Bitcoin in the Headlines: Blockchain Good, Bitcoin Bad

Yessi Bello Perez
Sep 18, 2015 at 15:45 UTC
Updated Sep 21, 2015 at 17:50 UTC
feature

Bitcoin in the Headlines is a weekly analysis of bitcoin media coverage and its impact.

evil, devil, angel

The bitcoin and blockchain industry have a new major newsmaker: distributed ledger startup R3CEV.

Leaving behind a week filled with impressive funding rounds, the coverage over the last few days has been largely dominated by the company’s partnership with nine well-known banks including JP Morgan and Goldman Sachs.

Journalists from across the world jumped at the chance to cover the news – perhaps still a sign that mainstream media will deem industry events newsworthy if traditional finance is involved.

In stark contrast, more negative news events received less attention, and were far more focused on the other half of the blockchain – bitcoin, the digital token for which the blockchain acts as a ledger.

BitPay’s phishing attack – which resulted in the loss of $1.8m – received less widespread, but more derisive coverage. Elsewhere, reports about Mt Gox CEO Mark Karpeles’ charge with embezzlement carried over from last week.

R3CEV’s big score

The news that nine of the world’s biggest banks had partnered with distributed ledger startup R3CEV caught the attention of the Financial Times’ Philip Stafford, who began his piece emphasizing the group’s intention to drive the adoption of blockchain technology.

Stafford wrote:

“Nine of the largest investment banks, including Goldman Sachs, JPMorgan and Credit Suisse, are planning to develop common standards for blockchain technology in an effort to broaden its use across financial services.”

Stafford continued to note that the blockchain, which he described as bitcoin’s underlying “computer network”, had caught the eye of the financial services industry in the past six months for “its potential to overhaul the sprawling and complicated network of bank payments and settlements”.

Interestingly, the journalist’s assertions follow on from Blythe Masters’ comments during a panel at Consensus 2015 – CoinDesk’s inaugural conference held in New York last week – where she noted how distributed ledger technologies could serve to eradicate the pain points affecting the financial industry and its ecosystem.

The article, which then went on to give an overview of the financial industry’s interaction with blockchain technology, also noted:

“Banks, exchanges and settlement houses are exploring ways to harness the much-hyped technology to reshape many of their daily operations, from upgrading old back-office systems and outsourcing billions of dollars in costs to automatic execution of contracts.”

Efforts from Wall Street

The Wall Street Journal‘s Paul Vigna was also quick to point out Wall Street’s increasing interest in blockchain technology:

“This year has seen a number of efforts on the Street, from both startups and established banks, to use blockchain as the basis of new platforms and products.”

Examples cited by Vigna included Blythe Masters’ appointment as CEO of Digital Asset Holdings and itBit’s plans to reveal its own distributed ledger, BankChain.

Likewise, Russia Today, ran a piece titled “Global banking giants join forces to make bitcoin technology mainstream”.

Unlike the FT‘s piece, which was characterised by an absence of any notable bitcoin mentions, the outlet only indulged in a brief, negative overview of bitcoin:

“The controversial cryptocurrency doesn’t have a central authority – its security comes from the network of all bitcoin users who share the same protocols, which together act as a distributed ledger to keep track of every transaction.”

It continued: “Not having a central authority means that an Internet-wide catastrophe would have to occur in order to compromise the integrity of the ledger.”

Although its description was not factually inaccurate, the report failed to move away from the negative connotations associated with the cryptocurrency.

The BBC also referred to bitcoin in its coverage, noting its somewhat negative reputation whilst outlining some of the vulnerabilities of companies in the space:

“Bitcoin has been hit by a series of scandals and thefts although most of these came about because hackers exploited weaknesses on exchanges where coins are traded or in digital wallets where they are held.”

Further proof that blockchain technology continues to captivate mainstream institutions was provided by IBM’s announcement that it is working on a new blockchain-based smart contract system.

Bitcoin as a commodity

Bloomberg‘s Luke Kawa was one of the journalists who reported the Commodity Futures Trading Commission’s (CFTC) ruling that bitcoin met its definition of a commodity, a decision that speaks to how the agency will likely regulate the technology in the future.

“Virtual money is officially a commodity, just like crude oil or wheat,” said Kawa.

As noted by commentators, the CFTC’s decision is specific to the agency only, meaning other agencies are still able to come to decisions regarding how uses of the technology may fall under their jurisdiction.

Still, there was widespread confusion about the implications of the announcement.

Writing for ZDNet, Corinne Reichert incorrectly suggested that the move would more broadly affect bitcoin companies not involved in the sale of options, futures or derivatives, implying they must now ensure that their companies are legally registered with the CFTC.

Reichert added:

“The decision, published on Thursday, means transactions made in cryptocurrencies must now comply with CFTC regulations as well as the governing legislation, the Commodity Exchange Act. Under Section 4c of the Act and Part 32 of the regulations, bitcoin operators in the US must now be registered as a Swap Execution Facility or a Designated Contract Market.”

The ruling more specifically relates to issuers of bitcoin futures contracts seeking to find a market with industry companies looking to hedge against the fluctuating price of the asset.

As stated in past analysis on CoinDesk, the CFTC has the power not to regulate commodities themselves, but to regulate commodities futures and other similar financial contracts.

Embezzlement and Phishing

Negative news drew less attention this week, but most was focused on older startups seeking to use bitcoin as a digital currency.

For example, Motherboard ran a piece about BitPay’s phishing attack, titled “How a Clever Hacker Tricked a Major Bitcoin Company Out of $1.8 Million”.

The piece said:

“Executives of BitPay, a popular payment service for the cryptocurrency bitcoin, were tricked into giving away $1.8 million to a clever hacker in December of 2014.”

The hack, the author added, was never made public by bitcoin payment processor BitPay, but was revealed by court documents which the startup filed against an insurer.

The story that was picked up by a variety of news outlets including American Banker and the Atlanta Business Chronicle, but was largely bypassed by more major media outlets.

On the topic of scandal, this week’s coverage also regurgitated Mark Karpeles’ charge with embezzlement, widely covered towards the latter half of last week.

Devil and angel image via Shutterstock