Bitcoins dramatic surge may be more than just a speculative frenzy. The recent rally is being driven partially by enthusiasts rotating out of riskier digital assets and into the more establishedcryptocurrency, according to industry executives.

"A lot of the volume into bitcoin right now is actually not dollar or yen or euro into bitcoin, but is rather alt digital assets," said Peter Smith, co-founder and CEO of digital asset software platform Blockchain, at an industry conference Tuesday that brought in 2,700 people on the first day. People do view a lot of these newer assets as more risky, and so when they make big gains there, theyre selling down those gains and rotating into bitcoin."

Numerous alternative cryptocurrencies, or "altcoins" such as ripple, have emerged since bitcoin broke into public consciousness in 2013. Companies can sell new tokens through initial coin offerings, or ICOs. While the cost of one bitcoin has skyrocketed to more than $2,000 from just 8 cents in 2010, you can buy one litecoin for about $30.

The price of ether, the cryptocurrency tied to the Ethereum blockchain, has almost doubled in the last week.

Some are worried that theres a bitcoin bubble in the making, but Smith and Erik Voorhees, founder and chief executive officer of cryptocurrency exchange ShapeShift, arent too concerned. Booms and busts are a normal part of any economic cycle, they said at the Consensus 2017 conference.

"Every time bitcoin goes through these bubbles, a whole new wave of users come in," Voorhees said. "The reason that bitcoin is taking off is because banks have not been innovating."

Read more on Fidelitys Abby Johnsons view on blockchain barriers

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The surge has also been tied to global political uncertainty and increased interest in Asia. Chinese stocks have slumped in recent months as bitcoin soared. The Shanghai Composite Index has fallen 6.9 percent from its high this year on April 11 amid concern authorities will step up measures to crack down on leveraged trading. China also may publish bitcoin regulations in June, according to a report earlier this month.

"Bitcoin up 100% in under 2 months. Shanghai down almost 10% same timeframe, compared to most global stocks up. Probably not a coincidence!" Doubleline Capital CEO Jeff Gundlach wrote in a tweet Tuesday.

ShapeShift users, only about 15 percent of whom are in the U.S., are moving small amounts of value between different digital tokens as they speculate about the best place to put their money, Voorhees said. Bitcoin is the "least speculative" of the digital assets, he explained.

Smiths company, whichadded former Barclays Plc CEO Antony Jenkins as a board member last year, has grown every year regardless of bitcoins price, he said.

"One of the beautiful things about bitcoin is you get to see free-market economics at work every day, and bubbles and creative destruction are part of that process," added Smith, who said people have been incorrectly writing bitcoins obituary as it goes through natural up and down cycles. "Im sure well add a lot of obituaries if the market reverses and we go down below $2,000."

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Bitcoin Surge Is Driven by People Leaving Riskier Digital Currencies, Say Execs - Bloomberg

A reaction to the 2008 financial crisis, Bitcoin is a digital-currency scheme designed to wrest control of the monetary system from central banks. With Bitcoin, anyone can mint money, provided he or she can complete a complex computation quickly enough. Through a set of clever protocols, that computational hurdle prevents the system from being coopted by malicious hackers.

At the IEEE Symposium on Security and Privacy this week, researchers from MITs Computer Science and Artificial Intelligence Laboratory are presenting a new system that uses Bitcoins security machinery to defend against online identity theft.

Our paper is about using Bitcoin to prevent online services from getting away with lying, says Alin Tomescu, a graduate student in electrical engineering and computer science and first author on the paper. When you build systems that are distributed and send each other digital signatures, for instance, those systems can be compromised, and they can lie. They can say one thing to one person and one thing to another. And we want to prevent that.

An attacker who hacked a public-key encryption system, for instance, might certify or cryptographically assert the validity of a false encryption key, to trick users into revealing secret information. But it couldnt also decertify the true key without setting off alarms, so there would be two keys in circulation bearing certification from the same authority. The new system, which Tomescu developed together with his thesis advisor, Srini Devadas, the Edwin Sibley Webster Professor of Electrical Engineering and Computer Science at MIT, defends against such equivocation.

Because Bitcoin is completely decentralized, the only thing ensuring its reliability is a massive public log referred to as the blockchain of every Bitcoin transaction conducted since the system was first introduced in 2009. Earlier systems have used the Bitcoin machinery to guard against equivocation, but for verification, they required the download of the entire blockchain, which is 110 gigabytes and growing hourly. Tomescu and Devadas system, by contrast, requires the download of only about 40 megabytes of data, so it could run on a smartphone.

Striking paydirt

Extending the blockchain is integral to the process of minting or in Bitcoin terminology, mining new bitcoins. The mining process is built around a mathematical function, called a one-way hash function, that takes three inputs: the last log entry in the blockchain; a new blockchain entry, in which the miner awards him- or herself a fixed number of new bitcoins (currently 12.5); and an integer. The output of the function is a string of 1s and 0s.

Mining consists of trying to find a value for the input integer that results in an output string with a prescribed number of leading 0s currently about 72. Theres no way to do this except to try out lots of options, and even with a huge bank of servers churning away in the cloud the process typically takes about 10 minutes. And its a race: Adding a new entry or block to the blockchain invalidates the most recent work of all other miners, who now have to start over using the newly added block as an input.

In addition to assigning the winning miner the latest quota of bitcoins, a new block in the blockchain also records recent transactions by Bitcoin users. Roughly 100,000 commercial vendors in the real world now accept payment in bitcoins. To verify a payment, the payer and vendor simply broadcast a record of their transaction to the Bitcoin network. Miners add the transaction to the blocks theyre working on, and when the transaction shows up in the blockchain, its a matter of public record.

The transaction record also has room for an 80-character text annotation. Eighty characters isnt enough to record, say, all the public keys certified by a public-key cryptography system. But it is enough to record a cryptographic signature verifying that a certification elsewhere on the Internet is legitimate.

Previous schemes for preventing equivocation simply stored such signatures in the annotations of transaction records. Bitcoins existing security structure prevents tampering with the signatures.

But verifying that a Web service using those schemes wasnt equivocating required examining every transaction in every block of the blockchain or at least, every block added since the service first used the scheme to certify a public assertion. Its that verification process that Tomescu and Devadas have refined.

Efficient audits

Our idea is so simple its embarrassingly simple, Tomescu says. The central requirement of Bitcoin is that no one can spend the same bitcoin in more than one place, and the system has cryptographic protocols in place to prevent that from happening.

So Tomescu and Devadass system called Catena simply adds the requirement that every Bitcoin transaction that logs a public assertion must involve an actual bitcoin transfer. Users may simply transfer the bitcoin to themselves, but that precludes the possibility of transferring the bitcoin to anyone else in the same block of the blockchain. Consequently, it also precludes equivocation within the block.

To prevent equivocation between blocks, its still necessary to confirm that the bitcoin that the Catena user spends in one block is the same one that it spent the last time it made a public assertion. But again, because the ability to verify a bitcoins chain of custody is so central to the success of the whole Bitcoin system, this is relatively easy to do. People who want to use Catena to audit all the public assertions of a given Web service still need to download information from every block of the blockchain. But they need to download only a small cryptographic proof about 600 bytes for each block, rather than the blocks full megabyte of data.

The abstraction that the paper lays out is a really good idea the idea of making it possible to create, you might say, smaller blockchains or linked lists within a blockchain specific to a particular account or a particular object, says Bryan Ford, an associate professor of computer science at the Swiss Federal Institute of Technology in Lausanne. Its very cool, nice, clean, useful primitive, clearly explained. Its very synergistic with an idea weve been working on, which creates an efficiently traversable timeline, which we call a skip chain, meaning a timeline you can skip around on arbitrarily forward and back, where from any point you can verify any other point in the timeline very efficiently.

If you can eliminate the possibility of equivocation, it becomes easier to secure many algorithms, he adds. Its a generally important problem.

See more here:
Using Bitcoin to prevent identity theft - MIT News

Just in 2017, bitcoin prices have soared 125%.

And traders can probably thank President Trump for at least part of the big spike.

Last week, markets were rocked after reports about former FBI director James Comey's memo about being asked by Trump to stop an investigation of former National Security Adviser Michael Flynn's ties to Russia.

Stocks plunged due to rising levels of uncertainty about Trump's ability to get anything meaningful accomplished as he deals with this crisis. And the US dollar weakened too. But bitcoin (XBT) is a beneficiary of this turmoil. So is gold.

One of the reasons digital currencies like bitcoin and lesser known ones such as Ethereum and Ripple have soared this year is because they, like gold, are not backed by governments. Bitcoins are tracked in a public online record known as the blockchain.

There are a finite number of bitcoins that can be "mined" -- that is, made available after a complex math problem is solved. And even though the record of transactions is public, there is a level of anonymity about who is making the transactions.

Bitcoin prices have tended to pop over the past few years at times of geopolitical uncertainty -- and especially when there were significant questions or concerns about the health of a major country's paper currency.

Trump has already talked about wanting the dollar to be weaker to help make the products of big US multinationals more competitive overseas. So that may be helping to lift the price of bitcoin.

The president also has some known bitcoin bulls in his administration as well.

His budget director, former US House member Mick Mulvaney, had been dubbed the "Bitcoin Congressman" by some of the currency's backers.

Related: Billionaire says he has 10% of his money in bitcoin and other digital currencies

And vice president Mike Pence's chief economist Mark Calabria has given speeches in support of bitcoin as well. Calabria was formerly the director of financial regulation studies at the libertarian-leaning Cato Institute before joining the administration.

Many experts also think President Trump's fiscal spending plans could be highly inflationary. That could further weaken the dollar and fuel the rise in bitcoin and gold prices.

But concerns about just what Trump will actually be able to accomplish in the wake of the Comey allegations are another big reason for the dollar's recent slide and accompanying rise in bitcoin.

There is even some speculation about whether or not Trump's presidency could end prematurely due to him resigning, being impeached, or removed via the 25th Amendment of the US Constitution.

Add it all up and it appears that bitcoin prices could continue to climb higher. But some are worried that the party could end soon.

I asked my followers on Twitter what they thought was next for bitcoin.

Several expressed concerns that prices will come tumbling down since bitcoin has been an extremely volatile investment over the past few years. When bitcoin topped the $1,000 level in January, it was the first time it had done so in three years.

Those are great points. It is debatable whether bitcoin can ever become a mainstream form of payment. Just look at how little money the hackers behind the recent WannaCry ransomware made by demanding payment in bitcoin.

But Ross Gerber, CEO of investment firm Gerber Kawasaki and a frequent guest on CNNI's business programs, noted that bitcoin may be the perfect currency for these crazy and tumultuous times.

In other words, bitcoin and its smaller digital currency siblings could continue to benefit from all the turmoil in Washington.

CNNMoney (New York) First published May 22, 2017: 10:58 AM ET

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Bitcoin prices are soaring under Trump - CNNMoney

A closely-watched fight between the Internal Revenue Service and a popular bitcoin exchange took a new twist last week, as senior Republicans in Congress sent a sharply-worded letter that suggests the tax agency is overstepping its powers.

The letter concerns an IRS investigation into possible tax evasion by customers who use Coinbase, a San Francisco-based company that many people use to buy digital currencies. As part of the investigation, which began last year, officials demanded that Coinbase turn over information for every one of its accounts.

Coinbase and its customers are currently in court trying to block the demand, saying it's too broad, and now the letter from the Republicans is likely to give them extra ammunition.

"The summons is estimated to affect 500,000 active Coinbase customers and would result in the production of millions of pages of associated records, many of which contain personally identifiable information ... Based on the information before us, this summons seems overly broad, extremely burdensome, and highly intrusive to a large population of individuals ," says the letter, which is signed by Sen. Orrin Hatch (R-Ut), Chairman of the Senate Finance Committee, and by Vern Buchanan and Kevin Brady, who head the House Committee on Ways and Means. (my emphasis)

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The Republicans' concerns echo those of Coinbase and its customers, who argue the IRS does not need every single Coinbase account to carry out its audit, and that the investigation sweeps in people who have clearly done nothing wrong.

The tax agency, for its part, has pointed out that only 802 Coinbase users filed a tax form related to bitcoin in 2015, which suggests large number of people have failed to declare capital gains related to bitcoin.

The IRS investigation also comes at a time when the price of bitcoin has been on an incredible tear, climbing from $13 in 2013 to a new high of over $2,000 last week. Those who profited from the higher priceseither by selling bitcoin for dollars or exchanging it for merchandiseare required to pay taxes on the gain.

Some Coinbase customers, however, have not sold any bitcoin at all while many others hold only a minimal amount, raising questions of why the IRS demanded information about every account.

One theory, according to a lawyer who spoke with Fortune late last year, is that the IRS's sweeping demand is a negotiating tactic to make Coinbase more cooperative, and that the two sides will reach an agreement to allow the agency to inspect some, but not all, of the accounts.

The letter from the Republicans, which asks the IRS to explain its strategy for enforcing tax payments on digital currency by June 7, is likely to put pressure on the agency to come to a deal with Coinbase.

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IRS Probe of Bitcoin Goes Too Far, GOP Warns - Fortune