to keep up with the demand. The servers began to freeze up, helping to trigger a collapse in the currency's value. By November, one bitcoin was worth just $2. A similar scenario played out in 2013. As the price of one bitcoin soared from $13.50 to $266, Mt. Gox's servers started to buckle under the strain, helping spark a wave of panic selling that pushed the price back down to around $50.
Meanwhile, customers were finding it harder and harder to get their money out of the exchange. In August, Mt. Gox announced .. http://arstechnica.com/business/2013/06/mt-gox-suspends-us-dollar-withdrawls-for-the-next-two-weeks/ .. a two-week suspension of dollar withdrawals. Ever since then, customers have complained that withdrawal requests have been processed slowly, if they've been processed at all.
The final straw came last week, when Mt. Gox announced .. https://www.mtgox.com/press_release_20140207.html .. a suspension of bitcoin withdrawals. That has sent the price of bitcoins on the exchange into a tailspin. From a high of more than $1,000 last month, bitcoins are now trading below $400.
Mt. Gox says .. https://www.mtgox.com/img/pdf/20140215-BTC-transfers.pdf .. it's working hard to address the technical issues that led to the suspension of bitcoin withdrawals. But even if it does, it will take a long time for the exchange to rebuild the trust that has been lost over the last year.
The good news for the Bitcoin community is that Mt. Gox isn't the only exchange in town. While Mt. Gox has dwindled in popularity, other exchanges have risen to take its place. According to Bitcoincharts.com, the most popular exchange is now a European firm, Bitstamp. And while bitcoins have fallen to less than $400 on Mt. Gox, bitcoins on Bitstamp, and other exchanges, are going for about $650.
And this is one of Bitcoin's great strengths. Right now, companies such as Mt. Gox, BitStamp, BitPay and Coinbase are important players in the Bitcoin ecosystem. But Bitcoin itself is an open-source technology platform. It's not owned by anyone, and its success doesn't depend on the success of any specific bitcoin-based company. If the current crop of Bitcoin businesses fail, a new generation can and likely will emerge to take their place.
Of course, customers who rely on particular bitcoin-based businesses could get burned if they fail. Bitcoin is still in a "Wild West" phase of development, and it's not really ready for use by ordinary users. But over time, this process of trial and error should make the surviving businesses in the Bitcoin economy more sophisticated and trustworthy. The new generation of businesses that take Mt. Gox's place will learn from the exchange's mistakes.
There's an obvious analogy to the first dot-com bubble. In the 1990s, hundreds of start-ups attempted to build businesses on top of the World Wide Web. Some of them were badly run. Others chose business models that proved unsustainable. Many squandered their investors' money.
Yet the collapse of the dot-com bubble wasn't a sign that the Internet had failed. Quite the contrary. The flood of capital into the Internet economy and the subsequent shakeout was terrible for investors, but it probably accelerated the Internet's development. Out of the chaos emerged enduring companies like Yahoo, Google, Amazon and eBay.
The Internet was going to succeed whether or not Pets.com and Webvan did. By the same token, Bitcoin's success doesn't depend on the survival of Mt. Gox or any other bitcoin firm.
Timothy B. Lee covers technology policy, including copyright and patent law, telecom regulation, privacy, and free speech. He also writes about the economics of technology. He has previously written for Ars Technica and Forbes. You can follow him on Twitter or send him email.
Growth of the Bitcoin money supply is predefined by the Bitcoin protocol, and in this way inflation is kept in check. Currently there are over twelve million bitcoins in circulation with an approximate creation rate of 25 bitcoins every ten minutes. The total supply is capped at 21 million, and every few years or so the creation rate is halved. This means new bitcoins will continue to be released for more than a hundred years.
Promoter pleads guilty to illegal use of currency.
The State Column, Ella Vincent | September 05, 2014
A Bitcoin promoter has pleaded guilty to sending the digital currency to illegal marketplace Silk Road. Charlie Shrem entered the plea in a New York federal court.
Shrem was charged with one count of aiding and abetting an unlicensed money transmitting business. Shrem is a promoter and co-founder of the online currency.
Bitcoin is a digital currency in which users exchange payment using a public ledger. Shrem pled guilty to helping send more than $1 million in Bitcoin to users of the controversial website Silk Road. A co-defendant, Robert Faiella, also pled guilty to operating on the Silk Road website.
Silk Road is a “deep web” or underground website where users can anonymously buy illegal drugs. The website was temporarily shut down by federal authorities last fall.
Prosecutors said Faiella operated a bitcoin exchange on Silk Road for two years using the name “BTCKing”. Faiella provided the currency for users involved in selling and buying drugs.
Shrem processed transactions for Faiella through the digital currency. Even though he knew the bitcoin would be used on Silk Road, he admitted in court to processing the transactions.
“I knew that much of the business on Silk Road involved the buying and selling of narcotics,” said Shrem. “I knew that what I was doing was wrong.”
Faiella also admitted to his wrongdoing. When asked by U.S. District Judge Jed S. Rakoff if he knew that his Bitcoins would be used to buy and sell drugs and that it was illegal, he said, “Absolutely.”
“Robert Faiella and Charlie Shrem opted to travel down a crooked path — running an illegal money transmitting business that catered to criminals bent on trafficking narcotics on the dark web drug site, Silk Road,” said U.S. Attorney Preet Bharara in a statement. “The approximately $1 million in Bitcoins Faiella and Shrem sold to these outlaws cost them a lot more than they bargained for and bought them today’s convictions.”
Faiella and Shrem face up to five years in prison when they are sentenced in January 2015
Posted by: DeepDotWeb August 16, 2014 in Featured, News Updates
A recap of the week’s biggest Bitcoin stories from the perspectives of the best sources for e-currency news around the web
For the first time since May 2014, Bitcoin’s value has fallen below the $500 mark. As of 11:07PM EST on 15 August 2014, Bitcoin was valued at a price of $488.65. Pete Rizzo of CoinDesk .. http://www.coindesk.com/price-bitcoin-falls-500-lowest-level-since-may/ .. writes that there appears to be no direct cause behind the loss in value. However, Michael J. Casey and Paul Vigna of The Wall Street Journal .. http://blogs.wsj.com/moneybeat/2014/08/13/bitbeat-so-much-for-that-boring-bitcoin-market/‘s BitBeat section cite the US Consumer Financial Protection Bureau’s recent bulletin as a potential cause. The bureau’s report, titled “Risks to Consumers Posed by Virtual Currencies,” discusses, among other topics, how hackers and scams can make using Bitcoin and other cryptocurrencies a risky endeavour. The CFPB also notes that fewer protections are offered by virtual currency holders than by official banks or credit card providers.
Ryan Whitwam of Geek.com .. http://www.geek.com/chips/new-bitcoin-mining-chip-could-double-efficiency-1602179/ .. notes that a German startup has developed a chip that could double bitcoin mining efficiency. The new company, ASICrising, has stated they have developed a design for a mining chip that would only require 0.19 joules of energy to generate a single unit of Bitcoin computing power. The most efficiency application-specific integrated circuit (ASIC) on the market currently requires 0.37 joules to achieve the same goal.
Dish Network has received a Bitcoin payment as compensation from two filmmakers behind a documentary about living with the cryptocurrency as one’s sole means of payment. Variety .. http://tiny.cc/1r9olx .. NY Digital Editor Todd Sprangler writes that Austin and Beccy Craig, the filmmakers behind indie documentary “Life on Bitcoin,” have paid the satellite television provider in Bitcoin to for its 290 channel packages priced at $79.99 per month.
TechCrunch .. http://techcrunch.com/2014/08/13/bitaccess-launches-to-make-bitcoin-atms-ubiquitous/ .. writer Jonathan Sieber writes that BitAccess is looking to build a network of automated teller machines that would provide Bitcoin banking services across the world. According to Sieber, how BitAccess is differentiating itself from companies such as Robocoin Technologies and GenesisCoin, which are all launching bitcoin transaction hardware, is that they are providing an easy interface. BitAccess users would only require a phone number and a single dollar to use the machine.
This weekend, a Bitcoin expo will be held in Raleigh, North Carolina. As Chris Williams of Time Warner Cable News – Charlotte .. http://charlotte.twcnews.com/content/news/710845/bitcoin-expo-underway-in-raleigh/ .. reports, the Cryptolina Expo in Raleigh is featuring the digital currency. Speaking of his confidence in Bitcoin, Daniel Spuller, one of the events co-organizers, stated that he believes “we’re going to see more merchants accept it in the coming months” and that he thinks of Bitcoin as more secure than credit cards.
The Bitcoin Foundation has expanded into South Asia. According to Eric Calouro of NewsBTC .. http://newsbtc.com/2014/08/15/bitcoin-foundation-announces-first-affiliate-south-asia/, the organization now has an affiliate in Bangladesh. The president of the affiliate, S.M. Monir Uz Zaman, cited Bitcoin’s ability to improve the lives of Bangladeshi citizens. Calouro cites the fact that “people in Bangladeshi had received a whopping $14 billion in remittances from approximately 8.6 million migrant workers,” which carry fees that could have been avoided if Bitcoin had been the currency that was employed.
Marketplaces
Thanks to its incorporation of Bitcoin as a payment method, Overstock now expects to see its earnings per share increase by four cents for fiscal year 2014. As Gertrude Chavez-Dreyfuss of Reuters .. http://www.reuters.com/article/2014/08/13/us-overstock-com-bitcoin-idUSKBN0GD21220140813 .. reports, Overstock’s Bitcoin sales have exceeded that $2 million mark. CEO Patrick Byrne stated that he expects Bitcoin sales to exceed the $6 million to $8 million mark during the 2014 year, with an average of $15,000 in Bitcoin sales per day. However, by the end of the year, Byrne expects monthly Bitcoin sales to exceed $1 million.
According to Lance Whitney at CNET .. http://www.cnet.com/news/ebay-eyeing-bitcoin-use-for-its-payments-unit-report/, eBay is also looking to incorporate Bitcoin payments into its PayPal Braintree payments unit. The division functions as a payment platform for startup companies such as Airbnb, OpenTable, and Uber, which respectively offer rental places, restaurant reservations, and car rides. eBay is currently considering Coinbase for its bitcoin transactions processing needs. However, no deals have been made as of yet and neither eBay nor PayPal would allow customers to use bitcoin as a direct payment option once the currency is adopted.
Online marketplaces are not the only place where individuals can spend their Bitcoin. Pete Rizzo of CoinDesk .. http://www.coindesk.com/bitpagos-brings-bitcoin-8000-convenience-stores-ripio/ .. reports that a total of 8,000 Argentinian convenience stores now sell Bitcoin to customers. Through Ripio, a Bitcoin brokerage service launched by BitPagos, cryptocurrency holders can use provide their Ripio account information at these stores to exchange their stored Bitcoins for pesosv or vice versa. BitPagos CEO Sebastian Serrano stated the company plans to expand their operations to other Latin American markets, including Venezuela.
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