How will the bitcoin split affect payments and fraud
Suppose that she has 1 BTC, and she deposits it at Bitfinex. Stuart the Scammer reads the rules above, and creates an account on Bitfinex. He then margin-shorts 1 BTC. That is, he borrows Alice's 1 BTC, and sells it. He now owes 1 BTC to Alice. Stuart then, in a funny trade, buys his own margin-short with cash. His position is market neutral and he carries no risk.
Alice also owns 1 BTC. Then the split happens. That is, Bitfinex erroneously creates a liability of 2 BCC. Meanwhile, they only actually own 1 BCC. This goes counter to all kinds of established accounting principles, including Bitfinex's own guidelines for how to account for coin splits. It is a terrible outcome for BCC. BCC price will be lower than its natural level as a result of this fraudulent accounting practice.
But of course, the market will not know how to compare or price in the bankruptcy risk. As a result, this will depress the actual BCC's price. It is also terrible for Bitfinex, in that they can lose money and even go bankrupt, because they are creating more liabilities for themselves than assets see update 2 below, it's actually worse than what I wrote here.
But Bitfinex are old pros at running a bankrupt exchange. Their Tether contracts ended up growing in "assets" at a time when their banking operations were interrupted, leading many to conclude that Tethers were unbacked and untethered securities despite their marketing and name.
The next exchange on the Fed's radar for flaunting laws, accounting practices and plain old ethical behavior, after BTC-E, ought to be Bitfinex. As one trader puts it Short 1 btc. Get 1 bcc free: The short interest at Bitfinex is at historical highs. And yet it's not due to negative sentiment -- these are neutralized short positions, where the same person is both shorting and going long, just to game the system.
As a result, the Bitcoin price is unaffected even while huge short positions are being developed just to game the broken accounting. The real losers at the end of this will be all of us , regular cryptocurrency enthusiasts. The SEC, in its landmark decision where it rejected the notion of a Bitcoin-backed ETF, cited specifically the unprofessional way in which most Bitcoin exchanges are run.
Miner activation of Bitcoin upgrades is not mandatory, said Harding, but it's less disruptive that way. Harding believes he knows why, but hesitated to speculate. Harding describes UASF as a boycott on steroids.
That's what's happening at the end of the month. As a consequence, everyone will be forced to join the boycotters or to exclude them. Harding said that if everyone accepts the proposal or if everyone rejects it, there would be no issue. That means when the UASF starts on August 1st, we have to wait and see whether or not the people who say they support the UASF actually put their money where their mouth is and refuse to accept Bitcoins from any boycotted miner or anyone associated with that miner.
And for those who haven't chosen a side, there's uncertainty about which kind of Bitcoin will be valid. Harding stressed that Bitcoin marked as confirmed in a wallet prior to the start of the event will be safe. It's the Bitcoins passing back and forth afterwards that are at issue.
To further complicate matters, there's another such proposal known as "SegWit2" planned for November. Among those in the Bitcoin community, there's doubt about whether this alert is being handled in a responsible manner, because a blockchain split is considered unlikely. A research note issued by Morgan Stanley analysts on Wednesday may do more damage. It advised spending bitcoins rather than saving them because "Bitcoin acceptance is virtually zero and shrinking. The Register - Independent news and views for the tech community.
Part of Situation Publishing. Join our daily or weekly newsletters, subscribe to a specific section or set News alerts. The Register uses cookies. Eve observing the transaction might want to spend the bitcoin Bob just received, but she cannot sign the transaction without the knowledge of Bob's private key. A specific problem that an internet payment system must solve is double-spending , whereby a user pays the same coin to two or more different recipients.
An example of such a problem would be if Eve sent a bitcoin to Alice and later sent the same bitcoin to Bob. The bitcoin network guards against double-spending by recording all bitcoin transfers in a ledger the blockchain that is visible to all users, and ensuring for all transferred bitcoins that they haven't been previously spent. If Eve offers to pay Alice a bitcoin in exchange for goods and signs a corresponding transaction, it is still possible that she also creates a different transaction at the same time sending the same bitcoin to Bob.
By the rules, the network accepts only one of the transactions. This is called a race attack , since there is a race which transaction will be accepted first. Alice can reduce the risk of race attack stipulating that she will not deliver the goods until Eve's payment to Alice appears in the blockchain. A variant race attack which has been called a Finney attack by reference to Hal Finney requires the participation of a miner.
Instead of sending both payment requests to pay Bob and Alice with the same coins to the network, Eve issues only Alice's payment request to the network, while the accomplice tries to mine a block that includes the payment to Bob instead of Alice. There is a positive probability that the rogue miner will succeed before the network, in which case the payment to Alice will be rejected. As with the plain race attack, Alice can reduce the risk of a Finney attack by waiting for the payment to be included in the blockchain.
Each block that is added to the blockchain, starting with the block containing a given transaction, is called a confirmation of that transaction. Ideally, merchants and services that receive payment in bitcoin should wait for at least one confirmation to be distributed over the network, before assuming that the payment was done.
Deanonymisation is a strategy in data mining in which anonymous data is cross-referenced with other sources of data to re-identify the anonymous data source.
Along with transaction graph analysis, which may reveal connections between bitcoin addresses pseudonyms , [20] [25] there is a possible attack [26] which links a user's pseudonym to its IP address. If the peer is using Tor , the attack includes a method to separate the peer from the Tor network, forcing them to use their real IP address for any further transactions. The attack makes use of bitcoin mechanisms of relaying peer addresses and anti- DoS protection.
Each miner can choose which transactions are included in or exempted from a block. Upon receiving a new transaction a node must validate it: To carry out that check the node needs to access the blockchain.
Any user who does not trust his network neighbors, should keep a full local copy of the blockchain, so that any input can be verified. As noted in Nakamoto's whitepaper, it is possible to verify bitcoin payments without running a full network node simplified payment verification, SPV. A user only needs a copy of the block headers of the longest chain, which are available by querying network nodes until it is apparent that the longest chain has been obtained.
Then, get the Merkle branch linking the transaction to its block. Linking the transaction to a place in the chain demonstrates that a network node has accepted it, and blocks added after it further establish the confirmation. While it is possible to store any digital file in the blockchain, the larger the transaction size, the larger any associated fees become. The use of bitcoin by criminals has attracted the attention of financial regulators, legislative bodies, law enforcement, and the media.
Senate held a hearing on virtual currencies in November Several news outlets have asserted that the popularity of bitcoins hinges on the ability to use them to purchase illegal goods. A CMU researcher estimated that in , 4. Due to the anonymous nature and the lack of central control on these markets, it is hard to know whether the services are real or just trying to take the bitcoins.
Several deep web black markets have been shut by authorities. In October Silk Road was shut down by U. Some black market sites may seek to steal bitcoins from customers. The bitcoin community branded one site, Sheep Marketplace, as a scam when it prevented withdrawals and shut down after an alleged bitcoins theft.
According to the Internet Watch Foundation , a UK-based charity, bitcoin is used to purchase child pornography, and almost such websites accept it as payment. Bitcoin isn't the sole way to purchase child pornography online, as Troels Oertling, head of the cybercrime unit at Europol , states, "Ukash and Paysafecard Bitcoins may not be ideal for money laundering, because all transactions are public.
In early , an operator of a U. Securities and Exchange Commission charged the company and its founder in "with defrauding investors in a Ponzi scheme involving bitcoin".
From Wikipedia, the free encyclopedia. For a broader coverage related to this topic, see Bitcoin. Information technology portal Cryptography portal. Archived from the original on 3 November Retrieved 2 November Retrieved 30 January Retrieved 20 December Financial Cryptography and Data Security. Retrieved 21 August Retrieved 3 October Retrieved 9 January Retrieved 7 January Retrieved 22 April