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BitBlotter: Bitcoin Prices Plummet and Recover on US Government Auction Announcement; Bitcoin Apps Return to Apple


Bitcoin mining pool GHash reaches the dreaded 51% threshold.

Whether you're a Bitcoin fanatic or just beginning to familiarize yourself with the emerging space, BitBlotter gives you a weekly snapshot of all things digital currency.

Bitcoin prices (CURRENCY:BTC) plummeted following a June 12 announcement from the US Marshals Service that it would begin auctioning off the near 30,000 Bitcoins it seized from the Silk Road in December 2013. The Bitcoins, which at the current market price are valued at $18.5 million, will be auctioned off in nine blocks of 3,000 Bitcoins and one block of 2,656.5 Bitcoins. Thanks to an email snafu by the US Marshals Service, a list of individuals who have contacted the USMS with further questions about the auction was accidentally leaked to the public. The names are revealing as to who might be participating in the auction: Barry Silbert, CEO of SecondMarket; Fabrice Evangelista, a quantitative arbitrage trader at BNP Paribas (OTCMKTS:BNPQY); Fred Ersham, co-Founder of Coinbase; Dave Goel, managing general partner of Matrix Capital Management; and Jonathan Disner, corporate counsel at DRW Trading Group, among others.


Barry Silbert, whose SecondMarket is planning on launching a New York-based government-regulated Bitcoin exchange later this year, tweeted his company's intentions to form a syndicate to bid in the US Marshal's auction.

But the US Marshals Service's announcement was likely not the only culprit behind last weeks sell-off, which dragged the price of a single Bitcoin on Bitstamp, the world's largest Bitcoin exchange, as low as $539. On Saturday, the Bitcoin mining pool GHash gained 51% control of the entire Bitcoin network, which gives it the power to circumvent the decentralized aspects of the Bitcoin. Remember, Bitcoin miners are like transaction processors --  they update Bitcoin's public transaction ledger with new transactions in exchange for newly created Bitcoins. This is how Bitcoin transactions are recorded and Bitcoin balances are maintained. Mining pools are formed when individual miners come together to increase their chances of being the first to update the transaction ledger. But when a mining pool is processing 51% or more of the updates to the public ledger, it theoretically puts the entire system at risk. What's been dubbed a 51% attack would allow a mining pool to spend the same Bitcoins twice, reject transactions from competing mining operations, and charge high fees to large holders of Bitcoins for processing their transactions.

The risk is so high that it led Bitcoin developer Peter Todd to sell half of his holdings in Bitcoin, writing the following on reddit:

I made a promise to myself a while back that I'd sell 50% of my Bitcoins if a pool hit 50%, and it's happened. I've known for awhile now that the incentives Bitcoin is based on are flawed for many reasons and seeing a 50% pool even with only a few of those reasons mattering is worrying to say the least.

GHash has since released a statement saying that the Bitcoin community should not worry that it has reached the 51% threshold, and that their intentions are to protect the Bitcoin ecosystem and to help it grow. They also agreed that a long-term solution to the 51% vulnerability problem needs to be found. They released a similar statement in January 2014. While some have criticized what has effectively become a trust-based model (Bitcoin promised ownership without trust, yet users must trust GHash not to destroy the system), there are a number of disincentives to launching a 51% attack. These include the likelihood that any attempt to double spend Bitcoins would be traceable, and hence those Bitcoins would be worthless. Still, many in the Bitcoin community agree that a solution to the 51% problem must be found, and there are already a number of solutions being floated around. 

Since reaching the 51% threshold over the weekend, GHash has retreated; it has reduced its mining power to about 40% of the network.

Here's a brief rundown of everything else that happened in the Bitcoin space over the past week:

The first Bitcoin apps re-entered the Apple (NASDAQ:AAPL) App Store. The appearance over the weekend of a Bitcoin wallet app called Coin Pocket marked this return. Apple has not only approved Bitcoin wallets, but now allows in-app purchases using Bitcoins. As Rick Trenholm pointed out in an article on CNET, Apple's approval of Bitcoin downplays speculation that Apple is launching its own digital currency.

The Chinese Payments Association wants banks to eliminate Bitcoin dealings. Chinese financial news source Caixin reports that the Payments and Clearing Association of China (PCAC), which is a national non-profit operating under the guidance of the People's Bank of China, wants banks to monitor account activity and snub out an activity associated with Bitcoin. Meanwhile, the Chinese Bitcoin trading exchange Houbi is launching a new platform that it has registered in Hong Kong.

BitPay is sponsoring a NCAA football playoff game renamed the Bitcoin St. Petersburg Bowl. The Atlanta-based Bitcoin payments processor has signed a deal with ESPN that will run through 2016. While the details of the purchase were not disclosed, the Bowl's previous namesake, Beef O'Brady's restaurant chain, paid $400,000 for a four-year sponsor deal.

And even more happened this week...

Digital River, an online transaction processor that services small and mid-sized businesses and is valued at $30 billion, announced it will add Bitcoin as a payment options for its online merchants.

1-800-Flowers (NASDAQ:FLWS) has followed in the footsteps of (NASDAQ:OSTK) and others to offer Bitcoin as a form of payment on their website.

The Winklevoss Bitcoin price index, known as the WinkDex, made its debut on Bloomberg, listed under the ticker WINKBTCO.

Looking to bet on the World Cup? The Bitcoin betting site Bitkup, which launched in the past week, allows you to do just that -- using Bitcoin, of course.

Twitter: @brokawbrokaw
The author of this article owns bitcoins.
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