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Lesson learned? After Bitcoin’s Mt. Gox meltdown, the real test begins

Mt-Gox-bitcoin-Mark-Karpeles

Mark Karpeles, CEO of Mt. Gox, which claims to have lost 850,000 Bitcoins to thieves

On Friday, Tokyo-based Bitcoin exchange Mt. Gox filed for bankruptcy protection in a Japanese court, after losing about 850,000 Bitcoins (BTC), 750,000 of which belonged to its customers. The loss equals roughly $475 million, at current exchange rates.The failures of Mt. Gox – once the world’s largest Bitcoin exchange, which shut down its site on Monday – has left an untold number of casualties in its wake. Many Mt. Gox users lost hundreds of thousands of dollars. Some claim to have lost millions. And with the company still $65 million debt (that’s in addition to the lost Bitcoin), 127,000 Mt. Gox creditors are now reportedly in bankruptcy.

Despite this supreme blow to the industry and its users, Bitcoin is not dead. It’s not even dying. But it is licking its wounds. And the question now is, when the bandages finally come off, will average people still want to look at Bitcoin?

Bitcoin is not dead. It’s not even dying. But it is licking its wounds. 

How Mt. Gox lost these Bitcoins remains a matter of debate. An apparently authentic document leaked by Bitcoin entrepreneur Ryan Selkis (aka “Two Bit Idiot”) entitled “Crisis Strategy Draft” says the Bitcoins were stolen over a period of “several years.” (If that’s true, the heist of Mt. Gox would rank as one of the largest bank robberies in history.) Others speculate that Karpeles simply lost access to the private encryption keys to the digital wallets, or that the keys were stored in a bank vault that was seized by the U.S. government in 2013 after authorities found that the company was operating without properly registering with federal and state authorities.

 Whatever happened, roughly 7 percent of all Bitcoins in existence appear to no longer belong to their rightful owners – incompetence, and a lack of proper security and business acumen appear to be the culprit.“First of all, I’m very sorry,” Mark Karpeles, the 28-year-old CEO of Mt. Gox, told the Tokyo court. “The Bitcoin industry is healthy and it is growing. It will continue, and reducing the impact is the most important point.”

By most counts, the impact of Mt. Gox’s supreme failure could come in two forms: The first is a hellfire of government regulation, which already includes a call for an outright ban on the cryptocurrency in the U.S. – something Federal Reserve Chair Janet Yellen correctly says is essentially impossible thanks to Bitcoin’s decentralized nature. (No one bank, country, or other entity controls Bitcoin.) That said, the European Union and China have already imposed greater limitations on Bitcoin – and a further twisting of the knife could send the digital currency into a tailspin.

The second possible impact is much more promising, if risky for average investors: The Bitcoin industry, which is currently subject to relatively limited regulation in the U.S., U.K. and much of the world, will simply sort itself out. Indeed, many see the purging of Mt. Gox from the Bitcoin ecosystem as the push the industry needed to mature, and reestablish the trust of current and potential Bitcoin users.

Bitcoin

“’That which does not kill us makes us stronger’ very much applies to Bitcoin, and the downfall of a single (though large) Bitcoin business is not enough to ‘kill’ Bitcoin,” writes Tom Robinson, a well-known software engineer and Bitcoin expert. “This type of event has happened before. We learn a tough lesson and carry on, strengthening the weakest links as we go.”

A number of companies have already begun to embody the second generation of Bitcoin business. Many would count Coinbase, Kraken, and Circle among the “good” Bitcoin businesses. And it is no accident that these companies, along with BTC China, Bitstamp, and Blockchain.info, were the first in the industry to formally respond to the collapse of Mt. Gox.

“This tragic violation of the trust of users of Mt. Gox was the result of one company’s actions and does not reflect the resilience or value of Bitcoin and the digital currency industry,” the companies wrote in a joint statement. “There are hundreds of trustworthy and responsible companies involved in Bitcoin. These companies will continue to build the future of money by making Bitcoin more secure and easy to use for consumers and merchants.”

You could read that statement as simple damage control – but it also reveals that these companies know exactly what the Bitcoin industry needs if it is to survive: Trust, security, and greater transparency.

“‘That which does not kill us makes us stronger’ very much applies to Bitcoin.”

Another promising player is a soon-to-launch new exchange created by Barry Silbert, founder and CEO of SecondMarket. Unlike the current breed of Bitcoin exchanges, which allow anyone to buy and sell Bitcoin, Silbert’s yet-unnamed new exchange would only deal with authorized members, which he says would be subject to a great of scrutiny.

 “If you want to buy and sell Bitcoin you have to go through one of the members, and the members are all going to be regulated businesses,” Silbert told CoinDesk. “They’ll be banks, they’ll be MSBs, they’ll be Bitcoin companies, they’ll be broker dealers. The idea is the other exchanges of the world could actually become members of the exchange.”No matter how trustworthy or well-run any of these businesses are, security will remain a primary concern – and a problem that is likely impossible to ever solve completely. Theft and fraud will continue, just as it does in any monied industry. It is still entirely possible that the governments of the world will work out a way to impose crippling regulation on the Bitcoin industry. There will be more losses, blunders, and failed Bitcoin businesses. But even from where I sit, as a Bitcoin skeptic, there is good reason to believe that the implosion of Mt. Gox leaves the world of cryptocurrencies healthier than it was last week. For now, though, the prudent option is to lean back, and wait to see if the cancer can remain in remission.

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Google tosses $200M at ‘Spinning Spur Wind Project’ to bring its green power to 2 gigawatts

Google tosses $200M at ‘Spinning Spur Wind Project’ to bring its green power to 2 gigawatts

Over the Christmas holidays, Google gave Planet Earth a $200 million gift, with nice little green bow wrapped on top.

Google announced today that it closed an investment in Spinning Spur Wind Project, a West Texas wind farm than can generate enough power for, on the average, 60,000 U.S. homes.

A Siemens turbine

A Siemens turbine

The 161 megawatt facility is 35 miles from Amarillo, Texas, and brings the total amount of renewable energy that Google has invested in to a fairly staggering 2 gigawatts. That’s enough, it says, to power 500,000 American homes for an entire year or for a car to travel around the world 190,000 times.

Spinning Spur is new, a facility EDF Renewable Energy finished before the end of 2012, with 70 2.3 megawatt Siemens wind turbines. If you’re wondering whether you’re going to be using any renewable energy from the project, SPS buys the the power from Spinning Spur. SPS is a subsidiary of Xcel Energy that primarily serves Texas and New Mexico.

Google says it invests in wind projects for ecological reasons as well as financial: They’re good investments. The company has invested over $1 billion in renewable energy projects and has a goal of using 100 percent renewable energy.

Its largest wind project is the Shepherds Flat wind farm, which is about four times the size of Spinning Spur, at 845 megawatts.

Sustaining Ukraine’s Breakthrough by George Soros

George Soros

George Soros Uses Quantum Mechanics To Describe How Amazing The Ukrainian Revolution Is

NEW YORK – Following a crescendo of terrifying violence, the Ukrainian uprising has had a surprisingly positive outcome. Contrary to all rational expectations, a group of citizens armed with not much more than sticks and shields made of cardboard boxes and metal garbage-can lids overwhelmed a police force firing live ammunition. There were many casualties, but the citizens prevailed. This was one of those historic moments that leave a lasting imprint on a society’s collective memory.

How could such a thing happen? Werner Heisenberg’s uncertainty principle in quantum mechanics offers a fitting metaphor. According to Heisenberg, subatomic phenomena can manifest themselves as particles or waves; similarly, human beings may alternate between behaving as individual particles or as components of a larger wave. In other words, the unpredictability of historical events like those in Ukraine has to do with an element of uncertainty in human identity.

People’s identity is made up of individual elements and elements of larger units to which they belong, and peoples’ impact on reality depends on which elements dominate their behavior. When civilians launched a suicidal attack on an armed force in Kyiv on February 20, their sense of representing “the nation” far outweighed their concern with their individual mortality. The result was to swing a deeply divided society from the verge of civil war to an unprecedented sense of unity.

Whether that unity endures will depend on how Europe responds. Ukrainians have demonstrated their allegiance to a European Union that is itself hopelessly divided, with the euro crisis pitting creditor and debtor countries against one another. That is why the EU was hopelessly outmaneuvered by Russia in the negotiations with Ukraine over an Association Agreement.

True to form, the EU under German leadership offered far too little and demanded far too much from Ukraine. Now, after the Ukrainian people’s commitment to closer ties with Europe fueled a successful popular insurrection, the EU, along with the International Monetary Fund, is putting together a multibillion-dollar rescue package to save the country from financial collapse. But that will not be sufficient to sustain the national unity that Ukraine will need in the coming years.

I established the Renaissance Foundation in Ukraine in 1990 – before the country achieved independence. The foundation did not participate in the recent uprising, but it did serve as a defender of those targeted by official repression. The foundation is now ready to support Ukrainians’ strongly felt desire to establish resilient democratic institutions (above all, an independent and professional judiciary). But Ukraine will need outside assistance that only the EU can provide: management expertise and access to markets.

In the remarkable transformation of Central Europe’s economies in the 1990’s, management expertise and market access resulted from massive investments by German and other EU-based companies, which integrated local producers into their global value chains. Ukraine, with its high-quality human capital and diversified economy, is a potentially attractive investment destination. But realizing this potential requires improving the business climate across the economy as a whole and within individual sectors – particularly by addressing the endemic corruption and weak rule of law that are deterring foreign and domestic investors alike.

In addition to encouraging foreign direct investment, the EU could provide support to train local companies’ managers and help them develop their business strategies, with service providers remunerated by equity stakes or profit-sharing. An effective way to roll out such support to a large number of companies would be to combine it with credit lines provided by commercial banks. To encourage participation, the European Bank for Reconstruction and Development (EBRD) could invest in companies alongside foreign and local investors, as it did in Central Europe.

Ukraine would thus open its domestic market to goods manufactured or assembled by European companies’ wholly- or partly-owned subsidiaries, while the EU would increase market access for Ukrainian companies and help them integrate into global markets.

I hope and trust that Europe under German leadership will rise to the occasion. I have been arguing for several years that Germany should accept the responsibilities and liabilities of its dominant position in Europe. Today, Ukraine needs a modern-day equivalent of the Marshall Plan, by which the United States helped to reconstruct Europe after World War II. Germany ought to play the same role today as the US did then.

I must, however, end with a word of caution. The Marshall Plan did not include the Soviet bloc, thereby reinforcing the Cold War division of Europe. A replay of the Cold War would cause immense damage to both Russia and Europe, and most of all to Ukraine, which is situated between them. Ukraine depends on Russian gas, and it needs access to European markets for its products; it must have good relations with both sides.

Here, too, Germany should take the lead. Chancellor Angela Merkel must reach out to President Vladimir Putin to ensure that Russia is a partner, not an opponent, in the Ukrainian renaissance.

Ukraine’s Currency Is Getting Obliterated

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Ukraine’s hryvnia dropped another 7.7% today to 11 per dollar today.

According to Bloomberg, the currency has now dropped 19% in the past four days.

The country continues to be in chaos. Earlier today, armed men took control of a parliament building in Ukraine’s Crimea region. Meanwhile, fugitive president Viktor Yanukovych remains on the run.  According to the AP, he was last seen in a hotel in Moscow.

Ukraine’s leaders are currently seeking a bailout of as much as $35 billion.

Ron Paul slams stability of U.S. dollar and Bitcoin in pro-gold rant

Ron Paul via screencap

In an interview with Bloomberg TV, former U.S. Rep. Ron Paul (R-TX) said that he is concerned about the “erraticness” of the dollar, that Bitcoin is too complicated and that gold is still the standard by which the value of our currency should be measured.

Erik Schatzker and Sara Eisen, hosts of the show “Inside Track” asked Paul whether he’s concerned about about the recent drop in the price of gold after a ten year boom.

“I am concerned about the erraticness of the dollar,” Paul said. “The dollar is up, the dollar is down. We print a lot of dollars. The dollar gets devalued. That is really the concern. If people think the gold price up and down is a reflection of something wrong with gold, no, I say it is something wrong with the dollar.”

Paul, like erstwhile Fox News personality Glenn Beck, has been urging people to buy gold as a hedge against the inevitable collapse of the U.S. market for years. In 2012, he and attorney Lewis Lehrman financed the publication of The Case for Gold, a reprint of a Reagan-era study by conservative economists that said the price of gold is on a permanent upward trajectory.

Paul has urged the U.S. government to abolish the Federal Reserve and re-adopt the gold standard for the dollar, a proposition many economists find risible.

The conversation ranged over the Consumer Price Index as an indicator of national economic health, as well as whether or not the country is currently facing a high or low level of inflation. With regards to the collapse of the Internet currency venture Bitcoin, Paul said he wasn’t interested.

“To tell you the truth, it’s little bit too complicated,” he said. “If I can’t put it in my pocket, I have some reservations about that. But it has been designed in the free market. If it is a means of exchange, it would not ever be illegal. You shouldn’t regulate it in the free market, but I do not think it fits the definition of money, which has been around for 6,000 years.”

Monsanto at centre of intensifying debate on food

Inside the Greenhouses of MonsantoSatan or saviour, sinner or saint?

There are few companies that polarise opinion more than Monsanto, the US genetically modified seeds group.

For the company’s opponents, it is a ruthless agricultural monolith, using technology to dominate the food chain with its genetically modified seeds, while keeping a tight grip on farmers over its seed patents and licensing agreements.

Its supporters, however, point to the company’s role in promoting agricultural productivity, and see it at the forefront of pushing up agricultural yields in the face of a growing global population.

Hugh Grant, Monsanto’s chief executive, is acutely aware of the dichotomy. Hardly the mould of a Bond villain, the down-to-earth Scot from Larkhall, southeast of Glasgow, acknowledges that the company should have engaged with a wider audience in the past.

“I think in hindsight that was wrong,” says Mr Grant, who adds that the difficulty in any conversation with the consumer was that few people know much about agriculture to start with.

However, he quickly admits that this in itself was an excuse. “You can’t frame this from a perspective of ‘you don’t know much about the subject’ because everybody has a visceral reaction to food,” he says.

In London to speak at a conference about ‘Feeding the world’ held by The Financial Times’ sister publication, The Economist, the 55-year-old adds that the company’s distance from the consumer was also an issue: “People buy brands and we literally don’t touch the consumer: there’s so much work to be done to demystify what GM is.”

Mr Grant’s comments reflect a growing awareness among large agribusinesses and food companies about the intensified consumer debate over the food we eat. GMOs and Monsanto, the largest seed company in the world, have been at the sharp end of those concerns, with heightened anxiety over the combination of food and technology.

Stacy Malkan of Friends of the Earth, says the dominance of Monsanto and other agribusinesses raises serious questions about the safety of the global food supply.

“People are concerned about corporate control of the food system and a few companies owning the DNA of the seeds for our most important food crops,” she says.

GM food labelling is set to be the next focal point of attack for the company’s opponents.

But if anti-GM groups, environmental activists and some in the farming community are harsh critics, there are probably as many supporters among shareholders and analysts.

In the decade since Mr Grant took over in 2003, net profits have ballooned from $267m to $2.5bn. Shares in Monsanto have risen more than 10-fold to $109, although they are about a third lower than its all-time high hit during the food crisis of 2008.

Having started in 1901 as the producer of saccharine, Monsanto was a producer of defoliant Agent Orange during the Vietnam war.

It commercialised the herbicide Roundup in 1976, and six years later, the company’s scientists were the first to genetically modify a plant cell. The company’s plant biotechnology segment grew through a series of acquisitions, culminating in the 1996 introduction of soyabean seeds resistant to Roundup.

By 2000, Monsanto’s last Roundup patent had expired, and as chief operating officer, Mr Grant turned the company’s focus more firmly toward seeds. The shift has paid off: in the business year to August 2013, the seed and genomics division generated nearly 70 per cent of the company’s $14.9bn in sales.

Mr Grant joined the company as a salesman in Scotland in 1981, spending 10 years in sales, product development and management before relocating to the group’s headquarters in St Louis, Missouri, as global strategy director of the agriculture division.

Last year, the company stepped up its efforts into so-called “precision agriculture” – the application of advanced GPS, data analytics and remote sensing to farming – with the near $1bn acquisition of Climate Corporation, a San Francisco-based data company.

People are concerned about corporate control of the food system and a few companies owning the DNA of the seeds for our most important food crops– Stacy Malkan, Friends of the Earth

Mr Grant becomes more animated when describing the new areas Monsanto is moving into, noting that its investments in research in enzymes and genetic information transmissions, as well as data analytics will help its core aim of increasing yields. “The end point is augmenting yield which I think is going to be desperately needed,” he says.

Bill O’Connor at asset managers Capital Innovations says Mr Grant had set the company up for future growth. “He’s really laid the foundation to grow the company because he’s reinvested in technology and science, and has enhanced their pipeline of products,” he says.

However, Doug Gurian-Sherman, senior scientist at the environmental group Union of Concerned Scientists, says large seed companies have helped to create an unsustainable system of agriculture that promotes soil degradation, increases the use of herbicides as weeds develop resistance and wider use of pesticides.

“The nature of what we need in agriculture may not support a business model like Monsanto’s in five to 10 years,” he says.

Monsanto’s critics have not deterred some members of the development community working with the company. Having seen the mistakes of the pharmaceutical industry, holding back drugs from the developing world, Monsanto is offering its innovations to regions such as Africa.

It has formed partnerships with the likes of the charitable foundations of Bill Gates and Howard Buffett – the son of Warren Buffett – the UN’s World Food Programme as well as US Agency for International Development.

Mr Grant is heartened the number of smallholder farmers who are now using Monsanto’s seeds – about half of its 17m customers are small farmers. “I think that’s a cause for tremendous, tremendous optimism [for agricultural yields],” he says.

In spite of the controversy surrounding the company and its role in agriculture, it is clear that Mr Grant relishes his role.

“A lot of what we do in agriculture has meaning – there’s a relevance and applicability and it makes a difference,” he says, adding: “The corollary of that is that it puts us at the centre stage. There’s always a seat at the table and everybody has an opinion, but I would much rather be there than in something that was innocuous or irrelevant or cosmetic.”

Gold price rigging fears put investors on alert

Gold bars are displayed at the headquarters of Mitsubishi Materials Corporation in TokyoGlobal gold prices may have been manipulated on 50 per cent of occasions between January 2010 and December 2013, according to analysis by Fideres, a consultancy.

The findings come amid a probe by German and UK regulators into alleged manipulation of the gold price, which is set twice a day by Deutsche Bank, HSBC, Barclays, Bank of Nova Scotia and Société Générale in a process known as the “London gold fixing”.

Fideres’ research found the gold price frequently climbs (or falls) once a twice-daily conference call between the five banks begins, peaks (or troughs) almost exactly as the call ends and then experiences a sharp reversal, a pattern it alleged may be evidence of “collusive behaviour”.

“[This] is indicative of panel banks pushing the gold price upwards on the basis of a strategy that was likely predetermined before the start of the call in order to benefit their existing positions or pending orders,” Fideres concluded.

“The behaviour of the gold price is very suspicious in 50 per cent of cases. This is not something you would expect to see if you take into account normal market factors,“ said Alberto Thomas, a partner at Fideres.

Alasdair Macleod, head of research at GoldMoney, a dealer in physical gold, added: “When the banks fix the price, the advantage they have is that they know what orders they have in the pocket. There is a possibility that they are gaming the system.”

Pension funds, hedge funds, commodity trading advisers and futures traders are most likely to have suffered losses as a result, according to Mr Thomas, who said that many of these groups were “definitely ready” to file lawsuits.

Daniel Brockett, a partner at law firm Quinn Emanuel, also said he had spoken to several investors concerned about potential losses.

“It is fair to say that economic work suggests there are certain days when [the five banks] are not only tipping their clients off, but also colluding with one another,” he said.

Matt Johnson, head of distribution at ETF Securities, one of the largest providers of exchange traded products, said that if gold price collusion is proven, “investors in products with an expiry price based around the fixing could have been badly impacted”.

Gregory Asciolla, a partner at Labaton Sucharow, a US law firm, added: “There are certainly good reasons for investors to be concerned. They are paying close attention to this and if the investigations go somewhere, it would not surprise me if there were lawsuits filed around the world.”

All five banks declined to comment on the findings, which come amid growing regulatory scrutiny of gold and precious metal benchmarks.

BaFin, the German regulator, has launched an investigation into gold-price manipulation and demanded documents from Deutsche Bank. The bank last month decided to end its role in gold and silver pricing. The UK’s Financial Conduct Authority is also examining how the price of gold and other precious metals is set as part of a wider probe into benchmark manipulation following findings of wrongdoing with respect to Libor and similar allegations with respect to the foreign exchange market.

The US Commodity Futures Trading Commission has reportedly held private meetings to discuss gold manipulation, but declined to confirm or deny that an investigation was ongoing.