Judge Rules in Peer-to-Peer Bitcoin Lending Lawsuit

A US judge has ruled that a Kentucky man must repay a loan he originally solicited in

bitcoin.

Judge Frank Fletcher of the Breathitt County District Court, in an order signed 5th June, stated that Dennis Kerley must repay $67,591 on a loan he had received in bitcoin via the peer-to-peer (P2P) lending platformBTCJam.

The loan, dating back to December 2013, fell into default within a few months of receipt. The plaintiff in the case, Daniel Kaminski de Souza, loaned Kerley 11.95 BTC, worth just over $10,000 at the time it was solicited.

The case is perhaps suggestive of how US judges who lack a general understanding of bitcoin consider cases, even providing a degree of precedent for future cases involving P2P loans denominated in bitcoin, according to lawyer Kevin Palley, who represented de Souza in the case.

Palley told CoinDesk:

“The judge did not understand what bitcoin was, and this is a small county in rural Kentucky. So he asked anybody in the courtroom if they knew about it and one or two people raised their hands.”

Palley said that he went on to treat bitcoin as a kind of highly speculative foreign currency, a explanation that was ultimately accepted by the court.

Kerley, according to Palley, did make an appearance during the 5th June hearing, and though Kerley responded to the initial lawsuit, Palley successfully petitioned the court to deem that reply a non-response to the specific claims in the suit.

Kerley could not be reached for comment for this report.

Mining loan

In December 2013, Kerley sought funding to buy bitcoin mining equipment from Bitmine, a Swiss company that ultimately went bankrupt amid accusations of fraud.

Kerley said that he intended to buy a 1 TH/s bitcoin miner, as well as a 400 GH/s unit if enough funds were available. In the loan description, he wrote that he planned to generate as much as 0.76 BTC per day.

Kerley added that he was offering an interest rate of 20%, explaining:

“I realize there is some speculation and risk with this investment. But, as I am and have been actively mining bitcoins for more than a year, I believe this is a sound investment and worth the risk.”

Issues emerge

According to the user comments on to the BTCJam loan page, payment issues began shortly after solicitation was complete.

De Souza asked about the status of payment on 6th February of last year, and Kerley replied that the issue stemmed from shipping problems and damages to the miners he received.

"I have over half the payment ready to send and will have it all in a couple of days. I will then make the payment and bring my loan to current," Kerley wrote. "From this point forward there will be not more late payments and I will actually be paying the loan of early."

Two weeks later, when asked for an update, Kerley wrote:

"I have mined 2.3 BTC but can not make a partial payment on the loan dues to the BTCJam system design. I will soon have the coin to pay the late payment and will soon be at full capacity before the next payment is due."

That message, dated 22nd February, was the last Kerley would post on that page.

Just over two months later, de Souza wrote that he had received notification that the loan would enter arbitration for nonpayment.

Relief sought

When borrowers agree to use BTCJam, they enter into an agreement that states: "The arbitrator's decision shall be final and legally binding and judgment may be entered thereon."

Arbitration services are provided to BTCJam users by a company called net-ARB. According to an arbitration award document provided to CoinDesk, de Souza was granted an award for 64.74381250 BTC following 91 days of nonpayment.

Following the arbitration award, de Souza told CoinDesk, he hired Palley, who subsequently reached out to Kerley to seek redress for the defaulted loan. In a response letter, Kerley requested information regarding the amount he allegedly owed, as well as verification of Palley's credentials.

In March 2015, Palley formally filed suit against Kerley on behalf of de Souza, seeking either an enforcement of the arbitration agreement or relief for breach of contract.

The complaint read:

"Plaintiff has suffered damages due to Defendant’s failure to honor its contract and Plaintiff requests damages for breach of contract in the amount of $30,723.53 as of September 3, 2014, pre-judgment interest in the amount of $17.07 per day as of September 3, 2014, court costs, fees and post-judgment interest."

Two months later, Judge Fletcher found in favor of de Souza.

Next steps

According to Palley, the next phase in the suit against Kerley involves seeking repayment on the loan, a process he suggested could pose additional challenges.

"The hard part is going to be the collecting," he explained. "So what I’ll have to do is do an asset search and see if there’s anything to collect. Getting a judgement is easier than collecting, and [de Souza] understands it could be some time."

De Souza said one current issue is identifying financial institutions used by Kerley in Kentucky, a process he claimed has been hindered by a lack of information from BTCJam.

"A measure [Palley] will have to take now is to send a garnishment letter to every bank in the Breathitt county because we don't know in which bank and agency the debtor has an account," he said.

When reached for comment, BTCJam told CoinDesk that it was supportive of the outcome of the suit, calling it a successful example of the settlement process it has in place.

The company noted that it was bound by the law to provide sensitive information only through legal processes, but would be happy to do so through the courts if requested.

Kentucky legislature image via Shutterstock

The full order on motion for summary judgment can be found below:

Judges hitting wooden gavel image via Shutterstock

Correction: An earlier version of this report incorrectly stated that Kerley did not respond to the lawsuit. While an initial response was tendered, the plaintiff successfully petitioned the court to consider that reply a non-response to the specific claims in the suit.

This report has been updated for clarity.

Bitcoin Exchanges Kraken and Bitfinex Cut Services in New York

Kraken and Bitfinex, two of the largest bitcoin exchanges by investment funding and

daily trading volume, have indicated they will not be applying for licenses to operate in New York.

The development is the latest in the ongoing debate over the BitLicense, New York's state-specific regulation for bitcoin businesses, which continues to be a lightning rod for criticism from both within the bitcoin community and more widely among mainstream technology advocacy groups. State regulators had previously set 8th August as the submission deadline for business already serving consumers in the third-largest US state by population.

So far, more well-capitalized exchanges including Bitstamp have applied for a BitLicense. Smaller businesses including merchant processor GoCoin and altcoin exchange Poloniex, however,recently revelead they would not continue efforts to reach customers in the state.

Based in San Francisco, Kraken and its executives have long had a contentious relationship with US regulators, withdrawing services from the domestic market in early 2014 and stopping all US dollar services until October. US dollar trading is still not available for US residents.

The exchange wrote:

"While we’re sure that the protection from New York law enforcement is valuable, it comes at a price that exceeds the market opportunity of servicing New York residents. Therefore, we have no option but to withdraw our service from the state."

In statements to CoinDesk, Powell suggested the move was likely to affect the "several thousand" clients of the exchange. Despite the sometimes political rhetoric, however, Powell implied there were also strong business motivations behind the action.

"The increasing competition in the US did play a role in the calculation," Powell said. "We don't see the entire NY exchange market being worth the costs associated with compliance with the BitLicense, and we sure don't see the point in bleeding out over a red ocean."

Hong Kong-based exchange Bitfinex was more straightforward with its announcement, quoting from the BitLicense before indicating it would be ceasing services in the state as of the 8th August deadline.

Both exchanges indicated they would continue to monitor the regulatory situation in New York with the goal of re-opening services.

Political ammo

In its blog post on the subject, Kraken used exaggerated language to impart its stance on the law, characterizing it as a "foul" and "cruel" beast that was more formidable than the mythological creature whose name the exchange has adopted.

The informal introduction aside, Kraken suggested it did not apply as the BitLicense does not guarantee bitcoin companies the ability to obtain banking services, offer protection from unlicensed competitors or come with an exemption from traditional money service business (MSB) licensing. To operate in New York, exchanges must either receive a New York banking charter or be more broadly registered in the country as an MSB.

Notably, the company characterized New York as a market too small to justify the expense of the licensing process.

Applications for the BitLicense cost $5,000, a figure that doesn't include additional charges for document preparation and personnel allocation.

In light of the cost, Powell implied Kraken simply saw moving its focus on customer growth abroad as a better way to allocate its spending.

"We'll spend our money on blue oceans and green pastures and maybe get back to New York when sanity has emerged and we've got a bigger bankroll," Powell remarked.

Fund withdrawal

Bitfinex indicated it would modify its terms of services as a result of the decision, stating that customers would need to withdraw funds by 21:00 BST on 15th August.

The exchange also detailed how its process will be modified to reduce its liability for unlawful deposits from New York residents.

"We strongly encourage New York residents to specify ‘Locked Withdrawal Addresses’ that we will use to automatically sweep any funds that may be sent to one of your deposit addresses in the future," the exchange wrote. "Failure to set these Locked Withdrawal Addresses will result in the automatic liquidation of future deposits."

Those with funds in the exchange, it said, will have any cryptocurrency converted to US dollars after the 15th August deadline.

"The resulting USD balance will be available in customer accounts for customers to access at any time," the post said.

New York residents will be unable to use any of the exchanges services, including its fiat and digital currency trading services.

Bitfinex did not immediately reply to requests for comment.

BitLicense visualization via Kraken

Bitcoin Core Developers Join MIT Digital Currency Initiative

The MIT Digital Currency Initiative is stepping up to take a larger role in bitcoin development, announcing today that core developers Gavin Andresen, Cory Fields and Wladimir van der Laan have joined the project in a full-time capacity.

Andresen, Fields and van der Laan had previously been supported financially by the Bitcoin Foundation, an industry trade group that has been in the midst of pivoting due to funding constraints.

MIT Digital Currency Initiative director Brian Forde expressed his view that the move would help bring stability to developers, an environment he suggested had been lacking in recent years as the foundation was rocked by scandals.

Forde told CoinDesk:

"Our goal from day one is finding ways to support digital currency and cryptocurrency. Obviously there are different ways to do that, one way is providing stability to core developers in a neutral place. Our hope was in offering them positions we would be able to offer a stable place with resources so they can focus on code."

Andresen outlined the transition in a blog post, stating that the developers collectively thought MIT Media Lab was the best place to continue their work.

The developer also moved to make his views known about the wider debate that recently emerged around core development.

"The Bitcoin Foundation was never the center of development; the bitcoin core open-source software project has been the center, and like most open-source software projects, the developers who work on bitcoin core are supported in many different ways," he wrote.

The post ended with Andresen thanking those who had expressed support during the recent transition period and expressing his enthusiasm for the new opportunity to continue his work.

International network

In interview, Forde expanded on how he envisions the Digital Currency Initiative's role in core development, suggesting that it will seek to leverage the resources available to MIT.

"To the extent possible, we'd like to get more students working with core developments, not just at MIT but at large," Forde said.

Forde further hinted that MIT is "not the only university" interested in digital currencies, and that one of his goals will be to build a global network of educational facilities.

"Our interest is not to make this a US-only effort. We've been reaching out to international universities to incorporate them," Forde said, adding:

"We just launched last Wednesday, so little by little we're getting there."

Image of Gavin Andresen via Flickr 

Standard Chartered Exec Touts Blockchain Tech for Trade Finance

The bitcoin blockchain could hold the keys to reducing the cost of credit cards, money

transfers and remittances, according to Standard Chartered chief innovation officer Anju Patwardhan.

In a new LinkedIn post, Patwardhan outlined her views on the technology, suggesting that the true innovation behind bitcoin is its decentralized public ledger, the blockchain.

Patwardhan dismissed the idea that bitcoin could become a viable alternative currency, inferring that she saw these developments in the space as a distraction that has taken attention away from the system's underlying benefits.

Patwardhan wrote:

"The banking industry is starting to see the many potential benefits of its underlying technology. For banks, the blockchain has the potential to become a technology model for a low-cost and transparent transaction infrastructure."

Further, she said the public, yet pseudonymous nature of transactions on the bitcoin blockchain could help make financial institutions more transparent, while combating against money laundering and other fiscal crimes.

"Another area where the blockchain technology can be useful is trade finance. This has traditionally been a paper-intensive process but it is possible to use blockchain technology to digitise and authenticate the records," Patwardhan continues.

As evidence that banks should perhaps be paying closer attention to the space, Patwardhan cited the increasingly positive remarks of government financial entities such as the Bank of England and the Monetary Authority of Singapore.

Though she suggested that the blockchain may provide the most immediate opportunity for financial entities, however, Patwardhan suggested that cryptocurrencies like bitcoin could prove just as disruptive long term.

Images via LinkedIn; Wikipedia

New Service Finds Optimum Bitcoin Transaction Fee

A new service is offering bitcoin users an answer to the common question: what is the optimum transaction fee?

Using network data from the past three hours, CoinTape lets users compare the current waiting times associated with various fee tiers, calculated in satoshis per byte.

It claims to predict delays with 90% confidence.

The default fee used by many bitcoin wallets is 10 satoshis (0.0000001) per byte. However, according to CoinTape, paying 20 satoshis (0.0000002 BTC) per byte will get you the fastest and cheapest transaction on the network.

For the average-sized bitcoin transaction, 645 bytes, this equates to a fee of 129 bits (0.000129 BTC) (note that this is calculated on a transaction's size, not its dollar value).

The most popular fee ratio CoinTape lists, 41–50 satoshis per byte, used in more than 30,000 transactions today alone, is double this.

Network competition

As the number of bitcoin transactions rise, competition for space in each block is heating up. Miners prioritise transactions with the highest fees, working down the list until the block reaches its limit, commonly 750,000 bytes.

Transactions that don't make the cut remain in the miner's 'memory pool', a kind of bitcoin limbo. They may be included in future blocks depending on their priority or fee.

Currently, you can opt out of the fee altogether. However, there has been debate as to whether this should be raised, with a recent pull request to make a 10,000 satoshi minimum to reduce spam on the network.

CoinTape indicates that avoiding a fee is more likely to result in delays to your payment. It could take up to six blocks, or around one hour (blocks are created roughly every 10 minutes).

Blockchain Offers Alpha Users First Look at New Bitcoin Wallet

Blockchain has officially opened a closed alpha for its new bitcoin wallet.

The launch precedes a formal debut that is likely to be the bitcoin wallet and block explorer provider's biggest announcement since it raised a then-record $30.5m Series A in October 2014. Nearly 3.8 million Blockchain wallet accounts have been opened since launch in 2011, according to its own statistics.

Following its most recent fundraising, Blockchain has been relatively quiet with new announcements, experiencing heavy user backlash amid security issues in December as well as an under-the-radar CEO change.

Alpha users, the company said, were carefully selected with the goal of providing feedback that could improve the product. As such, these users are currently able to get a first look at the service's new security center, improved account management and simplified interface, among other updates.

Blockchain co-founder Nic Cary indicated that the goal of the alpha was to allow the company to iterate the project based on the feedback of influential users.

Cary told CoinDesk:

"We've set up the alpha program to be a community driven development project. We've been soliciting feedback on what users want out of a future wallet in a live environment."

The company said it expects to update the alpha version of the product weekly ahead of its formal launch.

In the mean time, interested community members to register for the private alpha here.

Xapo Execs Lose Bid to Dismiss Breach of Contract Lawsuit

Five Xapo employees have lost their bid to dismiss a breach of contract lawsuit on by former employer LifeLock.
brought

The update is the latest in a case first brought to light by Fortune when it revealed LifeLock was seeking damages from the defendants, including current XapoCEO Wences Casares and COO Federico Murrone, related to the development of IP it says would become the foundation of the bitcoin services firm.

LifeLock has alleged that the defendants did not disclose the "nature and extent" of their role in developing the project, which it argues was created on its computers and using its resources. Xapo has denied the allegations, stating that LifeLock was aware of the project and it relinquished its claim to any technology developed.

LifeLock secured the services of members of the current Xapo team when it purchased Lemon, a digital wallet platform, for $42.6m in December 2013. Xapo has since raised $40m in venture capital, adding former US Treasury Secretary Larry Summers and ex-Citi CEO John Reed to its advisory board in May.

The full filing finds Judge Peter Kirwan overruling objections by the plaintiffs that the breach of contract suit filed by LifeLock be dismissed for lacking sufficient facts. In his notes, the judge also alludes to an agreement allegedly signed between the companies waiving claims to any bitcoin-related technology created.

Kirwan writes:

"The letter thus does not clearly release defendant Casares from any or all of the breaches alleged here, and the demurrer does not lie to only part of a cause of action. Even if it were assumed for purposes of argument that it did, that would not absolve Casares of all potential liability ... Among the fraudulent acts alleged in the third cause of action is that defendant Casares misrepresented his 'personal bitcoin storage business' in order to obtain a letter he could later claim was a release from liability related to his disclosure of confidential information."

The judge goes on to note that LifeLock has alleged Casares "misrepresented" Xapo to obtain a letter he could claim released him from liability for pursuing the venture. LifeLock further has disputed whether its representative had the authority to sign the letter.

The defendants in the case will next be required to attend a hearing on 24th July.

The full text of the filing can be found here.

Businessmen image via Shutterstock

Xapo CEO Wences Casares Takes Legal Action Against LifeLock

Wences Casares, the CEO of bitcoin company Xapo, has begun legal proceedings against online identity firm LifeLock in response to a suit filed by the company which alleged contract violations against him and several Xapo employees.

The cross-complaint filed by Casares at California's Superior Court on 24th July states:

"LifeLock's highly dysfunctional management proved itself to be adept at corporate infighting and bureaucracy, and ultimately unwilling to support the innovative Lemon team that it had acquired, or to permit that team to be led by Casares without interference."

It continues: "LifeLock's dysfunctional management – and its willful and and intentional post-acquisition breaches of its agreements with Casares and his team – squandered the success of its acquired company, and then sought to blame everyone but themselves for their mistakes."

LifeLock acquired digital wallet company Lemon Inc, founded by Casares, for $42.6m in December 2013.

In August 2014, LifeLock filed a complaint against Casares and several Xapo employees, all of whom were employees of Lemon at the time of purchase.

In the complaint, LifeLock alleged that Xapo's software and all related intellectual property was developed by Lemon employees, in Lemon's facilities, using its computers and its resources.

Casares is seeking damages and a jury trial.

CoinDesk has contacted Casares for comment.

The full cross-complaint can be found below: 

New Genesis Mining Tool Seeks Industrial Bitcoin Mining Efficiency

Genesis Mining has launched a new web interface that will enable digital currency miners to gain greater control of their bitcoin and altcoin mining operations.

Initially built for internal use, Genesis Hive is currently being offered to large-scale miners at a rate that varies based on the number of mining units connected to the service each month. The new software is also expected to be made available to medium and small-sized firms at a later, to-be-determined date.

CEO and co-founder Marco Streng indicated that the project aims to reduce the rising complexities associated with industrial-scale bitcoin mining.

Streng told CoinDesk:

"While this has improved efficiency it has also lead to new problems in the mining space. A couple of years ago, no one could have dreamed of thousands of devices mining bitcoin in a single location, and there was no software to handle a setup of this size."

Genesis Mining envisions Hive as a solution to these issues, one that joins the ranks of other enterprise-level bitcoin mining offerings such as HashRabbit that have come to market in recent months.

Streng, however, suggested that Genesis Hive will be competitive as it allows for more flexibility than offerings geared for smaller mining entities.

"Hive does not require you to install any software on your individual rigs and will adapt to whatever network and hardware setup you deem most appropriate," he continued.

New controls

The new tool aims to ease the process to install a mining farm, by automatically detecting, configuring and updating mining units.

Additional control is provided over units in disparate geographies. Users will also be able to "constantly control" their mining rigs through Genesis Hive's dashboard, obtaining hashrate, temperature, rig statuses and power consumption calculations.

"Switching or adding pools, upgrading firmware, rebooting etc is done in a matter of a few clicks on any number of devices simultaneously," the company explained.

Genesis Hive also enables users to perform bulk updates, pool changes or establish automatic tasks depending on individual environmental needs.

Arms race

The launch comes at a time when efficiency is of increasing concern to industrial-scale bitcoin miners, many of whom are competing as the bitcoin price continues to be depressed relative to market highs last year.

Some bitcoin mining firms – such as CEX.io – have pivoted to other economically viable operations, citing the lack of profit as a result of bitcoin's declining price as the decisive factor behind their shift in focus.

However, as some mining outlets struggle, those that control the full lifecycle of hardware development – from the design of new machines to their eventual use – have emerged as market leaders, with BitFury and 21 Inc parlaying their successes into new and more experimental consumer products.

Image via Genesis Mining

Bitcoin's Best Funded Miner BitFury Raises Another $20 Million

BitFury, the best capitalised mining firm in bitcoin, today announced it has raised an

additional $20m in funding.

The raise, its third in two years, brings the company's total to $60m, double that of rival KnCMiner ($29m) and over half of the total investment in mining infrastructure to date ($116.5m).

In a statement, CEO Valery Vavilov said:

"Today, we are excited to announce we have secured a funding round of $20m. The success of yet another funding round validates our business strategy and brings us closer to our ambitious goals."

The Georgian Co-Investment Fund, which took part in the round alongside DRW Venture Capital and iTech Capital, backed BitFury's previous rounds in May and October of 2014 with investor Bill Tai.

The company declined to confirm if other investors participated in its third round when contacted by CoinDesk.

In a statement, BitFury said the funds will go towards "accelerating growth" following its acquisition of a new 100MW data centre in the Republic of Georgia and the roll out of its 28nm ASIC.

The company is also expected to release its first bitcoin mining light bulbs sometime this year.

Industrial processing

Since it was founded by Vavilov and Valery Nebesny in 2011, BitFury has witnessed rapid and dramatic change in the mining sector.

As bitcoin's low value has eaten into miners' profit margins, the hardware firm – which also offers hosting services – has doubled down on its core role as an industrial-scale transaction processor. "The entire bitcoin ecosystem is our client," its site reads.

According to statistics from blogger Organ of Coti, BitFury recently tripled its market share, now processing more of bitcoin's blocks than all private 'block makers' put together.

In a statement on the raise, DRW Venture Capital's founder Don Wilson praised the companies efforts in this area:

"DRW's investment in BitFury is an acknowledgment of the impressive work Valery Vavilov and the team has done to become a leader in the business of securing the blockchain."

Fast and cool

In the transaction processing arms race, BitFury faces competition from KnCMiner, who recentlyunveiled plans for a 18,000-sq ft Arctic air-cooled mining facility that will run on Europe's cheapest electricity.

Rather than sub-zero air, BitFury's new facility will keep its "high performance" 28nm chips at a stable temperature using immersion cooling technology from its subsidiary Allied Control.

Its current data centre, which The Georgian Co-Investment Fund helped develop, is located in Gori, in the east of Georgia. It has a third in Iceland.

In line with BitFury's ambition to double its performance-per-watt every six to 12 months, the facility is likely to house its 16nm ASIC, capable of 0.06 joules-per-gigahash, which is expected later this year.

Image via BitFury

Bitcoin Cloud Mining Service Collapse Exposes Customer Data

A bitcoin mining service called Cloudminr.io has collapsed, resulting in the loss of

bitcoins, the publishing of personal user information and accusations of fraud.

Over the weekend, the main Cloudminr pagewas altered with an offer to sell a list of passwords, email addresses and usernames for 79,267 individuals. One thousand entries from that list were published on the site at the time. The website is currently offline.

Cloudminr, which its owners previously said was hosted in Norway, had been offering mining contracts since November of last year. The service drew criticism for its operational opacity and accusations that Cloudminr was a mining-related Ponzi scheme soon followed.

On 6th July, the primary Bitcoin Talk account for the service claimed that a hack had taken place. Payouts hadn't happened, it was asserted, because of internal concern over the legitimacy of the payment addresses on file.

The message continued:

"Part of the bitcoins went to hackers addresses instead of our own payment addresses. Currently we are looking for any logs related to the hack and estimating the losses. We need to create a new website from scratch on new servers as hackers usually leave backdoors for later access. Stay tuned."

The representative, identified only as Adrian, claimed the service was the target of a smear campaign and that access to email and social media contacts had been lost. No further updates have been made by the Cloudminr account since 6th July.

Payout issues appear to have dogged customers of the service, soliciting complaints of underperforming in mid-June. The last payout to Cloudminr customers – which were delayed following a claimed platform shutdown – took place on 28th June.

Whether more information surfaces remains to be seen. For now, customers and observers commenting on the collapse have chalked up the situation as another mining scam to run its course.

Decline chart image via Shutterstock

Jeff Garzik Submits Proposal to Double Bitcoin Block Size Limit

Bitcoin core developer Jeff Garzik has proposed increasing bitcoin's block size limit to 2MB.

Blocks – which are created every 10 minutes – currently hold only 1MB of transactions each. However, if the bitcoin network is to scale competitively it will need to exceed the three to seven transactions per second it currently supports.

With the 1MB limit looking to be reached within the next few months, Garzik says his proposal, BIP 102, is an emergency 'fallback' if consensus among bitcoin's stakeholders is not reached.

"If we can find a more complete solution, yes, by all means, let's throw BIP 102 in the trash," the developer told Reddit.

Gavin Andresen first proposed to increase the block size to 20MB earlier this year. The idea has since sparked a highly politicised debate among fellow core developers and the wider community.

While some think the limited space for transactions in each block will create a market for fees, others have warned doing nothing could disrupt the robustness of – and people's trust in – bitcoin.