In mid, the Chinese exchange hired a compliance analyst to help monitor any suspicious activity on the trading platform. It selected Constance Yuan, then 23 years old, who told Reuters she had no prior formal training in compliance. Bitcoin, the first digital currency to gain widespread acceptance, sprang up during the financial crisis about nine years ago.
Its attraction, early proponents maintained, was that it offered a way to bypass banks and governments, and to conduct financial transactions more cheaply. Every transaction is validated and recorded on a public ledger called a blockchain that is maintained by a network of computers. While anonymous, the individual transactions are available for all to see on the internet.
They are secured by cryptography, the computerized encoding and decoding of data. Mike Hearn, an early bitcoin developer, said bitcoin was initially viewed more as a hobby than a serious alternative to traditional money. Though bitcoin turned out to generate huge attention and media coverage, it is still not widely used by ordinary consumers. Few retailers accept it, and processing transactions on the blockchain remains much slower than payment card networks, despite some recent technical changes.
At the U. Instead, cryptocurrencies have proved attractive to those seeking anonymity. Poloniex, a U. But Reuters interviewed two New York residents who had claimed that they lived elsewhere and were able to trade on Poloniex. In June, a former U. A class-action lawsuit was filed last year against Coinbase on behalf of customers of the collapsed Cryptsy exchange. Haun and Coinbase declined to comment on the case; in a court filing, Coinbase denied any wrongdoing. In July, U. BTC-e required only a username, password and email address to open an account, authorities said.
Reuters was unable to contact BTC-e, whose base of operations was unclear, though it continues to have a website using a New Zealand domain name. One of the criteria traders say they use to select an exchange is trading volume. The more trades an exchange handles, the faster buyers and sellers can be matched.
From about early until late January this year, Chinese exchanges accounted for about 90 percent of global bitcoin trading volume, according to the website bitcoinity. Some of that high volume occurred because traders were attracted by the fact that these exchanges at that time charged no transaction fees.
But some of the volume was fake, six former employees at two Chinese exchanges told Reuters. Artificially pumped-up volumes in China could have affected the often volatile price of bitcoin, because investors elsewhere monitor and respond to the activity. One exchange, OKCoin, inflated volumes through so-called wash trades, repeatedly trading nominal amounts of bitcoin back and forth between accounts, two former executives said.
The transactions were logged on the exchanges but not recorded on the blockchain, according to a former employee. Zane Tackett, who held several positions at OKCoin from to including international operations manager, said he resigned partly out of concern about its fake volumes. Changpeng Zhao, a former chief technical officer at OKCoin, stated on the website reddit.
Four former employees at BTCChina, including one of its co-founders, said the exchange had also engaged in faking its trading volumes. After a series of inspections by the central bank, Chinese exchanges in January began charging trading fees — as exchanges elsewhere typically do — and volumes in China plummeted. No one really knows what to make of them. Exchanges are frequently targeted by hackers, causing additional problems for investors.
Walle Wei, a Chinese trader based in Guangxi in southern China, said he was trading futures in bitcoin and a cryptocurrency called litecoin on OKCoin. This meant that he only had to put down 10 percent to trade. Trading with that much leverage meant that a small move in the price could either wipe out his positions or greatly magnify his gains. Bitcoins stolen by hackers from Bitfinex in August He was unable to buy or sell.
When he regained access to his account, his contracts had been liquidated. On July 13, Wei suffered a second, similar event with bitcoin. He said he also filed complaints with police and five government agencies, including the central bank and the China Securities Regulatory Commission CSRC. A person close to the CSRC said cryptocurrency exchanges fall under the purview of the central bank, which declined to answer questions.
In a written response, OKCoin said it had invested heavily in guarding against attacks and there was no precedent for multinational corporations to compensate users for service interruptions. But the contract was liquidated soon afterwards when another investor placed a giant bet the other way that dwarfed it.
In regulated exchanges, such as the Chicago Mercantile Exchange, there are limits to the size of futures contracts to prevent one trader from dominating the market. Bitfinex was set up four years ago. Its hundreds of thousands of clients include banks, investment funds and other cryptocurrency exchanges, according to van der Velde, its CEO and co-founder, and its lawyer.
It has no head office, is owned by a British Virgin Islands company and is managed by three executives who live in Hong Kong, the United States and Europe. In June , the U. In August , hackers stole , bitcoins from Bitfinex. The exchange distributed IOUs in the form of digital tokens, which could be traded on Bitfinex.
Some customers converted the tokens into equity in the company that operates the exchange. Although the exchange later redeemed the tokens in full, some customers had already sold them at a loss. In an interview, van der Velde expressed regret for the hack. He declined to discuss how the hack happened, citing an ongoing police investigation.
Please find me one. He also said Bitfinex has acted transparently, has rigorous know-your-customer procedures and cooperates with law enforcement agencies. Despite all the Wild West problems besetting cryptocurrencies, van der Velde predicted the final amount will turn out to be even higher. Additional reporting by Jack Stubbs in Moscow and the Shanghai newsroom. Newsletters Tech Top 5. Morning Dispatch. Rate Story. Font Size Abc Small. Abc Medium. Abc Large.
AP Craig Wright's claim that he is Nakamoto has been met with scepticism from a sizeable portion of the cryptocurrency community. New York: Craig Wright, a computer scientist who claims to be the inventor of Bitcoin , prevailed in a civil trial verdict against the family of a deceased business partner that claimed it was owed half of a cryptocurrency fortune worth tens of billions. A Florida jury on Monday found that Wright did not owe half of 1. Discover the stories of your interest.
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Kumbhani, who used aliases to hide his identity, is accused of running BitConnect, the company he formed in , as a “textbook Ponzi scheme,”. Online exchanges for trading bitcoins and other virtual currencies can make fortunes for their owners. But they are largely unregulated. Vitalik Buterin, co-founder of the Ethereum blockchain, says the digital-asset universe may actually benefit from the current retreat in.