Bitcoin in the Headlines: BitLicense Arrives, But Wild West Remains

The BitLicense may have dominated media coverage this week, but a deeper dive show many of bitcoin's larger problems linger on.

AccessTimeIconJun 5, 2015 at 5:25 p.m. UTC
Updated Sep 11, 2021 at 11:43 a.m. UTC
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Bitcoin in the Headlines is a weekly look at bitcoin news, analysing media and its impact.

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Bitcoin's Wild West days may be numbered, or so the headlines would have us believe.

This week saw the release of the final version of the BitLicense, New York's long-awaited, and still heavily debated, state-specific regulation for bitcoin businesses. Unsurprisingly, the news was extensively covered in the media, and often heralded as a milestone in the evolution of the emerging technology.

Many stories used legitimizing language and headlines that foreshadowed that bitcoin had taken yet another step toward inclusion in the wider financial world.

However, the technology's growing pains were still on display this week, as it continued to be associated with illicit Deep Web-based activities and development issues dogged one of its most well-funded startups.

Milestone legislation

The victory lap for the BitLicense came swiftly following its 3rd June release, with the mainstream narrative all but arranged to trumpet the government's stamp of approval.

The Wall Street Journal's Michael J Casey wrote a piece, which noted:

 "Outgoing New York Superintendent of Financial Services Benjamin Lawsky released sweeping new rules for licensing digital-currency businesses in the state Wednesday, staking part of his legacy on launching a specialised regulatory regime for an industry that many experts believe could play a significant role in the financial system."

In the article, Casey quoted Lawsky's statements in which he voiced his belief that the legislation struck the appropriate balance between protecting customers and rooting out illicit activity, while showing commitment to not "doom promising new technologies before they get out of the cradle".

"Whereas some have questioned why existing money transmission regulations can't be used for virtual currency businesses, Mr Lawsky said those Civil War-era laws simply wouldn't work for digital currency, a technology unlike anything we had ever seen before," said Casey.

More marginalized were the many dissenting voices who occasionally appeared in such content, arguing that the BitLicense would discourage the same spirit of innovation that propelled the early Internet.

Extensively covered by Western mainstream media, the news was also picked up by less likely outlets around the world, showcasing the technology's growing appeal abroad.

Kommersant, a Russian Daily, ran a headline which implied bitcoin had been legitimised as a digital currency; a loosely translated version read: "Cryptocurrency Recognised A Full Part of The Financial Market".

The article said:

"The key provision of the new rules is that now all the companies that work with cryptocurrency, you must have a special license from the Department, which should improve the safety of customers and transparency of operations cryptocurrency."

Such articles could no doubt have an influence on coming conversations regarding regulation that is seeking to ban the technology in Russia under rules for monetary surrogates.

Nail in the bitcoin coffin

It wasn't all good news for bitcoin.

Following Silk Road creator Ross Ulbricht's life sentence last week, it was not surprising to see how the debate around bitcoin's use in illicit activities was reignited.

Forbes published a piece by Jason Bloomberg in which the author outlined the digital currency's link to the Deep Web.

He wrote:

"Silk Road kingpin Ross Ulbricht's recent conviction and life sentence was more than simply a crackdown on a massive online black market for illegal drugs. It was a nail in the coffin for the radical new cryptocurrency bitcoin, as bitcoin was the glue that held Silk Road together."

Backtracking slightly, Bloomberg asked how significant the demise of Silk Road was for bitcoin, noting that this was part of an ongoing debate.

"Controversy, however, is nothing new for bitcoin. In fact, it seems the story of this digital currency consists of nothing but controversy," he wrote, adding: "In fact, perhaps the greatest challenge for bitcoin is divining the technology's true purpose. Early innovators often espoused radical Libertarian goals for revolutionising the banking system and with it, the world economy".

"By disintermediating third parties, bitcoin promised to usher in a new world order free of market commerce," noted Bloomberg.

Despite this, the author proves seemingly negative about bitcoin's performance.

"Bitcoin soon became a haven for criminals – not just Silk Road, but any number of money launderers and other shady types who gravitated toward an anonymous, relatively safe method for conducting financial transactions, in particular across national borders," he said.

'Total crypto breakdown'

Elsewhere, Blockchain struggled to right its news narrative, which has been marked by the kinds of security issues that may be alarming given that it closed $30.5m in funding late last year.

The Guardian ran a piece with an alarmist headline given the small number of users apparently affected, writing:

"Blockchain has issued an update for the Android version of its bitcoin wallet after discovering a critical failure which breaks the cryptocurrency's security."

Whether intentional or not, the latter seems to imply that Blockchain's bug could potentially affect bitcoin as a whole, as opposed to just users who store their holdings on Blockchain's wallets.

Writer Alex Hern explained:

"Bitcoin wallet application Blockchain has rushed to release an update after a critical bug left multiple users unaware that they were sharing a bitcoin wallet, leaving their cryptocurrency completely unsecured."

He continued: "The bug affected users running Blockchain’s app on Android version 4.1 or older [...] it resulted in one specific address being generated multiple times, leading to a loss of funds for a handful of users.”

According to Hern, the bug was due to a series of questionable development choices:

"Bitcoin wallets are typically created by randomly generating a public address and a related private key. As a result, it is important for address and key to be truly random, or else it may be possible to guess the private key by looking at the public address."

It seems that Blockchain used two sources to create the random numbers, pulling a random number from Android's built-in generator, and then connecting to online service to obtain the second combination.

Hern noted that on some Android devices, the built-in random number generator failed to connect and report back Blockchain's app.

Then, the battering continued.

Michael Mimoso wrote a piece for Threat Post with "Crypto Calamity For Blockchain Android App" as its headline.

Describing Blockchain as one of the busiest bitcoin wallets, the article said: "Shoddy crypto is being blamed for the loss of bitcoin for an unnamed number of Blockchain users."

It seems that New York's plans to regulate digital currency companies, at least for now, will do little to help solve the pain points for companies still struggling to gain wider adoption.

Newspaper image via Shutterstock.


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