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Silk Road incident not a Threat to Bitcoin, According to Users

The shutdown of Silk Road, has received plenty of attention from media and Bitcoin users. The website was deemed as illegal after it became evident it was working as an online marketplace for drug trade, plus a variety of other illicit items. Unfortunately, Bitcoin has taken a huge blow to their reputation in connection with the Silk Road scandal. After all, this is the on line method of payment that was being used on the website for all of the illegal transactions. Just how much will this incident hurt Bitcoin? Not very much, according to the numerous faithful users that are continuing to use it as their primary on line currency everyday.

Jackson Warren, who is a Bitcoin broker as well as co-founder of the popular group “Bitcoiniacs” said that despite the Silk Road arrest made Wednesday, it was one of their busiest days. Not a single person had been interested in selling their Bitcoins; They only wanted to buy them.

Dread Pirate Roberts, otherwise known as Ross Williams Ulbricht was the owner of the Silk Road Site and wracked up numerous criminal charges as a result of his dealings. Police took Ulbricht into custody in San Fransisco on Wednesday, accused of one count each of narcotics trafficking and computer hacking conspiracy, as well as money laundering conspiracy. As if that weren’t enough, it is rumored that Ulbricht actually tried to hire one of the users of his website to murder another, whom resided in White Rock B.C. Allegedly, this user had threatened Mr. Ulbricht, by saying he was going to turn over a list of names, which would expose the identity of everyone who had used the Silk Road sight.

When Ulbricht’s Friday bail hearing rolled around, his lawyers were able to get it moved up until Oct. 9.

Since its establishment in 2011, Silk Road has been known mainly for being a black market platform for illegal goods of almost every type. Not only could one conduct transactions involving drugs like heroin and ketamine, but illicit trade of weapons and malicious software have been prominent trades amongst vendors and users of the website.

The shutdown of Silk Road has captured plenty of media attention in the past, often times with mention of the on-line currency Bitcoins. Despite the fact that the site is no longer running, one can still access it through the use of Torsoftware. This is specially developed software that does the job keeping it’s users anonymous by encrypting and bouncing information through numerous relays so that it can not be traced.

Silk Road Scandal Effects will be Short Term

Bitcoin users in Canada are actually thankful for the shut down of the illicit Silk website, displeased with the amount of negative attention it had been bringing to the use of Bitcoin as an on-line currency.

According to Bitcoin Alliance of Canada founding member, Anthongy DiIorio, the Silk Road incident wasn’t that big of a deal in relation to Bitcoin. It was just one negative aspect that received a lot of media coverage. He added that Bitcoin is proving to be very resilient. He believes that despite the large impact many people thought Silk Road would have on Bitcoin, that it would soon be forgotten.

Not only can Bitcoins be exchanged from person to person on-line, but there are stores that exist where people can make actually physical transactions person to person. One such place is the Bitcoin Store , which is located in Vancouver. There are also on line resources to help connect users to bitcoin vendors.

The actual monetary value of a bitcoin depends strongly on supply and demand. The trade value can be judged bitcoin to bitcoin, or bitcoin to any other traditional currency.

Is Bitcoin too Volatile of a Currency?

Mt.Gox, which is one of the major bitcoin exchanges, showed Wednesday’s raid  to send the price of bitcoin plummeting from $141 at the days start to a meager $109.70. Just three days later, the price had already almost made a full recovery, having climbed back up to approximately $139.

Fluctuations in price like these have gained Bitcoin a reputation amongst criticizers as being overly volitale. Such extreme variations have been seen in the value as a $13 price tag in January become $266 by the time April rolls around four short months later. Many people say that these huge and frequent fluctuations are something that is likely to even out over time. Being that the bitcoin currency has only been around since 2009 it may take a bit to mature into a regular and more consistent market. On this matter, Di lorio said that it is common to see extreme flucuations such as these in a such a young currency.

Bitcoinia is the term that’s been coined to describe the bitcoin economy. A fact about Bitconia that has been pointed out  by the economist is that it relies mainly on its rate of exchange in relation to the U.S. Dollar. This is a major cause for the markets volatility.

One April 2013 article in the publication, written by Avent, states that almost anything that can be purchased with bitcoins is first priced in dollars, then the bitcoin price is set accordingly.  He says that a what is lacked in Bitconia is internal supply chains, but he believes that it will soon change.

“The more transactions there are in Bitcoinia, the more entrepreneurs will want to hedge their exposure to foreign exchange volatility by paying suppliers or employees in the same currency they’re accepting as payment,” he wrote.

 Silk Road’s Damaging Effects Won’t Last

With an already fragile reputation and having been previously involved with such illegal offenses as tax evasion and money laundering, many are wondering if the Bitcoin currency can with stand the blow of being connected to the crimes that led to Ulbricht’s arrest and the shut down of the Silk Road website.

From looking at the recent price fluctuations, some are quick to say that it is quite possible an end of the use of bitcoin as a virtual currency is likely in the future. However, if you ask many members of Canada’s bitcoin community you will find a different point of view. They feel that the shut down of Silk Road and the incarceration of it’s owner  show that justice can be done to those who misuse the system, which in turn should strengthen Bitcoin’s image.

“Now that Silk Road is gone, bitcoin’s reputation is already enhanced,” says Di Iorio. “Nothing necessarily has to be done to untarnish this.”

Further supportive of the speculation that Bitcoin will recover from the Silk Road scandal can be seen by looking at the growing number of legitimate companies that are beginning to accept the bitcoin currency as payment. Such bigname websites as Reddit, WordPress publishing platform, and OkCupid on-line dating are amongst those on the list.

Last year Bitcoin-Central, a Europe based trade exchange, was given it’s own international bank ID when it became  authorized to actually operate as a bank. It is now recognized as a registered payment provider similar to PayPal.

Furthermore, the infamous Winkelvoss twins, well known for their involvement in their feud with Facebook Tycoon Mark Suckerberg, are putting their heads together for a new project; Plans are underway for the development of a  exchange-traded bitcoin fund . Their idea behind this it to create virtual marketplace where bitcoin currency can be traded in the same fashion as stocks.

What is a Bitcoin?

A bitcoin is much the same as a unit of any other currency. It can be traded for goods and services, or even U.S. Dollars. The difference is, the currency is considered to be the first digitized digital currency that is in no way controlled or monitored by the government. This means that bitcoins allow users to make purchases and transactions with complete anonymity, whether traditional currency, goods, or services are involved. Bitcoin transfers work like electronic transfers and can be sent to anywhere on the globe. The transfers use encryption protocols and specialized addresses to keep the bitcoin transaction anonymous.

So, where do bitcoins come from? The thousands of people who set up miners to run are responsible for generating the bitcoins that are circulated amongst the community. Some work individually while others choose to join groups known as mining pools. In turn, miners use powerful software to attempt solving different mathematical puzzles as part of series, or algorithms. The reward given every time a puzzle is solved successfully is a block of bitcoins. The miners then trade in the bitcoins they’ve received at which point they enter into circulation.

All transactions involved in the mining process must be validated and recorded in the bitcoin network. Validation can take a little time, so many users implement the option of including a small mining fee into their trades. This is usually a certain percentage of the bitcoin transaction being paid to the miner. An interesting fact about the algorithm that the marke runs on limits the number of bitcoins that can ever come into existence to 21 million. That’s only about 9.25 million more than are  in circulation now.

Of the 11.75 million bitcoins in circulation, and amazing 9.5 million were generated in sales on the Silk Road website by itself. Although it was in existence for less than three years, the comissons alone added up to a staggering 600 thousand. The Federal Bureau of investigation estimated this ammount to be equal in value to $1.2 billion dollars in all transactions and another $80 million from the commissions in the civil forfeiture complaint filed against the site’s owner, Ross Williams Ulbricht. So far, the FBI has recovered 26,000 of the bitcoins from numerous Silk Road user accounts but none from Ulbricht.

 A Long String of Bitcoin Scandals in the Past

The raid that caused the shutdown of the Silk Road website and lead to arrest may be big news now, but unfortunately, it is not the only incident of its kind connected to the bitcoin market. Some of you may be aware that in May of last year, the popular gaming league known as E-Sports entertainment league, or ESEA, owned up to having misused the bitcoin marketplace. They publicly apologized   after making a surprising confession that they were guilty using their top of the line computing power to generate bitcoins without consent. In an effort to make up for their actions the ESEA has since made a donation of of $3,713 bitcoins to the American Cancer Society, and then matched that amount in another donation.

The U.S. Court system ruled bitcoin to be a true type of currency subject the securities act, as result of its implications in a 2011 suspected Ponzi scheme . 

Trendon T. Shavers, AKA Pirateat40, manipulated the bitcoin economy by illegitimately collecting over 700 thousand bitcoins. He did this by launching a savings and trust scam where, after convincing hundreds of unsuspecting users to deposit the entirity of their funds, with the promise of a 7% return investment, then simply shut down the site and walked away with their bitcoins.

When he was forced to go to the court proceedings on the matter, he found himself faced with the fraud charges in which he had unlawfully gained possession of $4.5 million USD. He tried to use the defense that bitcoin trading wasn’t real life, it was just a game and there was no actually monetary value involved. The Texas judge, however, didn’t see things in the same light. He ruled that bitcoins should be seen the same as any other traditional currency and do have value. This led to the July decision made by the U.S. Securities and Exchange Commission to formally charge  Trendon T. Shavers for his fraudulent activities.

RoboCoin:An ATM that Lets You Get Bitcoins With with Cash

Is your grandmother into bitcoin trading?

Unless she keeps up with all up to date technology, then chances are she has never heard of it. This could change, if RoboCoin CEO Jordan Kelley’ vision comes true. He hopes to one day have the Robocoin ATM kiosks, which were launched today, on every corner. This would make getting bitcoins as easy as inserting a dollar bill. This makes it easy for anyone to buy and sell bitcoins.

The Robocoin, with optional biometric security, is a full ATM. It could be placed in a variety of convenient locations, such as in stores, banks, and conferences. The ATMs give you the option of not only buying bitcoins with US dollars, but with any of 60 different currencies from around the world. It is as simple as signing into their account, and depositing the amount of money into the machine for the number of bitcoins they wish to purchase.

The ATM doesn’t only allow purchases with the US dollar, but also gives you the option of using on of 60 other currenciees from around the world.

Robocoin is linked up with both, Mt. Gox and Bitstamp, and all exchanges are tracked in real time. The machine holds 2,200 bills when it is full, and even gives customers the option to exchange their bitcoins for cash if and when they need to.

Kelley says that todays launch was met with a rapid response, and that Robocoin ATM have already been ordered for a large number of locations in the United States, Canada, Kenya, Australia, Ireland, The Philippines, and more. The cost of having a Robocoin machine put in your place of business is $20,000. Also, when the ATM is in operation, they get a small percentage of the transaction.

“We think Bitcoin is the future of currency. Its democratized and authority-agnostic, and now it can be on every corner and accessible to the masses.”Kelley said.

Many countries that are experiencing volatile currency problems, particularly third world countries, are showing a lot of interest in the concept of the Robocoin ATM. They see the potential in the bitcoin as a way to protect themselves from the effects of rapid inflation. The first Robocoins are set to be in place in Fall 2013.

A Bitcoin Success Story: Man Makes $192K in Digital Money

With all the coverage Bitcoin receives in the news, many are becoming familiar with this fledgling form of virtual money. It seems there has been so much attention surrounding whether or not it will become an established and widely accepted form of currency, or if the frequent price fluctuations and scandals that are connected to the bitcoin are enough to eventually make it dwindle away. In the midst of so much speculation, one of the most interesting things about this currency’s system is being ignored: Where do Bitcoins come from in the first place?

  1. 10 scary facts about Bitcoin

Just because you can not hold a bitcoin in your hand, does not mean it is just an imaginary money. Bitcoins can not be just magically created at will; “Hmm, time to make some more bitcoins”. That isn’t how it works. Although this form of currency isn’t under regulation, and doesn’t get printed at a mint, there still must be something to limit it’s production, or it wouldn’t have any value. Amazingly enough, they’re the products of complex software algorithms.

Hundreds of people have realized the opportunity to contribute their own computing powers to help solve these algorithms, and guess what? Every time they do it successfully, they are rewarded with a block of bitcoins. This is called “mining”, and some people have figured out how to make it pay off, big time.

Truly racking up the bitcoin is going to take persistence, patience, and ALOT of water cooled computer hardware. At least, that’s the way Eric ( name changed to protect identity) did it, and with the amount of the virtual currency he has accumulated, it seems he knows what he’s talking about. At last check, his wallet had a net value of Nearly $191,000,000! (2500 bitcoins)

He started mining just three years ago, in 2010. He even gave up his high wage position as a software engineer to focus on his efforts in bitcoin mining. As you can imagine, its a decision he doesn’t regret.

Mark didn’t get into bitcoin mining just to turn a profit though, that was just an “extra benefit”. What is really interested in is watching bitcoins journey to become a sturdy and established currency. He even passed on cashing in his savings when the exchange rate for the bitcoins could have scored him a hefty $655,000. When asked, he says he doesn’t plan to cash out any time in the near future. Right now he’s enjoying watching the way their trade values change from day to day.

As bitcoins are growing more widely accepted as a viable payment and trade method, many people are beginning to think about getting into bitcoin mining, thinking that anyone can become rich by installing some software on their computer and sitting back to watch it do all of the work.    This is not the case. To be a success story similar to Eric’s, it is going to take a considerable investment to get started, as well as high levels of dedication.

Doing the Math when it Comes to Bitcoins

One must understand Bitcoin itself before trying to jump right in to mining. The currency can plummet one day, then sore back up to an all-time high the next. Much of this has to do with the fact that it is a decentralized form of money, and isn’t tied to any particular economy.

Bitcoins were first introduced by Satoshi Nakamoto (pseudonym) . He develop the bitcoin mining software, which runs on the Nakamoto algorithm, which is named after him. The algorithm does its job by searching for a particular chain of code, nonstop, 24 hours a day. When, finally, the code is found, the miner responsible is rewarded with a block of bitcoins. Just how many bitcoins are in a block? The answer to that changes with the times. If you were to discover a code and receive a block now, you would be looking at 25 bitcoins. Four years ago, you would have gotten 50. The amount of bitcoins in a block is cut in half every four years. Due to this, mining is becoming more difficult to make a profit on as time the time passes.

At this point, there are approximately 11.4 million bitcoins that have already been found and entered into circulation. It is estimated that in the year 2140, that number will reach 21 million, which is the limit set by the algorithm to ever be in circulation.  That leaves a little less than 10 million that are out there, waiting to be awarded right now.

When Eric first began his bitcoin mining journey three years ago by reading about it in an on line forum, his interest was immediately sparked. He was excited to learn more about this new form of virtual currency.

After he had learned enough to understand exactly how Bitcoin operated, he was confident enough to get involved. He could have taken the easy option of simply purchasing the bitcoins with cash, but he was more interested in giving mining a try. He soon found that if he was going to do it right, he would need to invest in the right PC gear.

Bitcoin was just starting out, and at the time (2010) miners could rely soley on their home PC and some software to do the mining. This is the way Eric started out, but it wasn’t long until he decided that he was going to make some updates to his desktop computer that would optimize its mining capabilities.

The first change he made was to install two ATI Radeon dual-GPU cards. He discovered that by using the GPUs on the cards, his computer could mine up to 100 times faster. It was now that the bitcoins started coming in. From that point on, he would continue to make investments to boost his mining powers even further. The more bitcoins, he made, the more he could afford to invest. At this point, he estimates he has sunk at least $50,000 into his system, in the form of:

  • graphics cards
  • CPU’s
  • Circuit Boards
  • Memory
  • water-cooling for pumps, tubing, radiators, etc.
  • Not to mention, electric… It takes a lot of power to run a rig this big.

As you may have guessed, there are two main problems associated with this sort of intense GPU mining.

  1. Power Consumption- If you are mining on the same scale as Eric, you can expect a whopper of an electric bill. As a group, it is said that miners go through as much as 3,176 megawatt hours of electricity every single day. Eric found it tremendously helpful to obtain a commercial license to power his residence.
  2. Heat Generation- Figuring out away to overcome the heat his rig was putting off was a little trickier, but Eric came up with a pretty ingenius and creative solution. He started experimenting with pumping water from the swimming pool in his backyard through a radiator to cool his system off, and it worked pretty well.

As time passed on, Eric worked up to including four powerful PCIe graphic cards in his system, which are constantly running the Bitcoin algorithm at an amazing rate. His system was optimized for the task, but he knew that there was another way to maximise his chances of getting Bitcoin rich: Too always operate within a mining pool, so that’s exactly what he did.

 

A mining pool is a group of miners gets together to combine their computing powers to increase the odds of finding a block. When the lucky moment strikes and they finally do come across a block of bitcoins, pay off is for everyone that is part of the pool. How much each member gets depends on the specific pool that he or she is a part of. Some will distribute the bitcoins based on the role you played in solving the algorythm, while others will simply divide them equally among the group.

According to Eric, it can be hard to know if you are always being paid enough for your work. He found himself jumping from pool to pool for a while, curious if one was any better than the other. In the end, he says he doesn’t know if it really makes much of a difference.

Eric’s innovative PC system and it’s amazing rate of output definitely played a major role in the fact that he was able to make such an enourmous proffit by mining bitcoins, but it might not have worked had he waited until now to try and use it. In fact, another method of bitcoin mining has been developed, which has made his system practically worthless now in 2013 – ASIC miners.

ASIC miners, or Application-specific integrated ciruits, are taking bitcoin  mining to a whole new level. It’s what they were created for, and they are really good at their job. Eric’s GPU operation and others like it were impressive, but ASIC mining rigs are smaller, much faster, and won’t do nearly as much damage to your bank account when it’s time to pay the energy bill.

Luckily, Eric had a headstart on the ASIC miners, which didn’t come out until Bitcoin was aready becoming popular with the general public, being feautured on the pages of such magazines as Forbes and Vice. Now, the ASIC hardware is a hot commodity. Where it can be found, it is selling fast.

It may be a little difficult to get your hands on ASIC miner, but if you do you are almost guaranteed to find it well worth it. Some experience payouts within the first few days that are big enough to cover the cost of the hardware, which can run as high as $20,000 !

How will mining change in the future?

You can see that the world of bitcoin mining is a constantly changing one. More and more individuals are turning to it in hopes of making a profit everyday, but unfortunately, their efforts may be in vein or not very fruitful. Even with the best ASIC miner money can buy, chances are you are too late to get in on the real bitcoin making action.

Eric, who was quick enough to get in the game whie it was still fresh, has this advice for those who see themselves as prospective miners: “Unless you started mining early, you’re going to fail.” there is a lot of truth in this advice. The amount of competition now is unbelievable. This isn’t the only reason. Turns out, bitcoin mining is supposed to get harder is time goes on.

For one thing, the algorithm is designed to award a block of bitcoins every 10 minutes, no matter how many miners there are. Plus, the block size itself is cut in half every four years. It is at 25 now, but when Eric got his start, it was 50. In short, the payouts are not only becoming less frequent, but they are also getting smaller.

The mining pool has become so big, the new technology so impossible to compete with, that Eric has finally decided to take the sidelines when it comes to bitcoin mining. He has returned to his job as a software engineer and has put his GPU mining rig on the market. He considers it more of a temporary break then a retirement. He says maybe one day, he will end up purchasing an ASIC miner, when they are more readily available. However, at that time the return on investment will be nowhere near what it is now.

One may ask if it is wise to invest so much time and money into a type of currency that hasn’t proven it will always have value. According to economic historian Garrick Hileman in a statement to TechHive, it is too early to tell which alternative currency will become the dominate medium-to long-term player. He says that he believes over the long term  bitcoin offers more potential as value to be stored, rather than becoming a common medium of exchange. A big reason for this is that the supply will eventually be capped, and there is a high likely hood of it being hoarded.

According to Eric, there is something that bitcoin has to offer that other currency types don’t. Because it is decentralized and not controlled by any government, it could prove to be a valuable hedge against bad economic times in your countries economy, should there be any.