"World's First" Insured Bitcoin Vault

The BBC reports on the world's first insured "vault" for storing bitcoins:

A Bitcoin storage service that insures deposits of the digital currency against loss and theft has launched in London. 

Elliptic Vault uses "deep cold storage", where private encrypted keys to bitcoins are stored on offline servers and in a secure location. 

The facility's founders say they are the "first in the world" to offer insurance for Bitcoin owners.

Providing insurance for bitcoins is an important step in the currency's quest for legitimacy.  Unlike traditional currency, bitcoins cannot typically be insured, and the BBC reports that this has led to investors losing substantial amount of moneys through theft or through accidentally discarding storage devices containing bitcoins.  I have blogged previously about the dangers of bitcoin theft, and the implications these dangers have for bitcoin investment.

While insurance may alleviate some of the risks of bitcoin theft, some instability remains.  The threat of political non-recognition of the currency, and restrictions on its investment, can have substantial impacts on the value of bitcoins.  For example, I blogged a while back about some of China's restrictions on bitcoins and their plummet in value as a result of the closure of one of China's major bitcoin exchanges.

But bitcoin advocates are persistent.  Even though China's central bank refused to recognize bitcoins, following the shutdown of the major exchange, new exchanges sprang up to fill the void.  The Financial Times reports that Chinese exchanges have gained a "dominant share" of global transactions in the currency due to the exchanges' fast adaptation to changing legal landscapes.

It will be interesting to see if more insurers are willing to underwrite bitcoin investments.  If this catches on, then risks of theft and hacking may be less of a systematic concern for the currency.

More Perils and Prospects for Bitcoin Investment

It has been an interesting and informative day for people interested in Bitcoins.

Fausto Sanchez writes at JD Supra that "Bitcoins Mean Business," and notes that even though Bitcoins are a new currency, their increase in value and the increasing attention that businesses have continued to pay to Bitcoins means that the currency may become a significant force in the market.  The article does a good job of summarizing what Bitcoins are and why they have become so popular.

Nathalie Beauregard writes, also at JD Supra, in a more measured manner.  She points out the uncertainties in Canadian law when it comes to investing in Bitcoins and highlights numerous areas of the law that will need to be clarified for those interested in investing Bitcoins in Canada.  Ultimately, she recommends holding off on Bitcoin investment in Canada until investors get clarification of the issues she highlights through prior approval or guidelines from regulators.

Meanwhile, however, The Guardian reports:

The price of bitcoin has plummeted following an announcement from China's largest bitcoin exchange that it would no longer be accepting new yuan deposits. 

BTC China said that due to action by a third-party payment provider, YeePay, it could no longer accept deposits in the Chinese currency, although it would still be able to process withdrawals. BTC's chief executive, Bobby Lee, said that YeePay gave notice on Wednesday morning Shanghai time that it would no longer provide services. 

Lee blamed government regulation for the decision. China's central bank warned in early December that bitcoin was not legally protected and had no "real meaning", and barred financial institutions from using the currency.

Further coverage on this incident from Ars Technica is available here.  Also, Dan Harris of the China Law Blog thinks that "this is the end of Bitcoin in China."  The previously-mentioned concerns arising from the regulatory uncertainty of Bitcoins in other countries and from the nature of the currency may end up being overshadowed by this incident if Harris' assessment is correct.

Suspended Death Sentences

I was reading Richard Cassin's very interesting post at the FCPA Blog about how many corrupt Chinese government officials are being caught when their mistresses disclose the officials' corrupt activities, when one particular term caught my eye.  Cassin mentioned a previous case where a former Railways Minister, Liu Zhijun, had received a "suspended death sentence" for graft.

This sentence struck me as peculiar because suspended sentences in the United States tend only involve jail or prison sentences.  An individual who is convicted and receives a suspended sentence is pretty much off the hook, although if they end up getting convicted of another crime in the future, the prior, suspended sentence may be imposed.

In China, suspended death sentences are imposed with a certain time limit.  For example, Liu, the former Railways Minister, was sentenced to a two-year suspended death sentence.  After those years pass, and if Liu has maintained good behavior in prison (which apparently almost always happens), the suspended death sentence becomes a sentence to life in prison -- which in turn can be reduced to a certain term of years.  This type of sentence is exclusive to Chinese law.

Suspended death sentences are controversial in China, a country known for handing down a lot of death sentences.  While the death sentence is viewed as a deterrent for corrupt officials, the prospect of having this sentence suspended makes it a far less frightening prospect.

The Dark Side of China's Crackdown on Corruption

The BBC reports that a Chinese official, Yu Qiyi, was allegedly drowned by Communist Party investigators during following an interrogation on April 8.  Suspected of wrongdoing arising out of a land deal, Yu was subjected to "the shuanggui process, an internal disciplinary procedure where officials are asked to confess wrongdoings."  During his April 8 interrogation, interrogators' reportedly submerged Yu's head in icy water multiple times in their efforts to obtain a confession.  This tactic seems to have caused Yu's death the following morning. The BBC adds that the shuanggui process is "extra-legal" and has resulted in "a number of reports of sudden deaths in recent months."

This report reveals the darker side of China's recent crackdown on corruption.  The biggest story I have heard that stems from this trend is the GlaxoSmithKline investigation, where Chinese authorities have alleged that the company "paid up to $490 million to doctors in China through 700 travel agencies in exchange for sales of drug products."  The investigation has gone from an initial focus on individual sales agents to an allegation that the corruption is much more systematic and part of GSK China's overall business plan.  The investigation has led to various arrests, including the arrest and resulting confession of Peter Humphrey and his wife Yu Yingzeng who were operating a fraud investigation business that was allegedly involved in the GSK bribery scheme.  At China Law Blog, Dan Harris notes that these arrests signal China's ramped-up enforcement of its corruption laws and warns people doing business in China to avoid anything that even slightly resembles corruption.

Yu's arrest adds a troubling dimension to this fast-evolving situation.  It will be interesting to see how transparent the investigations remain - the BBC notes that the details of Yu's death are a "rare acknowledgement" of the methods employed by China's government.  For those doing business in China, interesting times are certainly ahead.