Bitcoin’s Plunge Bites ‘Miners’

From Wall Street Journal –

“As Value Falls, Some Pull Plug on Computers Supporting System.

A rapid collapse in the value of bitcoin is squeezing some owners of the computers that support the digital currency and raising concerns about its viability.

Bitcoin’s value fell 21% to $179.37 late Wednesday, according to news service Coindesk.

The virtual currency, which trades mostly in unregulated overseas markets, has fallen 44% since the start of the year and 85% from the record high of $1,165 it hit in early December 2013. In total, almost $11.3 billion in value has been lost since that peak.

“The people who most believed in the long-term value of bitcoin holdings are the people who got hurt the most,” said Chase Sechrist, a 22-year software developer based in Austin, Texas, who sunk $30,000, or “most of his savings,” into the digital currency, starting “at the top of the summer 2014 hype cycle.” Having lost virtually all of it, Mr. Sechrist says he’ll “be out of bitcoin for quite a while,” at least until it is better regulated, though he still strongly believes in the future benefits of its core payments technology.

The price decline is causing turmoil for bitcoin “miners”—the independent computer owners who confirm and process transactions in the currency. Miners are compensated with freshly issued bitcoins, which in turn are added to the total supply. As the price of bitcoin falls against the dollar and other traditional currencies, the miners’ profits get squeezed.”

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Bitcoin - The magic of mining

From The Economist –

“A huge aircraft hangar in Boden, in northern Sweden, big enough to hold a dozen helicopters, is now packed with computers—45,000 of them, each with a whirring fan to stop it overheating. The machines (pictured) work ceaselessly, trying to solve fiendishly difficult mathematical puzzles. The solutions are, in themselves, unimportant. Yet by solving the puzzles, the computers earn their owners a reward in bitcoin, a digital “crypto-currency”.

The machines in Boden are in competition with hundreds of thousands more worldwide. The first to solve a puzzle earns 25 bitcoins, currently worth $6,900. Since bitcoin’s invention in 2008 by a mysterious figure calling himself Satoshi Nakamoto, people have increasingly traded it for real money, albeit at a wildly varying price (see chart). Although there are only $3.8 billion-worth of them in circulation—about twice the value of Paraguayan guaraníes in use—bitcoins have three useful qualities in a currency: they are hard to earn, limited in supply and easy to verify.”

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Was 2014 The Death March For Bitcoin?

From PYMNTS.com -

“Who could argue that 2014 was anything but a wild year for bitcoin. It started the year trading at 777.73 according to the PYMNTS.com bitcoin price index and will close at 307.26 After its sharp descent in February, bitcoin just never seemed to get its mojo back. It will end the year being less stable than the ruble, a reputation that it earned for being anywhere from 15 to 70 times more volatile than the euro over the year, according to the PYMNTS.com Bitcoin Volatility Index.

A reoccurring news item for bitcoin in 2014 related to one of two predominant use cases for bitcoin – the purchase of illegal goods and services and the sites that emerged to cater to its patrons. (The other use case, of course, is hoarding in the hopes that the value will increase.) Silk Road 2.0 launched in November 2013 and in February of 2014, was hacked and stripped of roughly $2.6 million worth of currency. That led to the arrest and sentencing of Charlie Shrem who would later in 2014 be found guilty of money laundering over $1 million dollars to the Silk Road to make illegal purchases.

Another by-product of the Silk Road shut-down was the confiscation by the U.S. Federal Marshalls and subsequent auction of the bitcoins it seized. Two auctions of ~80k bitcoin have already taken place (In June Tim Draper was the highest bidder, paid an undisclosed amount for 30,00 bitcoins and in December, the number of registered bidders decreased by 75% while the number of bids fell by 57%) with ~94k still available to the highest bidder.

Later in the year, the stability of bitcoin was threatened by GHash.IO, a bitcoin mining pool, that controlled more than 50 percent of the total computing power of bitcoin. While the group claimed that they would behave, there was the threat of a “51 percent attack” on the cryptocurrency where they could potentially interfere with bitcoin transactions. And, why everyone who isn’t focused on the risks associated with having the world’s money moving across an unregulated, distributed network of miners and exchanges, well, should be given this potential scare.

Additionally bitcoin continued to fight for legitimacy, in China, India, Thailand, Germany, Russia and the United States among others without much forward progress. For a while, it seemed that Australia might be open to bitcoin however bitcoin was hit with a tax blow in December when bitcoin was labeled by the Australian Tax office as not a currency.’

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And 2014's Worst Currency Was...Bitcoin

From Bloomberg –

“It's been a bad year for the Russian ruble and a terrible 12 months for the Ukrainian hryvnia. But it's been a catastrophic 2014 for Bitcoin, the virtual currency. While acknowledging that my currency forecasting prowess means I'm driving a desk rather than tanning on a beach, the gyrations do seem to offer some valuable lessons.

Bitcoin is second only to gold on the list of topics guaranteed to arouse the wrath of the Internet trolls. Yet relentless promotion can't hide these facts: The digital currency peaked at a value of $1,130 just over a year ago. Its plunge of more than 56 percent in 2014 makes it the world's worst performing currency this year, according to Bloomberg, which tracks 175 foreign-exchange values.

Bitcoin claims to provide Web buccaneers with a secure store of value free from the risk of government confiscation or interventionist devaluation, making it the currency of choice for old-fashioned money-launderers and modern-day snake-oil salesmen.”

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Bitcoin Bears Say Told You So

From Bloomberg

“If you think oil had a rough 2014, consider bitcoin. The digital currency has plunged 54 percent since the beginning of the year. By contrast, Brent crude has fallen 44 percent; the ruble is off some 46 percent against the dollar.

Bitcoin’s collapse comes as governments around the world consider regulating or prohibiting the virtual currency to prevent criminals from using it to trade contraband. Meanwhile, bitcoin is facing competition from a slew of rivals striving to be more palatable to regulators.

The dramatic reversal -- bitcoin reached more than $1,100 in 2013 and is now trading at about $350 -- is prompting told-you-sos from skeptics who long said the currency’s promise was overhyped.

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