It was a big year for Bitcoin, and perhaps even more so for the blockchain technology underpinning Bitcoin. The news was not always positive, but did include several major milestones that pushed the price of Bitcoin to increase by more than 30 percent over the full year.
This annual roundup will be counting down a top-10 of the most talked about cryptocurrency-related stories of the last year.
The media’s hunt for the person(s) behind Satoshi Nakamoto goes on. In 2014 Newsweek managed to turn Dorian Satoshi Nakamoto’s life upside down when the magazine claimed that he was Bitcoin’s mysterious founder. Dorian Nakamoto strongly denied these claims, and Newsweek’s journalist Leah Goodman was left with nothing but an unhonorable mention in the history of the search for Bitcoin’s creator.
In August this year, excitement and concern were triggered in the Bitcoin community by what appeared to be the discovery of Satoshi Nakamoto, the creator of Bitcoin, emerging from the shadows by making a transaction, according to data provided by blockchain.info. Nakamoto had disappeared in April 2011, after making his final public statement: “I’ve moved on to other things”, hence there was some excitement about his possible return. Bitcoin’s mysterious founder is estimated to own around one million coins, which were all mined during the early months of Bitcoin’s lifetime. By comparison, there are currently roughly 15 million coins in circulation. The potential impact of Nakamoto’s coins are therefore also a reason for concern. The data, however, turned out to be invalid as a result of blockchain.info accepting transactions without validating them.
It wasn’t the last time we’d hear about Satoshi Nakamoto, as a spectacular reveal of his identity followed at the start of December. Gizmodo and Wired had separately investigated an Australian named Craig Steven Wright, and concluded that they had found their man. But the story quickly turned into a bizarre saga.
Wired already noted that several pieces of evidence that Wright was Satashi Nakamoto appeared to have been falsified. Furthermore, Wright’s claim of owning two supercomputers and having two PhD titles also turned out to be nothing but lies. The forgeries could indicate Wright may have been running a long con, with the first pieces of fake evidence created more than 20 months ago. But it would appear that Wright may have been an actual victim of hacking and extortion as well, which would not add up to a hoax.
In the end, we’re left with more questions than answers on Satoshi Nakamoto’s real identity. Had the story been more plausible, then it could have easily contended for being the story of the year. This is also why the media will continue to hunt down the person(s) behind Bitcoin. In this case, the story still makes it into the top 10 because it made global headlines and managed to entertain us for a week or two.
More than one year after the once biggest Bitcoin exchange Mt. Gox filed for bankruptcy the Japanese police arrested its CEO, Mark Karpelès, suspecting him of falsifying data on the exchange’s outstanding balance. The latter could mean that some of the 650,000 coins that were lost by Mt. Gox might never have existed in the first place. The 650,000 “lost” BTC were worth more than $500 million when the exchange filed for bankruptcy in February 2014, but would “only” be worth around $275 million today.
Karpelès was initially arrested on August 1, and again on August 21, without any formal charges. Without formal charges a person can only be held for three weeks under Japanese law. Karpelès was subsequently indicted and charged with embezzling over $50 million from Mt. Gox company accounts.
It has already been over a year since the online drug marketplace Silk Road was shut down, but the aftermath continued to make headlines well into 2015.
The lawyer of alleged Silk Road mastermind Ross Ulbricht tried claiming that their client was not the person behind the infamous “Dread Pirate Roberts”, that was running the online drug market place. The CEO of the collapsed exchange Mt.Gox, Mark Karpeles, was said to be the real culprit. Karpeles denied, and found himself supported by evidence found on Ulbricht’s computer. Apparently, it included an extensive digital record of Ulbricht’s “actions and thoughts during the years he ran the famed digital black marketplace”. With also a good friend of Ulbricht testifying against him, he was eventually found guilty of running Silk Road and sentenced to life in prison.
The story didn’t end there, but turned into something that reads like a Hollywood script at first glance. Two former federal agents were accused of going rogue and stealing Bitcoins during the investigation of Silk Road. Together, the two managed to get a hold of more than $1 million worth of Bitcoin through various criminal actions. Both agents, the corrupted former Secret Service agent Shaun Bridges and former US Drug Enforcement Administration (DEA) agent Carl Force, ended up pleading guilty to stealing from Silk Road and extorting its owner.
The Silk Road saga continued as Silk Road Architect “Variety Jones” published a series of accusations against someone with the alias “Diamond”, whom was believed an unknown corrupt FBI agent. Diamond was said to have threatened to kill Variety Jones, and to torture Silk Road mastermind Ross Ulbricht’s family, in order to obtain the keys to a wallet previously belonging to Ulbricht containing 300,000 BTC (worth more than $125 million at current rates). Diamond appeared to possess a lot of classified information regarding the Silk Road case, which is what has led Variety Jones to believe that it had to concern an FBI official. As a result of these events, Variety Jones wrote that he would be turning himself in. Roger Thomas Clark, who is allegedly the man behind Variety Jones., was subsequently arrested in Thailand on December 3 and is currently awaiting extradition to the United States.
Lastly, the U.S. Marshals Service did manage to complete auctioning off the Bitcoins it seized from Silk Road. In total, all 174,000 coins it had originally seized have now been sold. The winning bids have never been disclosed, hence the proceeds are unknown. The total market value of the auctioned coins was well over $60 million.
Bitcoin demanding ransomware has been popular over the past year. Ransomware owes its name to the fact that it concerns malicious software that effectively holds the victim’s data hostage by encrypting it. If a certain amount, often in Bitcoin, is not paid in a limited time period then the software will destroy the encryption key. Bitcoin is a preferred method of payment as it provides the criminals with a sense of heightened security/anonymity.
A blackmailer in the Netherlands even managed to take demanding ransoms to be paid in Bitcoin to the next level. An unknown person targeted the Jumbo supermarket chain, a chain that includes 579 stores, with explosives and sending blackmail letters asking for a large sum of money in Bitcoin. Since May this year, explosives were found near several stores. In one case the explosive also exploded causing minor damage but no injuries.
The hackers behind the Ashley Madison data leak also demanded Bitcoin from the website’s (former) users in order to prevent their exposure. Users started to receive emails with the demand for Bitcoin to paid, in order to prevent sharing of their information with their significant other. With 37 million hacked accounts in total, blackmailers still hold a valuable source of information for the coming years.
The popularity of at least the Bitcoin demanding ransomware is also unlikely to decrease any time soon, as even the FBI advises to pay up and be done with it. This statement is the result of ransomware “becoming too good” according to an FBI representative. In earlier cases hackers made mistakes, and were traceable as a result, but this is no longer the case.
Investing in Bitcoin became significantly easier this year, as investors now have to option to buy shares of the first publicly traded Bitcoin fund Bitcoin Investment Trust (BIT). In February the Financial Industry Regulatory Authority (FINRA) gave BIT the approval to float its shares on the OTC market.
The fund went live with ticker GBTC and allows investors to hold or short shares in the fund to speculate on the future of the digital currency, without having to actually buy or borrow Bitcoins. The shares are not directly related to Bitcoin, but there will be a strong link as the fund itself invests in Bitcoin only. Investors have been paying a significant premium to invest in Bitcoin this way, as the shares have been, and still are, trading well above the underlying Bitcoin value (with the premiums even touching 100% of the underlying Bitcoin value during the year).
Bitcoin Trackers are also becoming reality with the Swedish Nasdaq exchange approving a Bitcoin-based exchange traded note (ETN), that was launched in May by XBT Provider AB. ETNs also allow investors to invest in Bitcoin without having to hold the digital currency, but these instrument are more liquid and closely linked to the actual price. In the United States Cameron and Tyler Winklevoss are still awaiting approval for their Bitcoin ETF.
With regulations such as the BitLicense coming up, several Bitcoin exchanges decided to take matters in their own hand and turn compliance into a feature.
Coinbase was the first to launch what it called “the first regulated exchange in the U.S.” But despite Coinbase’s regulatory claims with regard to its new exchange, the platform appeared to be less regulated than suggested. The exchange is available in California and New York, but regulators from both states spoke out against Coinbase’s claims. New York didn’t even release the final version of its BitLicense regulation at the time of the announcement, while Bitcoin still existed in a regulatory “grey zone” in California.
The Winklevoss twins then announced that they were planning to launch their own Bitcoin exchange. Compliance would be a key marketing feature in what was promised to be the “next-generation bitcoin exchange”. The new exchange, called Gemini, would be “in full compliance with all bitcoin regulations and consumer protection laws”.
Surprisingly, it was Cryptocurrency exchange itBit that managed to become the first Bitcoin company to be regulated as bank in the United States. The exchange was approved as New York State Trust company in May, and therefore subjected to audits of states and the required capital levels in case of failure. Dollar accounts held at itBit became protected by the Federal Deposit Insurance Corp. The approval also meant that itBit would not have to apply for a BitLicense as well, as a banking license presents a stricter set of rules and regulations.
Gemini also received approval from the New York Department of Financial Services (NYDFS) to operate as a trust company, similar to itBit. The self-proclaimed “NASDAQ of Bitcoin” was launched shortly after receiving a trust charter from the NYDFS in October, but then it had already lost the first-mover advantage.
After a long wait the New York Department of Financial Services (NYDFS) released the final version of its BitLicense at the start of June. The regulatory framework for Bitcoin was first announced in July 2014, and has been revised several times since. Even so, the public reaction to the latest version was still not a very positive one. The Chamber of Digital Commerce still saw “room for improvement”, and Coin Center simply stated that it “fell short”.
It quickly became apparent that not every cryptocurrency platform was eager to comply. Cryptocurrency exchange ShapeShift was one of the first to announce it would not be complying with the BitLicense regulation. The Switzerland-based exchange would instead terminate all of its services in New York. Bitcoin mining pool BTC Guild even shut itself down due to the finalization of the BitLicense. The pool had already shrunk significantly resulting in falling revenue, leaving it unable to deal with the potential legal liability from the new regulatory framework.
The deadline for applying for a BitLicense was on August 8. The New York State Department of Financial Services (NYDFS) received 22 initial BitLicense applications before this deadline expired. The list of companies that applied included Coinbase, Coinsetter and BitStamp. In the meanwhile the list of companies excluding New York residents from their services also grew as Genesis Mining, LocalBitcoins, BitQuick and Kraken all banned New York residents from using their service. Bitcoin startup Circle became the first company to actually receive a BitLicense from the NYDFS.
Benjamin Lawsky, former superintendent of the NYDFS and the man behind the BitLicense, then became the subject of some controversy due to accusations of creating a conflict of interest. Lawsky founded a virtual currency compliance consultancy firm after departing from the NYDFS, but rejected the accusations. According to Lawsky there could not be a conflict of interest because: “The rules are very clear. I can’t work at all for life on anything I ever worked on. If anyone said ‘I want to hire you to help get a BitLicense from DFS’, no can do”.
Bitcoin received a major boost in Europe as the European Court of Justice (ECJ) ruled in October that the digital currency should be treated as a regular currency for tax purposes, after it was asked by Sweden to give it guidance on the tax status on Bitcoin. The ruling means that Bitcoin will be exempt from value-added taxes (VAT) throughout the entire European Union. The latter presented a major milestone for Bitcoin, as it provides legitimacy for the digital currency in one of the world’s biggest economic regions. This is why ECJ ruling completes the top three stories of the year.
The ruling also pressed three Right-Wing French European Parliament representatives to look for an alternate way to control the digital currency, and file a motion to allow member states to regulate or even ban cryptocurrencies. The representatives argue that this is required because terrorist may use Bitcoins to finance their activities, plus digital currencies are said to possess “certain similarities with a Ponzi scheme”. French Finance Minister Michel Sapin had also stated that he would push for greater oversight of bitcoin transactions. This is in line with the plan to tighten regulation on digital currencies by the G7, the central bank governors and finance ministers of 7 major countries, following the terrorist attacks in Paris.
The cryptocurrency environment already became downright hostile in some countries (even before the Paris attacks). Australia’s biggest banks started to move against Bitcoin companies by closing their accounts, forcing at least 13 of them out of business. Russia could even be taking hostility against Bitcoin to an even higher level, as a report by Russian news source Interfax suggests that Russia’s Ministry of Finance is preparing a law that would criminalize actions involving the digital currency. The latter could mean that any action involving acquiring, selling and distributing cryptocurrencies would be punishable with a fine or up to four years in prison. All in all, the regulatory future of Bitcoin itself remains clouded.
#2 Scaling Bitcoin
Bitcoin’s limited block size became the most debated subject of the year within the Bitcoin community, and therefore occupies the number two spot in this list.
Bitcoin blocks are currently limited to one-megabyte in size, which means the digital currency is limited to processing a maximum of roughly seven transactions per second. By comparison, VISA is said to process around 2,000 authorizations of financial transactions per second on average. The size limit became a problem as a result of Bitcoin’s increasing popularity. The network could no longer process all transactions immediately as the volumes increased, causing delays in the processing times and an increase in the average transaction fee paid (in order for transactions to receive priority and avoid transactions from getting “stuck”).
As no actions were taken to increase the maximum block size, Bitcoin core developer Gavin Andresen left the main Bitcoin (Core) implementation to focus on the Bitcoin-XT implementation. In attempt to end to the ongoing block size debate Gavin Andresen and Mike Hearn then released Bitcoin XT 0.11A, a fork of Bitcoin’s software that enables a larger block size limit. Only a network minority, however, decided to support this implementation.
Another attempt to reach consensus the block size was made at two “Scaling Bitcoin” workshops held in Montreal on September 12 and 13, and Hong Kong on December 6 and 7. The goal of the first workshop was to increase awareness of the research that has already been done on the block size limit, and preparing the community for the second round in Hong Kong.
The second workshop did not lead to an immediate solution for Bitcoin’s ongoing scalability debate, but one proposal did manage to catch most of the attention. Blockstream co-founder Pieter Wuille presented a new idea called Segregated Witness. The idea is aimed at removing signatures from a transaction and moving them into a separate data structure, freeing up the block space they are currently using. It is estimated this can reduce transaction size by 60%. Obviously, it is not enough to end the block size debate, as it only makes scaling more effective. Still, the presented roadmap to increasing Bitcoin’s scalability strangely only focusses on the implementation of Segregated Witness, while failing to include a compromise of any kind on Bitcoin’s long-term scalability.
The continuing lack of action on the side of Bitcoin Core has pushed leading payment processor Coinbase to start experimenting with Bitcoin XT, ensuring that the debate will continue to heat up in 2016.
The only thing bigger than Bitcoin this year has been the blockchain technology underpinning the digital currency. 2015 was the year of the blockchain as it quickly went mainstream, easily making it to the number one spot on this list. The blockchain hype started around April/May this year, and was mainly driven by the fact that companies started to realize that blockchains can be used for many more purposes than just digital currency transactions.
The Euro Banking Association (EBA) was one of the first to acknowledges the potential of blockchain technology stating that: “Apart from possibly being able to speed up processes and reduce their complexity, crypto-technology applications in this area can also be integrated with legacy IT, legal frameworks and existing assets (currencies, stock, bonds etc). Therefore, existing financial services could be ‘powered by crypto-technologies’ offering financial institutions potentially lower costs, better products and faster time to market.” Johan Palychata, research analyst at BNP Paribas Securities Services (one of France’s largest banks), later added that Bitcoin’s blockchain technology could potentially disrupt traditional financial institutions.
Traditional financial institutions certainly weren’t going to wait for this to happen, and also companies from other industries started to explore blockchain technology. The number of headlines of new use cases and experiments exploded. Some of these headlines are listed below:
- Citigroup revealed it had developed three blockchains and a test cryptocurrency with the name “Citicoin”.
- The biggest payment processors for credit cards, Visa, reportedly started researching Bitcoin and blockchain technology.
- UBS, a large financial institution located in Switzerland, revealed it was developing a blockchain based “settlement coin”.
- IBM announced that it would be releasing its own open source version of blockchain software.
- Microsoft launched Ethereum Blockchain-As-A-Service for Azure, and later decided to add Ripple and Factom to this service.
- Bank of America (BoA) submitted a patent application titled “System and Method for Wire Transfers Using Cryptocurrency” for “fund transfers using cryptocurrency bypassing the use of traditional wire services”.
- NASDAQ announced its blockchain-enabled platform Linq, that uses the Bitcoin blockchain to handle pre-IPO trading among private companies (via a concept called “Colored Coins”).
- Goldman Sachs is intending to use blockchain technology to launch a new settlement system for trading stocks, bonds and other assets. To this purpose, Goldman has created a new cryptocurrency called SETLCoin.
- One of Ukraine’s largest banks, PrivatBank, is embracing Bitcoin, and integrating the digital currency as a payment method.
- com has been granted permission from the Securities and Exchange Commission (SEC) to issue new publicly traded shares via the Bitcoin blockchain.
- As many as 42 of the world’s largest financial institutions have partnered up startup company R3 in a joined effort to explore blockchain technology.
The previous is just a limited selection, and leaves little doubt on the size of the blockchain’s current popularity. All of these new concepts will still have to prove themselves in the coming year(s) though.