ROSS ULBRICHT TRIAL
This week saw the beginning of alleged Silk Road operator Ross Ulbricht’s trial in a federal courthouse in Manhattan. Ulbricht’s counsel began the trial on an interesting note, arguing that Ulbricht indeed founded the site, but that he was not the Dread Pirate Roberts, the mysterious operator of the online free marketplace.
In a cross-examination of DHS agent Jared Der-Yeghiayan on the third day of the trial, Ulbricht’s defense team coaxed a serious shocker from the agent who had infiltrated the Silk Road as an employee:
“You believed him to be the mastermind behind Silk Road, keeping it secure and operating?” Ulbricht defense attorney Dratel asked Der-Yeghiayan.
“I did,” Der-Yeghiayan testified.
But he wasn’t talking about Ulbricht. He was talking about former Mt. Gox CEO Mark Karpeles, who is involved in a legal battle of his own regarding the hundreds of thousands of bitcoins that went missing from his site in the beginning of 2014.
“The Homeland Security agent’s theory was that Karpeles, as owner of Mt. Gox, held an enormous amount of Bitcoin. He used Silk Road to leverage that price and raise it, which it did by several hundred times over during the course of Silk Road’s lifespan. Bitcoin was worth around $2 at Silk Road’s launch and hit as high as $290 by 2013.”
If it turns out to be true, this is the plot twist of the century!
+ Mark Karpeles issued a statement denying that he is the Dread Pirate Roberts.
+ A first-hand account from someone in the courtroom on day 3.
Earlier this week, British PM David Cameron questioned the need for end-to-end encrypted communications, arguing that no one should have the right to communicate electronically in a way that the government can’t access the contents. Cameron actually said,
The question is, are we going to allow a means of communications which simply isn’t possible to read? My answer to that question is: no, we must not.
Wow. Consider for a moment the absurdity of a first-world, Western head of state slamming the use of one of the most essential technologies relied upon today. Chances are good that you are reading this over an HTTPS connection, which uses that pesky encryption thing, and so do apps like WhatsApp, Snapchat, and iMessage. Virtually all of your private data, your credit card numbers, bank statements, and medical records are all kept relatively safe online through the use of strong encryption techniques.
Cameron’s remarks were immediately condemned by people all around the world.Free speech activists, newspapers, internet security experts, and just plain oldregular folks the world over were flabbergasted by the fact that, again, the leader of a western democracy suggested making private digital communications impossible. After two days of meetings with Cameron, Barack Obama then alsovoiced his concerns about encryption.
“If we find evidence of a terrorist plot… and despite having a phone number, despite having a social media address or email address, we can’t penetrate that, that’s a problem,” Obama said. He said he believes Silicon Valley companies also want to solve the problem. “They’re patriots.”
Wait, what? The United States was founded on the principle that a government’s power should be restricted in order to avoid tyranny. The right to private communications is a fundamental one; it’s the reason why it’s a felony to open someone else’s mail, and why the government needs a warrant to do so. The patriotic thing to do probably doesn’t involve violating the United States constitution.
Former NSA lawyer Stewart Baker had this to say:
“We expect companies to be able to help with this. That doesn’t mean that you always have to write bad cryptography.”
Cryptography with a backdoor is bad cryptography, full stop. What happens when the backdoor key inevitably falls into the wrong hands? Granting the government unrestricted access to private communications does not make anyone safer — it in fact does just the opposite. To concentrate so much power in the authority of a government is just inviting abuses of the system. McCarthy-era blacklists were scary enough without government having the ability to algorithmically sort and discover anyone who says something they don’t like. A populace that self-censors itself for a fear of their speech getting them in trouble can no longer be said to have free speech.
Living in China, I know just how excruciating dealing with an unfree internet is. It’s one of the worst parts about living here. Only by using strong cryptography am I able to bypass the censorship at all, even to do the simplest of things like checking my email. If China had a way to backdoor VPNs, which rely on strong encryption, they’d still be able to stop me from looking at Gmail. It will be a very, very sad day for freedom when the US is taking cues from China on internet policy. I am deeply concerned about Cameron and Obama’s remarks this week.
+ Cory Doctorow explains how stupid the idea of putting government backdoors in everything is.
+ The Digital Arms Race: NSA Preps America for Future Battle – Der Spiegel published new Snowden docs.
I don’t typically focus on the price of bitcoin in this newsletter, because I believe that the price is one of the least important things about this whole bitcoin thing, and it’s very difficult to know all the forces at work during any big price movement. That said, this week’s ~30% downswing is notable, because there hasn’t been this much volatility for nearly a year, and also the price is at an 18 month low. Some miners are turning off their machines as lower coin prices means they are no longer profitable.
Wired writer Jerry Brito also thinks that “The Price of Bitcoin Doesn’t Matter Right Now”:
“In other words, it’s early days. The Googles and Facebooks of Bitcoin–the killer apps that will make the technology indispensable for ordinary users–may not come for another 5 years.
Unlike the early Web, though, Bitcoin has a price ticker people look at daily, and so they wring their hands. Every dip and spike in the price gets a lot of attention and spells either doom or “irrational exuberance.” But as Marc Andreessen has pointed out, “the price of domain names didn’t determine the usefulness of the Internet.”
Bitcoin wasn’t the only thing to see crazy volatility this week: The Swiss National Bank lifted an artificial cap on the Franc which had pegged it at the rate of 1.2 Euros. Within minutes of removing the peg, the value of the CHF had skyrocketed 30%, up to 0.805 EUR per, before coming back to rest at about 13% higher than before, at 1.04 EUR per CHF.
The Euro itself continues to lose value against the USD. It’s down around 15% in the last six months, and is moving closer towards parity with the US dollar. Chart
BITS & PIECES
IBM ADEPT: a blockchain-based proof of concept for a potential “internet of things” infrastructure. Whitepaper
Erik Voorhees posted an excellent refutation of the “bitcoin is a ponzi scheme” argument:
“A Ponzi operator promises something that is a lie, and behind its fallacious veneer builds nothing of real economic value. Satoshi Nakamoto, in contrast, theorized and then actually built a system which worked as advertised – a decentralized ledger which operated with no middle-man. He didn’t claim Bitcoin would make you rich, proceeding then to sell them upon you; he claimed rather that Bitcoin would work according to the specs of his whitepaper, and then demonstrated that to be true. That’s it. And this is a crucial reason why Bitcoin cannot be considered a Ponzi scheme. There was never a “scheme.” There was a scientific claim, proven conceptually by the whitepaper and then demonstrated functionally by the software.”
Russia has begun blocking bitcoin websites as a potential ban on digital currencies looms.
The next US Marshal’s auction will likely to take place in Q1 2015. 80k BTC are to be auctioned. Coindesk
Pantera puts together a fantastic monthly newsletter, which I highly recommend.Here’s January’s.
UP & COMING
- BitReserve closed a $9.7MM Series B round.
- Cryptocurrency security firm Ciphrex raised $500k.
- Ledger Wallet, an upstart competitor to the Trezor hardware wallet, is a finalistin the 2015 SXSW Accelerator.
- Augur – “A decentralized prediction market platform.” This is a cool application of cryptocurrencies.
- The Hodl Wallet, “a mechanical bitcoin wallet designed to survive a zombie apocalypse”