Bitcoin has become a mess


Staff member

Bitcoin is a hot mess, and the new futures contracts could be D.O.A.

Jared Blikre

Bitcoin prices are booming, but the market is a hot mess right now. The cryptocurrency soared as high as $19,230 Thursday, according to one exchange (Coinbase). Or was the high $16,672, as Yahoo Finance’s official bitcoin price index says it was?

(It’s worth noting that Yahoo Finance’s index is a weighted average with prices drawn from about 60 exchanges, whereas Coinbase’s price reflects execution prices from only its platform.)

The fact is, the cryptocurrency is straining under the weight of a sluggish, outdated infrastructure — just as it’s about to go mainstream. Bitcoin futures are set to launch this Sunday evening on the CBOE. But after yesterday’s chaos, those futures contracts might be dead on arrival.

The biggest problem facing bitcoin is that the network is slow. That might not be what you’ve heard, as the underlying technology, blockchain, is being used in part to speed up transaction times in a wide variety of industries.

Bitcoin transaction times can take hours on a good day, and transactions fees have climbed as high as $10. That’s because Bitcoin was created way back in 2009 and was designed to allow only 1 MB of transaction data (1 block) to be processed about every 10 minutes. Everyone competes to have their transaction processed as quickly as possible, which bids up the transaction fee. There are ways to speed up the network, but those efforts have run into complications.

On top of that, the individual exchanges have been experiencing outages as they scramble to keep up with customer demands. (Coinbase rose to the top of Apple’s US app store Thursday — despite persistent outages that prevented customers from buying or selling bitcoin).

Some say the problem* is that there are hundreds of bitcoin exchanges without a central clearing or pricing authority. But having different prices on exchanges — whether it’s bitcoin, stocks, bonds or commodities — isn’t necessarily a problem. Speculators can arbitrage the different prices, buying on one and selling on another, pocketing the difference. In theory, this “arbing” brings the prices in line with each other. But in practice, this has been difficult to do with bitcoin because of the slow transaction times and the fact that exchange sites are frequently crashing or simply operating slowly due to high volume.

Big banks and brokers fear bitcoin volatility

Enter JPMorgan, Goldman Sachs, Bank of America Merrill Lynch, Morgan Stanley, Citigroup and just about all the other big (and small) brokers on Earth. They’re represented by the Futures Industry Association (FIA), which Thursday published an open letter to the CFTC, the US futures watchdog, attacking the new bitcoin futures set to launch on the CBOE, CME and Nasdaq exchanges. The big brokers care so much because, as clearing members of the exchanges, they’re the ones ultimately on the hook for losses if customers lose money and can’t pay.

The FIA didn’t pull any punches, saying, “We remain apprehensive with the lack of transparency and regulation of the underlying reference products on which these futures contracts are based and whether exchanges have the proper oversight to ensure the reference products are not susceptible to manipulation, fraud, and operational risk.”

The FIA is also criticizing the way the futures exchanges are bringing these bitcoin products to market. They relied on a one-day “self-certification” procedure that basically allows the exchanges to check off a few boxes and tell the regulators, “don’t worry, we’ve done our homework.”

That’s not good enough for the FIA, which says, “Unfortunately, the launching of these innovative products through the 1-day self-certification process did not allow for proper public transparency and input.”

JPMorgan and co. couldn’t have picked a better day to publish this letter, as the cracks in bitcoin infrastructure have never been more publicly visible. According to Fox Business, some big brokers are refusing to let their clients trade the new bitcoin futures until the kinks have been worked out. Others are planning to limit trading access to select clients. These brokers are operating perfectly within their rights. They’re the ones on the hook.

If the CFTC does temporarily put the kibosh on bitcoin futures, that announcement would likely be made today. But even if it does’t, come Sunday evening at 6:00 p.m. EST, when the CBOE bitcoin futures are set to launch, there might not be anyone trading.


* There’s also a separate price manipulation issue at play. Asian bitcoin exchanges tend to be less liquid than those in the West, and they can cause wild price swings during overnight trading hours in the West. Similar observations have been made about the gold market for years.

De Master Yoda

Staff member
Millions 'stolen' in NiceHash Bitcoin heist.

NiceHash was targeted by hackers in the early hours of Wednesday

"Highly professional" hackers made off with around 4,700 Bitcoin from a leading mining service, a Bitcoin exchange has said.

The value of Bitcoin is currently extremely volatile, but at the time of writing, the amount stolen was worth approximately $80m.

The hacked service was NiceHash, a Slovenia-based mining exchange.

It said it was working hard to recover the Bitcoin for its users, adding: "Someone really wanted to bring us down."

The attack happened early on Wednesday, said NiceHash's chief executive Marko Kobal. Attackers accessed the company's systems at 01:18 CET (00:18 GMT). By 03:37 the hackers, whom the company believes were based outside the European Union, had begun stealing Bitcoin.

The theft comes as the price of Bitcoin continues to surge, dumbfounding experts and stoking concerns of a bubble.

High-stakes attacks like this are not uncommon, with several large breaches and thefts hitting Bitcoin and other related services over the past year.

NiceHash is a mining service, a company that pairs up people with spare computing power with those willing to pay to use it to mine for new Bitcoin.

'Forensic analysis'
Mr Kobal appeared on Facebook Live to address concerns about the hack.

"We have not abandoned you guys," he said.

He explained that an employee's computer was compromised in the attack. He added that "forensic analysis" involving local and international authorities was taking place, but did not expand on which specific agencies were involved when asked by the BBC.

The company was heavily criticised by its users who commented in droves on Facebook. Communications were complicated further when a spoof Facebook page for the company was set up and spreading disinformation about the breach.

Security issues involving Bitcoin and other related services are a frequent cause for concern for virtual currency traders.

Other recent controversies involving digital currencies include:
[*]the firm behind digital currency Tether said that close to $31m (£23.4m) worth of its tokens were stolen
[*]a "code bug" in Ethereum's digital wallets being blamed last month for freezing more than $150m worth of Ether, preventing investors from being able to cash out
[*]a South Korean exchange, Bithumb, saying that one of its employee's PCs had been hacked in June. Several of its customers reported follow-up scam calls
[*]another South Korean exchange, Yapizon, being breached in April. Reports have said North Korean hackers are suspected of stealing about $5m worth of funds
[*]an Israeli crypto-currency trading company, CoinDash, reporting that $7m was stolen from investors in July after its website was breached and an initial coin offering's contact address altered