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In a blog post summing up 2015 as a year for payments, Visa Europe deemed ‘Fintech’ as the industry where ‘everyone wants to be’ and made a marked point about blockchain and bitcoin becoming a reality that the ‘industry has to live with.’ A blog post titled “Why 2015 was the year for payments” published […]

The post Visa: Blockchain & Bitcoin Are Now ‘More Real than Ever’ appeared first on CCN: Financial Bitcoin & Cryptocurrency News.

Had you ever heard of Bitcoin before seeing the title to this article? What do you know about it? That it's a way to buy illegal drugs? That the CEO died? That it's gone bankrupt? There are grains of truth in each of these statements. Those of us with going concerns that aren't engaged in crime or falling into ruin have to cope with the perceptions those grains create.

As part of a year-end retrospective, Visa Europe suggested bitcoin and the blockchain will soon be embraced by financial incumbents.

BuckleySandler LLP counsel Amy Davine Kim recaps how digital currency regulation affected the strategies of bitcoin startups and incumbents in 2015.

By Caroline Valetkevitch

NEW YORK (Reuters) - By all rights, 2016 should be a good year for the U.S. stock market.

The Federal Reserve's recent rate hike signals confidence in the economy and presidential election years typically reward investors. Most experts are predicting a seventh year for the current bull market, with strategists in a recent poll expecting the Standard & Poor's 500 stock index to end 2016 at about 2,207, roughly 8 percent higher than it is now.

But a lot could go wrong. The same strategists have cataloged a long list of worries - everything from a destabilizing U.S. election to a meltdown far away - that could hit stocks hard.

Here is their laundry list of concerns. For those who'd rather stay optimistic, remember the old chestnut: Wall Street climbs a wall of worry.

COMPANIES MIGHT STOP EARNING PROFITS

Most of the 30 strategists polled by Reuters cited weak earnings as their prominent concern. With S&P earnings growth projected to be flat in 2015, stocks already are pricey. The market is trading at roughly 19.3 times trailing earnings, well above its 15 average. Any stumble in earnings would make stocks even pricier.

Thomson Reuters analysts now expect revenue to grow 3.9 percent in 2016, meaning any increases in costs could keep earnings flat for a second year in a row.

"If labor costs start moving up a bit and interest expense is moving up ... it's going to be hard to keep margins up," said Bob Doll, chief equity strategist at Nuveen Asset Management in Princeton, New Jersey.

STRONG DOLLAR COULD KEEP INFLICTING PAIN

The dollar, up 8.4 percent against a basket of currencies in 2015, is expected to see further gains next year as the United States hikes rates while other countries continue easy money policies.

That could further pressure sales of U.S. companies with heavy international exposure because it makes U.S. goods more expensive overseas.

"If we have a similar movement to last year, then we're going to have roughly a $28-billion hit to corporate America," said Wolfgang Koester, chief executive of currency risk consulting firm FireApps. He said he expects the dollar to shave 3 to 4 cents from first-quarter earnings of U.S. companies with foreign exposure.

THE PUBLIC COULD ELECT A FRINGE CANDIDATE

Stocks historically do well in a presidential election year, with the S&P gaining in 13 of the 16 presidential election years since 1950, regardless of which party won, according to the Stock Trader's Almanac.

But strategists wonder if 2016 might be one of the exceptions to the trend, with outliers like Donald Trump and Bernie Sanders running this year.

"The more extreme the candidate, the less well-received the candidate typically is by the stock market," said Kristina Hooper, U.S. investment strategist at Allianz Global Investors. She said she expected election activity throughout the year to contribute to market volatility.

THE FED COULD GET AGGRESSIVE

The stock market rallied on Dec. 16 when the U.S. Federal Reserve announced its first rate hike along with strong hints that it would move slowly on future increases.

But if the central bank continues to raise rates without seeing higher inflation or an earnings pick-up, that could dent stocks. "Rate hikes should be a consistent worry," said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York.

As rates rise, stocks could become less attractive compared with other asset classes like bonds.

COMMODITIES COULD FALL

The continuing decline in oil prices, which has hurt energy companies and the banks and investors that lend to them, has some investors spooked.

“The commodity picture could get out of control to the downside," said John Manley, chief equity strategist at Wells Fargo Funds Management.

U.S. crude is now about $37 a barrel, down more than 65 percent since June 2014. Should the prices of oil and other commodities fail to firm, the risk is of spreading deflation, as declining earnings in those sectors spread to financial firms, suppliers and more, said Manley.

THE CONSUMER COULD BAIL

Even with gasoline under $2 a gallon, consumers have resisted spending sprees and higher interest rates may entice them to tilt even more towards saving.

The price-to-sales ratio of the S&P has already topped previous peaks, says Jeff Weniger, senior portfolio strategist at BMO Private Bank in Chicago. Without sales, the whole growing economy-growing-earnings-improving-stock-prices structure could go south.

CHINA LANDS HARD; OTHER COUNTRIES DON'T DO MUCH BETTER

"China is the 800-pound gorilla," said Allianz's Hooper.

In August, Chinese stocks fell and the U.S. market swooned in response. With the outlook for the world's second-largest economy still weak, investors worry that it could hurt demand for commodities, currency balances and more. Furthermore, weakness in China could ripple across the globe, hitting emerging markets and the United States as well.

SOMETHING BIG AND TERRIBLE COULD HAPPEN

At least nine of the strategists polled listed terrorism or Middle East instability among their biggest concerns for the stock market in 2016.

"The obvious risk is some sort of geopolitical event that freezes up travel and trade. It could happen," said Steve Auth, chief investment officer for equities at Federated Investors. Consumers, too, could be kept at home by any public events perceived as terrorist in nature.

While free-falling oil has proven bad for stocks, the reverse would not necessarily help. A systemic crisis in the Middle East could easily spike oil prices, raising costs for consumers and businesses.

Not dark enough? Manley of Wells Fargo says he worries about “the risk that the vital spirit has gone out of the world’s economy."

He said, "The deepest darkest fear I have is that we didn’t really fix it six years ago, we just delayed it for a while. And rather than being sunk by a gash we are being sunk by a slow leak. It’s not what I think, but it is what I worry about.”

(Reporting by Caroline Valetkevitch; Additional reporting by Chuck Mikolajczak,; Lewis Krauskopf, Rodrigo Campos, Sinead Carew and Marcus Howard in New York, and Noel Randewich in San Francisco; editing by Linda Stern and Nick Zieminski)

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Bitcoin price holds above support at the start of the last week of this year. Although the intra-day chart is ambiguous, the last three months of price action has set bitcoin price up for an exciting 2016. This analysis is provided by xbt.social with a 3-hour delay. Read the full analysis here. Not a member? […]

The post Can Bitcoin Price Hold Above $400? appeared first on CCN: Financial Bitcoin & Cryptocurrency News.

An industry survey that covered 150 executives and investors in the banking sector has revealed that Fintech startups are only causing limited disruption to the industry rather than the dramatic, industry-defining shakeup of an ‘Uber Moment’. A new survey conducted by Autonomous Research has revealed that 14% of banks face a significant threat by Fintech […]

The post Survey: Fintech Isn’t Forcing an ‘Uber Moment’ for Banks appeared first on CCN: Financial Bitcoin & Cryptocurrency News.

2015 was another roller coaster year for bitcoin, but what does 2016 hold in store? Tour Demeester gives CoinDesk his predictions.

Editor's Note: This piece was originally published on Medium by Co-Founder of Bloq Inc. & Bitcoin Core Developer Jeff Garzik and Chief Scientist of the Bitcoin Foundation & Bitcoin Core Developer Gavin Andresen

The proposed roadmap currently being discussed in the bitcoin community has some good points in that it does have a plan to accommodate more transactions, but it fails speak plainly to bitcoin users and acknowledge key downsides. The roadmap summary most relevant to bitcoin users is:

Bitcoin is shifting to a new economic policy, with possibly higher fees.

Core block size does not change; there has been zero compromise on that issue. In the face of rising transaction volume — it has doubled over the past year — getting stuck at 1M results in higher fees, notable economic changes, and suffers from increased political risk by embracing an accidentally-created economic policy tool.

Higher fees and reshaping the fee market impact all bitcoin users, yet it is only mentioned obliquely in paragraph 18 of the roadmap:

These proposals help […] prevent defection between the miners from undermining the fee market behavior that will eventually fund security.”

and in the middle of paragraph 4 of another BIP by the same devs:

The development of a fee market and the evolution towards an ecosystem that is able to cope with block space competition should be considered healthy. […] However, the purpose of such a change should be evolution with technological growth, and not kicking the can down the road because of a fear of change in economics.”

Notable devs think it necessary to change bitcoin to a different economic system with “healthy” competition for block space. In the field today, that is accomplished by maintaining the core block size in the face of rising transaction volume — an outcome the current dev consensus has produced, and the roadmap continues.

In an optimal, transparent, open source environment, a BIP would be produced, covering a change in bitcoin’s economics to a “healthy fee market.” This would be analyzed through the lenses of technical, economic, hard fork etc. risk. This has not happened.

There would also be a related BIP describing the basic requirements for a full node in terms of RAM, CPU processing, storage and network upload bandwidth, based on experiments — not simulations — done on a platform like planet-lab.org. This would help determine quantitatively how many nodes could propagate information rapidly enough to maintain Bitcoin’s decentralized global consensus at a given block size.

Getting stuck at 1M core block size transforms a historic DoS limit into an accidental policy tool. Satoshi added the 1M consensus limit in 2010, intentionally set above the free market fee range. This artificial ceiling acts against network DoS, raising the cost of attack. Setting the limit above free market range resulted in a safety limit reasonably free from politics.

The update process was also described by Satoshi in 2010.

As average block size approaches the 1M limit, the game theory picture changes. The accidental, artificial 1M limit becomes a Visible Hand in the market. Competition occurs not only for block space, but for developer consensus — because in this new economic system, the ability to freeze or move the 1M limit produces a system where humans — not the free market directly — wield oversize power.

By accident or design, Satoshi managed to create a working free market and push this Visible Hand years into the future by setting the limit high, well above the free market range for transaction fees. The limit served for years as a DoS limit, exponentially increasing cost-of-attack, while a free market equilibrium range established itself.

This block size debate ultimately comes down to competing economic and system survival theories. One theory is that a free market range exists for block size, in absence of a hard limit. Another theory is that a hard limit is required to forcibly constrain the free market. Stalling on core block size changes the former to the latter — uncharted territory for bitcoin.

The resultant bitcoin user and market view is muddled: From 2010 through Scaling Bitcoin:Montreal, it appeared that the core block size would see an increase. Following Scaling Bitcoin:Hong Kong, the roadmap abruptly switches direction to Segregated Witness (SW).

SW avoids an ecosystem-wide hard fork through ecosystem-wide upgrades to bitcoin transactions, blocks, addresses, scripts, full nodes, miners, wallets, explorers, libraries, and APIs. All to provide partial relief to core block pressure assuming users upgrade — 1.6M if 100% upgrade, based on current usage.

SW roll-out requires extensive software modifications just to maintain current functionality in the face of rising transaction volume. SW complicates bitcoin economics by splitting a “block” into a basket of two economic resources — core block and extended block — each with unique price incentives and (heavily intersecting) sets of actors.

In contrast, increased core block size is compatible with existing bitcoin software; Some wallets will work seamlessly with no change at all. The total number and scope of changes to wallets, databases, libraries etc. is very minimal. The high hurdle is the hard fork itself.

One of the explicit goals of the Scaling Bitcoin workshops was to funnel the chaotic core block size debate into an orderly decision making process. That did not occur. In hindsight, Scaling Bitcoin stalled a block size decision while transaction fee price and block space pressure continue to increase. Scaling Bitcoin was useful in surveying consensus on core block size. 2M appears to be the consensus most common denominator.

The roadmap skips the short term issues of:

• When are fees too high?
• What is the process for changing core block size then?
• Why do we need high fees at this early stage of bitcoin’s life?

Rather than an automated software system, a fixed core block size puts an economic policy tool in the hands of humans. Humans are making subjective decisions about “healthy” fee levels, what miner income should look like, and the relative expense of bitcoin transactions, rather than the free market.

Users have concerns that this roadmap and new economic direction dances obliquely around a shift of bitcoin from a network for P2P cash payments to a settlement system for as-yet-incomplete technology such as side chains or payment channels, pushing out businesses that bought into the original “P2P electronic cash” vision of bitcoin. As the RootStock white paper notes:

If Bitcoin block size is not increased via a hard-fork, when the next Bitcoin reward halves, Bitcoin transaction fees may become prohibitively high for certain applications.”

Maybe that’s inevitable. However, in the short term, we have a disappointing situation where a subset of dev consensus is disconnected from the oft-mentioned desire to increase block size on the part of users, businesses, exchanges and miners. This reshapes bitcoin in ways full of philosophical and economic conflicts of interest. As noted here, inaction changes bitcoin, sets it on a new path.

Bitcoin is not an academic science project. Stalling on hard questions produces tangible market changes. Few have the luxury to pause until a new payment layer is developed on top of bitcoin-1’s emerging settlement layer. Stuck-at-1M risks reversing bitcoin’s network effect by pricing users out of the core blockchain, forcing them onto centralized platforms.

A better way forward includes leadership on a definitive short term core block size decision, plain talk with users about exploring new fee market economic theories and system survival theories, and plain talk with users about the risks and possible negative consequences of getting stuck at 1M.

Core block size resolution and validation cost edge cases are the top priorities. A positive outcome of Scaling Bitcoin was a consensus of 2M, assuming some validation DoS fixes. Segregated Witness can proceed in parallel, sans the assumptions that it’s an easy change or that it mitigates economic issues described above.

And finally, to remove long term moral hazard, core block size limit should be made dynamic, put in the realm of software, outside of human hands.

Bitcoin deserves a roadmap that balances the needs of everybody who has worked hard over the last six years to grow the entire ecosystem.

—Jeff Garzik and Gavin Andresen

The post Bitcoin is Being Hot-Wired for Settlement appeared first on Bitcoin Magazine.

Segregated Witness, the proposal put forth by Blockstream developer Dr. Pieter Wuilee, has been trumpeted as a block size scaling solution that gets around the difficult scenarios associated with increasing the block size utilizing a hard fork.

But the problem is that, while Segregated Witness does provide benefit to the code, it misses one of the fundamental problems bitcoin has been experiencing: there are no true, long-term solutions on how to scale Bitcoin for mass-adoption. Instead, the focus has been on developing solutions on top of bitcoin. Further, the stigma associated with a hard fork acts as a hindrance to further development.

Segregated Witness 101

When looking at the block size problem, it helps to think of it as a bucket of marbles. The 1MB block size can carry a certain number of transactions the same as a bucket can only carry so many marbles. As more transactions try to fit in the block, naturally some are unable; they fall out.

What Segregated Witness does is remove the signature from the transaction and stores it in a separate data structure. By removing the signature from the transaction, the size of the that transaction decreases.

In his blog post about Segreated Witness, Gavin Andresen said:

for example, the simplest possible one-input, one-output segregated witness transaction would be about 90 bytes of transaction data plus 80 or so bytes of signature—only those 90 bytes need to squeeze into the one megabyte block, instead of 170 bytes. More complicated multi-signature transactions save even more.”

Using our marble analogy, in this most basic of examples, each marble is shrunk down by approximately 47%. In essence, we find that we can have 47% more one-to-one transactions in the block size.

But at its core, Segregated Witness is compression and optimization of the code; it’s not a true scaling feature. There remains only 1MB of block space and when that fills, the problems that the network are currently experiencing come back again.

The Hard Fork Stigma

Bitcoin is at a crossroads right now. On one hand, there is a significant push to keep the blocksize at the arbitrary 1MB size—there has been no data presented suggesting this is the optimal size. And on the other hand, there is the need to prove that bitcoin can be scaled to a point where it can handle transactions from a growing user base.

The problem has to do with a stigma associated with implementing a change via a hard fork.

The concern with a hard fork is that it results in two parallel chains where the winner takes all and the losers are harmed. It can result in double spends and uncertainty as to which chain is going to win. When dealing with a market cap of over $6 billion, concern about that is certainly warranted.

But the problem is that inaction—or a decision not to act—results in the same outcome. The inability for the community to get behind a hard fork to scale bitcoin even to 2MB, as proposed by Jeff Garzik in BIP 102, can create an event as chaotic as a hard fork.

In an email to the Bitcoin Core Dev team, Garzik postulated that by not scaling bitcoin and instead pushing for higher transaction fees, it would create an economic change event, which “is a period of market chaos, where large changes to prices and sets of economic actors occurs over a short time period.”

Both are problematic and can cause significant damage to the community. However, what a proposal like BIP 102 does is get past the stigma of a hard fork and allow the developers to do what they’re good at: analyze data and make decisions based on it.

There is no doubt that there is a need to scale bitcoin. While Segregated Witness is, fundamentally, a great move, it doesn’t solve the problem that there is a stigma associated with hard forking the code, which will be an inevitable necessity to further scale the protocol.

Segregated Witness Should Hard Fork

In a series of Tweets, BitGo Engineer Jameson Lopp argued that node operators have a responsibility to keep current with software that is responsible for securing people’s money. In essence, if you’re going to run a node that is securing the Bitcoin network, which inherently is securing people’s money, the tech needs to be upgraded.

1) If you administer a computer that is used to secure people's money, you have responsibility to keep it running like a well-oiled machine.

— Jameson Lopp (@lopp) December 23, 2015

To offer the necessary data that developers need, Segregated Witness should be pushed through as a hard fork, where those that do not upgrade are left behind. Segregated Witness is not controversial; it’s exactly what Bitcoin needs. Therefore, it would show what a hard fork is like and shake out some of the nodes that are not going to update their software.

There’s no doubt that scaling Bitcoin is a difficult conversation; however, it is going to continue coming up. Even with Segregated Witness, the network will reach a point where it needs to scale again. Compressing data can only work so much. At some point, you can’t make the marbles any smaller and you have to go find a bigger bucket.

The post Segregated Witness: The Right Answer to the Wrong Question appeared first on Bitcoin Magazine.

A degree of infighting has shocked the Bitcoin community as individuals with different ideas clash over the direction in which the Bitcoin protocol should evolve (or be evolved). With the disappearance of Satoshi Nakamoto, Bitcoin has long celebrated its leaderless organization. In 2015, this lack of leadership led to a lack of direction in the […]

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In the last few months, the value of the currency has risen. But here are 10 reasons why an investment in Bitcoin could go south.

Australian bitcoin miner Bitcoin Group has released another prospectus that has been filed with the Australian Securities and Investments Commission (ASIC), a move that also saw the company postpone its initial public offering on the Australian Securities Exchange (ASX). Cryptocurrency miner Bitcoin Group  has released yet another prospectus while delaying its listing on the ASX […]

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