Bitcoin in 'bloodbath'

Physical bitcoins are sometimes used to make the virtual currency more tangible. They can hold an encryption key to access a user's digital money

Bitcoin is now 70% of its December high in what Bloomberg is calling a "bloodbath."

But at the same time, the blockchain technology that underpins it is going from strength to strength (more on which below).

Earlier today, the digital currency was trading at one Bitcoin to $US5894.

It's now getting close to the Nasdaq's 78% peak-to-trough plunge during the dotcom bust at the turn of the century.

Bloomberg notes that "Hundreds of other virtual coins have all but gone to zero – following the same path as Pets.com and other red-hot initial public offerings that flamed out in the early 2000s."

Bitcoin dived earlier this month after a South Korean crypto-currency exchange was hacked. Local police are investigating but it also highlighted that, while having no state or central bank behind Bitcoin is sometimes an advantage, it also sometimes feels like there are no adults in the room, and no one keeping a handle on the bad guys.

And while regulators have so far kept a reasonably open mind on virtual currency, fears of a clampdown linger. Thre have been unilateral actions, such as one bank withdrawing services from Kiwi cryptocurrency exchanges, forcing one offline (NBR understands the bank is ASB Bank, sensitive to its money laundering legal requirements after its Australian parent was fined $A700 million for lax monitoring; ASB won't comment).

It does not help that bitcoin remains the currency of choice for ransomware attackers — as the Road Transport Forum recently found out, among many other Kiwi victims. Bitcoin advocates point to the transparency of transactions. That may be so but it remains impossible to see the person behind those transactions. Ransomware is pervasive but arrests are few and far between.

Practical concerns linger. Bitcoin remains illiquid. It takes time and effort to covert it to real-world currency, and few merchants accept it.

Google recently banned cryptocurrency ads.

And then there are analysts and commentators, including NBR's Tim Hunter, who say the emperor has no clothes. Bitcoin just does not make financial sense.

Blockchain rising
While bitcoin is under pressure, the virtual ledger technology that underpins it, called the blockchain, is heading toward the mainstream.

The blockchain is a single online record of a series of transactions. It's transparent and tamper-proof.

Earlier this month, Microsoft and EY announced an initiative to use blockchain technology for music, movie and gaming publishers on its Xbox platform to create contracts and manage royalty payments. 

IBM has developed a blockchain-based system international money transfer system. It's limited in scope so far but New Zealand's KlickEx is one of its development partners

New Zealand clients are among those using the Calastone global transaction network for the mutual funds sector.

And, ANZ is testing a blockchain solution for wrangling insurance brokers.

So while the fate of bitcoin and other virtual currencies still hangs very much in the balance, the future is looking brighter for the blockchain.

Auckland University associate commercial law professor Alex Sims says blockchain technology is heading toward the mainstream, and that in a few years it will it will be like the internet: just another background technology that we don't even think about ... and most don't really understand.

RELATED VIDEO: Auckland University associate commercial law professor Alex Sims says blockchain technology is heading toward the mainstream (April 30).

RELATED VIDEO: Calastone chief executive Julien Hammerson says blockchain provides customers with the tools they need to be future-ready. (June 29).


14 · Got a question about this story? Leave it in Comments & Questions below.


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14 Comments & Questions

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It's always different this time, isn't it?

Historically, bubbles always end up returning to the mean, with the market authorities only acting when everyone and their dog throws the kitchen sink at the asset class. Clampdowns result in busts, which weeds out the weak and infirm, leading to a new virtuous cycle where the winners come out stronger and better than ever. If you compare the "winners" chart of AMZN or PCLN to their bubble highs you will see what I mean. Sometimes humanity just gets way too hyped up about the future and rushes prices well into the future without consideration of the present valuations. There will be winners here, most likely those who fully adopt blockchain and can win the largest market share, but it remains to be seen if cryptocurrency actually has a future, in one guise or another, or not.

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Party must be over for bitcoin. No Uber driver has mentioned it to me for months.

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They must all be too busy watching Uber co-founder Garrett Camp's "Eco Coin" then (which is virtually worthless, along with a lot of others!)

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How is it possible to have a viable blockchain that isn't backed by a cryptocurrency?
If you have a blockchain backed by a bank then the bank can always reverse the transaction which is impossible with a cryptocurrency.
This matters a great deal where goods are transferred between countries and the seller and buyer can get into disputes over payments and who actually owns the traded goods.
Blockchain and cryptocurrencies go together and are made for each other.

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Mouse, you sound a bit confused, but I think everyone is as this technology is SO hard to understand. Cryptocurrency is only one use of blockchain, nothing in blockchain's functionality needs it to be "backed by a cryptocurrency". When we start to see it truly in use in other distributed database applications is when people will start to understand.

Of course, don't rely on my opinions. I still think Bitcoin and the like are a fad!

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So you don't think recent Blockchain failings as demonstrated by way of Crypto currency thefts give any cause for concern over the current state of development and application of Blockchain? If Blockchain was working correctly, it should have stopped the Crypto currency thefts dead in its tracks. After all, this is one of the defining characteristics of Blockchain that it requires multiple verification and consensus within the chain to establish or verify a transaction.

It is also sharply in contrast to the principle that any transaction is fundamentally between two or more parties. If something goes wrong the parties need to sort it out, which is much more complex when you have a Borg style multi-node matrix that on consensus disagrees with your figures.

And Blockchain Crypto currencies do not remove the need for banks or middle men. In some ways, Crypto currencies held in an online wallet pose more physical risk than in a bank, and probably the same risk as storing all your cash wealth at home. If criminals break into your house and put a gun in the mouth of your spouse or offspring and threaten to pull the trigger, you are going to give up the Crypto Wallet password as easily as you would give up the combination of your personal home safe in which your cash is stored. Which is why banks got created in the first place - to store your money to avoid personal risk and robbery.

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Uber will become Duber (Decentralised Uber)
M.christchurchdialadriver.com

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I'm pretty sure Blockchain is as useless as cryptocurrencies. Not saying cryptocurrencies aren't a little bit useful, just not very useful. It seems KlickEx is about the only non-blockchain company in the world who have made a Blockchain actually work... (If IBM qualifies as a Blockchain co?)?

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Comments on crypto currencies lack of substance make me laugh. Printing money seems a far flimsier foundation for a currency. Paper and ink? Great if there’s an ink shortage.

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Money itself is only an idea. It isn't any more real than our collective belief in it. Never has been and never will be. If we all stopped believing tomorrow it would buy us physical, every day items, then it would have 0 worth. This goes for "fiat money", crypto, gold bullion, anything used as a promisory note in all of recorded history etc.

I'd like you to prove to me that a cryptocurrency, beyond those specifically backed by physical items such as gold, and others backed with fiat money, etc, are backed up by anything at all TANGIBLE.

And while you're at it, take the red pill, not the blue one ;)

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Mt Gox / Coinrail / Bitfloor / Poloniex / Bitstamp / Bitfinex / Bitcoinica

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Bitcoin relies on ‘volunteers’ verifying the latest set of bitcoin transactions. Those ‘volunteers’ (also called miners) are paid with newly created bitcoins. If bitcoin tanks, the ‘volunteers’ will stop volunteering, and that’s the end of bitcoin.

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And energy. Bitcoin currently estimated to consume 0.5% of the world's daily energy output...about as much as Denmark. However, a reducing price will reduce energy use needed for 'mining' according to some science I don't understand.

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Bitcoin has been manipulated by the banksters, because it was/is a real threat to their business.

Bitcoin was created however by those who recognise that control of money and its power is in the hands of a few. Should Bitcoin reach scale, it will be much more difficult for the moneyed men to manipulate.

All I hope is that power is taken away from the banksters. They deliver little more than bonuses to themselves, and hardship to the masses.

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