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Recode Daily: How to lose $40 million of Bitcoin overnight

Recode Daily: How to lose $40 million of Bitcoin overnight

Hackers recently stole $40 million of bitcoin from one of the largest cryptocurrency exchanges in the world. Luckily, customers of Taiwan-based Binance won’t incur losses since the company is paying them out using an insurance fund. But the whole debacle brings up a bigger question, as Emily Stewart writes, “If bitcoin is so safe, why does it keep getting hacked?” As Stewart explains, while bitcoin itself is based on secure blockchain ledger technology, the method for storing and saving access to it is not. Bitcoin “keys” — which are “basically, a set of letters and numbers corresponding to your bitcoin” — lose their security as soon as they’re shared with someone else. And “[t]he thing with bitcoin is that once it’s gone, it’s gone. You no longer have the key, someone else does. That same fundamental security of the blockchain that you took advantage of, the hacker now does, too.”[Emily Stewart / Vox]
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Driver strikes didn’t break Uber — but they showed gig economy workers are mad. Demanding higher wages and benefits, thousands of Uber and Lyft drivers in more than two dozen cities around the world protested yesterday. In several cities including Los Angeles, San Diego, and San Francisco, Uber said the protests didn’t affect daily operations. But, as Shirin Ghaffary writes, “the fact that drivers protested at all on the same day in various cities around the world is a major feat of drivers’ organizing capacity — and one of the largest coordinated protests by gig economy workers in recent history.” Another win for protestors: They got several major Democratic progressive politicians on their side, including Alexandria Ocasio-Cortez, Pete Buttigieg, and Sen. Bernie Sanders.[Shirin Ghaffary / Recode]
A New York judge ruled that tenants have the right not to use a smart lock, in a first-of-its-kind case. A group of tenants successfully settled to gain the right to use a standard lock instead of a type of smart lock, Latch, arguing that it “violated their right to privacy and amounted to tenant harassment.” The technology lets people open doors with an app as well as a keycard. With regard to privacy concerns, a Latch spokesperson told Gothamist’s Elizabeth Kim in a statement that “the software neither collects nor stores GPS data and it does not share users’ personal information with third parties for marketing purposes.” Although Kim notes that “the statement did not address whether the app collects usage data other than GPS.”[Elizabeth Kim / Gothamist]
Forthcoming legislation could outlaw the sale of some digital goods targeted toward children. The soon-to-be-introduced Protecting Children From Abusive Games Act would make it illegal for companies to target the sale of “loot boxes,” which the Post describes as “randomized assortments of digital weapons, clothing and other items,” to minors. As the article states, Howley’s act “takes aim at a growing industry revenue stream that analysts say could be worth more than $50 billion — but one that increasingly has triggered worldwide scrutiny out of fear it fosters addictive behaviors and entices kids to gamble.” Howley pointed to the popular game Candy Crush as an example, which sells a $149.99 bundle of virtual goods including virtual currency that “make the game easier to play.”[Tony Romm and Craig Timberg / The Washington Post]
Top Stories from Recode
Disney put more than $400 million into Vice Media. Now it says that investment is worthless. A now-familiar story: Investors say they overvalued a high-flying digital publisher.[Peter Kafka]
Billionaire Reid Hoffman, one of the most powerful Democratic donors, is raising money for Cory Booker. Hoffman represents a new type of Democratic donor — one who is willing to fight the party establishment and rebuild it in his image.[Theodore Schleifer]
This is Cool
Life-saving genetically tweaked viruses.
Recode and Vox have joined forces to uncover and explain how our digital world is changing — and changing us. Subscribe to Recode podcasts to hear Kara Swisher and Peter Kafka lead the tough conversations the technology industry needs today.

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Bitcoin Jesus Roger Ver Destroys Lightning Faithful Tone Vays in Debate

Bitcoin Jesus Roger Ver Destroys Lightning Faithful Tone Vays in Debate

Bitcoin Jesus Roger Ver Destroys Lightning Faithful Tone Vays in DebateOpinionRoger Ver may be a hyperactive personality who occasionally alludes to Bitcoin Cash as being “a version of Bitcoin,” but he does know what he’s talking about. | Source: (i) Shutterstock (ii) Shutterstock ; Edited by CCNBy CCN: Let me start by saying I’m undecided on the issue of blockchain scaling. I think both camps make valid points. The day that Bitcoin Cash launched was the logical resolution of a drawn-out war which would never have ended otherwise.Tone Vays Can’t Make Up His MindThat being said, I watched this debate between Roger Ver, one of the earliest angel investors in bitcoin, and Tone Vays, a bitcoin personality, and I felt like I was watching a professor debate a teenager.Ver may be a hyperactive personality who occasionally alludes to Bitcoin Cash as being “a version of Bitcoin” (a semi-acceptable stance given that they largely share the same transaction history and most properties), but he does know what he’s talking about.On the other hand, Vays claimed that he uses Bitcoin every day and frequently pays just five cents to send transactions.This doesn’t stand up to reality.You will pay less than a cent to send a transaction on Bitcoin Cash. It’s one way to save money when you’re exiting an exchange. In a previous era, you could use Litecoin for the same purpose. But in a previous era, average fees on Bitcoin did not range over $1.When we say “average fees” here, we refer to fees spent to get a transaction included as intended – as soon as possible. Nobody uses digital currency because they want the recipient to wait hours or days to receive it. The instant settlement of crypto payments is one of many value propositions.Scaling Is Not A ReligionVays fell back on circular logic.First, he says fees were not as high as Roger Ver claims. In this he is correct. You don’t have to pay $3 to send a BTC transaction in a reasonable amount of time.However, then Vays makes an absurd case for himself, one that diverges significantly from the design of our economic system and a healthy blockchain. Vays says:“If you really need it on-chain, you will have to pay a higher fee. Which, actually, I don’t mind paying a 20-cent fee. I like supporting the miners which are keeping our system secure.”First of all, 20-cents is less than the average fee at press time. The average transaction fee over the past 24-hours was around 50,000 Satoshi, or $4 at current prices.But anyway, we are to expect most users to want to “support the miners”? What a joke. Honestly.This is a bankrupt argument and also circular in that it undermines the last 60 seconds or so of his argument.Vays had just said that we will be using Lightning Network for everything, the purpose of which is to reduce fees and allow for more transactions. Miners make less in the long run in a scenario where Lightning Network is supreme, less than they would if more on-chain transactions were allowed.Decentralization Still Matters, BroThen another core issue of Bitcoin economics comes up: sovereignty.The only way to be truly sovereign in the Lightning Network is to operate your own node. Not a particularly easy task. It’s certainly not realistic to expect there ever to be millions of personal nodes operated by millions of personal users.Instead, what you will have are a few major service providers.If you are okay with this, that’s fine. But Ver makes an obvious point: the SPV wallet system currently used by Bitcoin Cash and Bitcoin, which was for the longest time the best way to run a lightweight wallet because you would own your keys while not having to own a copy of the Bitcoin blockchain, is by far more decentralized than a Lightning-centric system.I have to say that most Bitcoin Cash proponents I’ve spoken with, including Honest.cash founder Adrian Barwicki, accept that there will one day come a need for second-layer scaling of Bitcoin Cash. The main contention is that we should not artificially force that to happen by having blocks that are arguably smaller than they have to be.Luke-Jr recently made the case for small blocks at the Magical Crypto Conference, and his arguments are at least sound if lacking in realist strategy.
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Traders are piling into bitcoin as a haven against volatile markets. This researcher warns they could get burned.

Dan Kitwood/Getty Images Bitcoin isn’t a ‘unique’ hedge as it’s vulnerable to the same market risks as conventional investments, according to a new study. It becomes more exposed to factors such as inflation expectations when its price is less volatile, the researcher found. The findings are a “cautionary note” for investors, writes author Dimitrios Koutmos,…

Traders are piling into bitcoin as a haven against volatile markets. This researcher warns they could get burned.

hedge mazeDan Kitwood/Getty Images

  • Bitcoin isn’t a ‘unique’ hedge as it’s vulnerable to the same market risks as conventional investments, according to a new study.
  • It becomes more exposed to factors such as inflation expectations when its price is less volatile, the researcher found.
  • The findings are a “cautionary note” for investors, writes author Dimitrios Koutmos, as they suggest bitcoin isn’t “a unique asset class whose price behavior is detached from economic fundamentals.”
  • Watch bitcoin trade live.

An escalating US-China trade war, the slowing Chinese economy, and a prolonged Brexit process have fueled anxiety in financial markets, boosting investors’ interest in bitcoin as a hedge against volatility.

However, new research suggests the cryptocurrency may have limited value as a hedge as it’s vulnerable to the same factors that move the prices of stocks and other mainstream investments. While it escapes some of those drivers when its price is especially volatile, the increased risk may outweigh the greater returns.

“Bitcoin prices, despite their seemingly attractive independent behavior relative to economic variables, may still be exposed to the same types of market risks which afflict the performance of conventional financial assets,” wrote Dimitrios Koutmos, an assistant professor of finance and technology at Worcester Polytechnic Institute in Massachusetts, in a study titled “Market risk and bitcoin returns” published online in the Annals of Operations Research this month. 

Koutmos used treasury bill rates, the VIX and Deutsche Bank FX volatility indexes, treasury yields, forward inflation swap rates, equity indexes, and the difference between corporate bond yields and treasury yields as proxies for short-term interest rates, market-volatility expectations, and other factors that affect traditional financial assets. He examined their influence on daily bitcoin prices between January 2013 and September 2017.

His key finding was that several of these factors were “important determinants of bitcoin returns.” Specifically, short-term interest rates and investors’ expectations of stock-market and foreign-exchange volatility were significant determinants of the price of bitcoin during periods when it rose or fell sharply. Those three factors, along with general economic conditions and inflation expectations, influenced the price of bitcoin when the cryptocurrency was less volatile, according to the study.

The findings serve as a “cautionary note” for investors, Koutmos wrote, as they suggest bitcoin isn’t “a unique asset class whose price behavior is detached from economic fundamentals.”

They also indicate “bitcoin’s usefulness as a diversification instrument is time-dependent,” given the cryptocurrency was more susceptible to factors such as inflation expectations during periods when its price was less volatile. 

If bitcoin truly is a better hedge when its price is moving around, investors who bought into bitcoin’s price surge this month as a hedge against the sharp downturn in stocks might be feeling pretty smug. However, Koutmos also found that bitcoin’s superior returns during periods of high volatility weren’t high enough to offset the increased risk, meaning its returns during low-volatility periods were higher on a risk-adjusted basis. 

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