Why A.I. and Cryptocurrency Are Making One Type of Computer Chip Scarce


When the company recently ordered new hardware from a supplier in China, the shipment was delayed by four weeks. And the price of the chips was about 15 percent higher than it had been six months earlier.

“We need the latest G.P.U.s to stay competitive,” Mr. Scott said. “There is a tangible impact to our research work.”

But he did not blame the shortage on other A.I. specialists. He blamed it on cryptocurrency miners. “We have never had this problem before,” he said. “It was only when crypto got hot that we saw a significant slowdown in our ability to get G.P.U.s.”

G.P.U.s were originally designed to render graphics for computer games and other software. In recent years, they have become an essential tool in the creation of artificial intelligence. Almost every A.I. company relies on the chips.

Like Malong, those companies build what are called neural networks, complex algorithms that learn tasks by analyzing vast amounts of data. Large numbers of G.P.U.s, which consume relatively little electrical power and can be packed into a small space, can process the huge amounts of math required by neural networks more efficiently than standard chips.

Speculators in digital currency are snapping up G.P.U.s for a very different purpose. After setting up machines that help run the large computer networks that manage Ethereum and other Bitcoin alternatives, people and businesses can receive payment in the form of newly created digital coins. G.P.U.s are also efficient for processing the math required for this digital mining.

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The Volta graphics processing unit, or G.P.U., made by Nvidia. A boom in artificial intelligence and the rise of cryptocurrencies has created a surge in demand for such chips.

Credit
Christie Hemm Klok for The New York Times

Crypto miners bought 3 million G.P.U. boards — flat panels that can be added to personal and other computers — worth $776 million last year, said Joe Peddie, a researcher who has tracked sales of the chips for decades.

That may not sound like a lot in an overall market worth more than $15 billion, but the combination of A.I. builders and crypto miners — not to mention gamers — has squeezed the G.P.U. supply. Things have gotten so tight that resellers for Nvidia, the Silicon Valley chip maker that produces 70 percent of the G. P.U. boards, often restrict how many a company can buy each day.

“It is a tough moment. We could do more if we had more of these” chips in our data centers, said Kevin Scott, Microsoft’s chief technology officer. “There are real products that could be getting better right now for real users. This is not a theoretical exercise.”

AMD, another G.P.U. supplier, and other companies, say that some of current shortage is a result of a limited worldwide supply of other components on G.P.U. boards, and they note that retail prices have begun to stabilize. But in March, at his company’s annual chip conference in Silicon Valley, Nvidia’s chief executive, Jen-Hsun Huang, indicated that the company still could not produce the chips fast enough.

This has created an opportunity for numerous other chip makers. A company called Bitmain, for instance, has released a new chip specifically for mining Ethereum coins. Google has built its own chip for work on A.I. and is giving other companies access to it through a cloud computing service. Last month, Facebook indicated in a series of online job postings that it, too, was working to build a chip just for A.I.

Dozens of other companies are designing similar chips that take the already specialized G.P.U. into smaller niches, and more companies producing chips means a greater supply and lower prices.

“You want this not just for economic reasons, but for supply chain stability,” said Mr. Scott of Microsoft.

The market will not diversify overnight. Matthew Zeiler, the chief executive and founder of a computer-vision start-up in New York, said the prices of some of the G.P.U. boards that the company uses have risen more than 40 percent since last year.

Mr. Zeiler believes that Nvidia will be very hard to unseat. Many companies will stick with the company’s technology because that is what they are familiar with, and because the G.P.U. boards it provides can do more than one thing.

Kevin Zhang, the founder of ABC Consulting, has bought thousands of G.P.U.s for mining various digital currencies. He said that a chip just for, say, mining Ethereum was not necessarily an attractive option for miners. It cannot be used to mine other currencies, and the groups that run systems like Ethereum often change the underlying technology, which can make dedicated chips useless.

Interest in digital currency mining could cool, of course. But the A.I. and gaming markets will continue to grow.

Mr. Zeiller said that his company had recently bought new G.P.U.s for its data center in New Jersey, but could not install them for more than a month because the computer racks needed to house the chips were in short supply as a result of the same market pressures.

“The demand,” he said, “is definitely crazy.”

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Should the Fed Create ‘FedCoin’ to Rival Bitcoin? A Former Top Official Says ‘Maybe’


If cryptocurrency and blockchain technology really are the future of money, the world’s central banks need to get involved, a former Fed governor argues.

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Kevin Warsh in London in 2014. “It strikes me that a central bank digital currency might have a role to play,” he said Thursday night.CreditPool photo by Alastair Grant

Many enthusiasts of Bitcoin and other cryptocurrencies are motivated by deep skepticism of the central banks that control the world’s money supply.

But what if central banks themselves entered the game? What would happen if the Federal Reserve, or the European Central Bank or the Bank of Japan used blockchain technology to create their own virtual currencies? Besides, that is, having some cryptocurrency fans’ heads explode?

A former Fed governor — who was also a finalist to lead the central bank — thinks the idea deserves serious consideration.

“Most central banks have a view that these crypto-assets are clever, like guys in the garage did it and it’s kind of cool, or risky,” given the potential investor losses and widespread fraud, said Kevin Warsh, who was a governor at the Fed from 2006 to 2011 and was a top contender to become its chairman late last year when President Trump instead appointed Jerome Powell.

If he had returned to the Fed, Mr. Warsh said, he would have appointed a team “to think about the Fed creating FedCoin, where we would bring legal activities into a digital coin.”

“Not that it would supplant and replace cash,” he said, “but it would be a pretty effective way when the next crisis happens for us to maybe conduct monetary policy.”

He added that blockchain technology, which allows reliable, decentralized record keeping of transactions, could be useful in the payment systems operated by the Fed, which enable the transfer of trillions of dollars between banks.

“It strikes me that a central bank digital currency might have a role to play there,” Mr. Warsh, who is now a distinguished visiting fellow at the Hoover Institution at Stanford, told several reporters Thursday evening.

Some central banks are already doing work in this vein, including the Monetary Authority of Singapore and the Bank of England. And Mr. Powell acknowledged the potential applications in his confirmation hearing for the Fed chairmanship in November, saying, “We actually look at blockchain as something that may have significant applications in the wholesale payments part of the economy.”

It would be quite a twist if a technology whose most ardent fans are motivated by distrust of central banks became a key tool for those banks.

But it would address some of the concerns connected to Bitcoin and its many privately created rivals. To the degree that the value of existing cryptocurrencies fluctuates wildly, they are ill-suited as a medium of exchange. Central banks have spent hundreds of years learning how to keep the value of money stable.

And to the degree Bitcoin and the like facilitate tax evasion, money laundering and fraud, they will be a target of global law enforcement. Central banks are used to building systems that allow enforcement of those laws.

It’s clear that central banks weighing use of blockchain technology don’t share the more anarchist impulses of some of the most die-hard cryptocurrency enthusiasts. But there may be more commonality than it might seem. As Mr. Warsh argues, if people really do believe that digital currencies in some form are the future of money, it would behoove central banks to treat them as more than a novelty.

“Congress gave the Fed a monopoly over money,” Mr. Warsh said. “And if the next generation of cryptocurrencies look more like money and less like gold — and have less volatility associated with them so they would be not just a speculative asset but could be a reliable unit of account — as a purely defensive matter I wouldn’t want somebody to take that monopoly from me.”

In other words, if cryptocurrency enthusiasts are correct that this technology could become a better way of carrying out even routine transactions, the Fed and its counterparts are the institutions that have the most to lose.

Neil Irwin is a senior economics correspondent for The Upshot. He previously wrote for The Washington Post and is the author of “The Alchemists: Three Central Bankers and a World on Fire.”@Neil_IrwinFacebook

How Could Bitcoin Suspect Leave an Iceland Prison’s Comforts Behind? Easily


REYKJAVIK, Iceland — It has been more than four months since thieves pulled off the biggest heist in the history of Iceland, and the police here still have no idea where the booty — roughly $2 million worth of Bitcoin-mining computers — is stashed.

A breakthrough in the case seemed imminent in early February when the authorities detained Sindri Stefansson, a 31-year-old man with a rap sheet that includes drug possession and burglary. Even though he hadn’t been charged, let alone convicted, the media tagged him the “mastermind” of the crime, largely because he was held in prison longer than any of the 11 suspects who were questioned.

Then, like the computers, Mr. Stefansson disappeared. For the next five days he was an international fugitive. After escaping from the prison — a feat that took surprisingly little effort, given the institution’s bare-minimum approach to security — he hopped a taxi to the country’s largest airport, where he boarded an early-morning flight to Stockholm. In a twist that seems borrowed from a cheesy caper film, the plane also carried Katrin Jakobsdottir, the prime minister of Iceland.

“We did not chat,” Mr. Stefansson said, calling from a prison near Amsterdam in his first interview since he was arrested two weeks ago in the Netherlands. Speaking by phone in a gloomy monotone, he said he had worn a baseball cap and avoided the gaze of everyone on the plane. “I kept my head down as much as I could.”

After the recent rash of cryptocurrency-related crimes, many of them gunpoint stickups of people forced to empty their virtual wallets, a theft like this seemed all but inevitable. And Iceland is one of the world’s premier venues for mining operators, who are drawn to the country’s cheap electricity and chilly weather, which helps keeps computers cool.

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Mr. Stefansson, 31, was questioned in the $2 million theft of Bitcoin-mining computers from a warehouse.CreditThe Reykjavík Metropolitan Police, via Associated Press

Mr. Stefansson would not discuss what the media has named the Big Bitcoin Heist. Instead, he focused on his regret for having fled, a decision that, he said, he rued as soon as he landed in Sweden and realized that his mug shot was all over the media.

“I did not eat and had a constant knot in the pit of my stomach,” he said. “I was disappointed in myself for making my family suffer, and nervous about being recognized.”

Detectives in Reykjavik would like to have a conversation of their own with Mr. Stefansson, and they are likely to get that opportunity on Friday, when he is scheduled to be extradited to Iceland. He will return to a country riveted by his case. Calls have poured into a tip line with theories about where the computers are stored and, until recently, where Mr. Stefansson may be found.

“I can tell you the Icelandic public has been very interested,” Olafur Kjartansson, the lead police investigator, said in an interview. “I’m sitting in the public hot baths and friends and colleagues will say to me, ‘Did you find him?”’

The theft suggests that security at some of Iceland’s Bitcoin mining operations has yet to catch up to the value of the commodity, now trading at $9,600 apiece. If the warehouse that was robbed was digging for gold instead of running an algorithm in a quest for cryptocurrency, odds are that the crime would have been far trickier to pull off.

Then again, this is Iceland, a place that seems to presume its citizens will abide by the law. An astonishing amount of social trust is embedded in society, a phenomenon that is especially evident when looking at the country’s penal system.

Mr. Stefansson had been kept at Sogn, which is known as an open prison. Inmates live in their own rooms, which have prison-issued flat-screen TVs, and talk on their own cellphones. During the day, inmates earn the equivalent of $4 an hour cooking, cleaning and maintaining a chicken coop.

“It’s a friendly atmosphere,” said Gudmundur Thoroddsson, a prisoner advocate who was recently released from Sogn. “There’s a good relationship with the guards. Never any fighting or arguing.”

The prison is at the foot of a treeless hill and looks more like a rural two-story home than a penitentiary. During a recent visit, the entrance road was blocked by the sort of gate used by pay-by-the-hour parking garages. The property, which includes a soccer field, is surrounded by wire fencing a few feet high.

Mr. Stefansson wouldn’t have needed a running start to jump it. The night he bolted, he started browsing for international flights on his cellphone at about 11, he said in the interview. After booking one under an assumed name, he opened his window and left. He claims that he walked a mile to Route 1, the road that rings the island, and hitchhiked 59 miles to Keflavik, a town near the airport. (The police maintain that an accomplice drove him.) From there, he called a cab.

Once in Stockholm, he traveled via train, taxi and ferry to Germany through Denmark. There he met “individuals” who drove him to Amsterdam. He enjoyed just three hours of freedom in the Dutch capital. Unbeknown to him, the local authorities had been quickly tipped off by two pedestrians with a cellphone photograph of a person they believed was the much-publicized wanted man. Soon after, an officer approached Mr. Stefansson and demanded identification.

“I was just walking when it happened,” he said.

The police in Iceland have said little about any evidence they have linking Mr. Stefansson to the computer theft. It was actually three separate thefts over the course of a few weeks, starting Dec. 5. One occurred at a compound near the airport, home to a handful of cryptocurrency mining warehouses leased to different companies. The warehouses look like hangars, though instead of containing jets these are densely packed with computers, numbered and neatly arranged on shelves. Giant fans hum noisily overhead.

“If you spent a day here, you would probably go deaf,” shouted Mia Molnar of Genesis Mining, which is based in Hong Kong and mines coins for Ethereum, a Bitcoin rival.

She was giving a tour of Genesis’ warehouse and later, in a far quieter room, offered her best shot at explaining what all those computers are doing. The simplified version: They are engaged in a nonstop, worldwide race to process new transactions using cryptocurrencies, digital tokens that can be traded electronically. The task requires ever more powerful equipment. Success is rewarded, digitally and automatically, with a small batch of new coins.

Bitcoin and other virtual currencies have been viewed warily by some governments and criticized by environmentalists for hoovering up vast and increasing amounts of electricity. Genesis and its competitors, on the other hand, see a financial opportunity, one that has sent the value of their mining equipment soaring.

“I think a lot of companies have been more worried about hacks,” Ms. Molnar said. “Less about the hardware.”

The warehouse adjacent to Genesis’ is the one that was robbed. The lessee of that building, which appears to be under construction, has not been publicly identified. Through the police, the company has offered $60,000 to anyone who leads detectives to the stolen property.

At the same time, the police have been searching for the machines by studying the electrical grid for surges in use. They have also followed up on ideas provided by the public, including one from a psychic. So far, said Mr. Kjartansson, the police investigator, the search has been fruitless.

His hunch, based on the sophistication of the theft, is that the perpetrators worked with an overseas syndicate of organized crime. Nothing in Mr. Stefansson’s long record indicates international links of any kind. He has been convicted of possessing drugs and driving under the influence, and the grandest of his larcenies is the $2,000 he stole from slot machines in a Reykjavik bar.

He said in the interview that he had been sober for more than seven years and made apps and websites for a living. He minimized a recent arrest for growing marijuana as a “side business.” When he was arrested for the Bitcoin robbery, Mr. Stefansson said, he was two days away from restarting his life and moving to Spain with his wife and three children.

If Mr. Stefansson is ultimately charged with any heist-related crimes, his prison break won’t be one of them. In Iceland, it is not against the law to escape from prison.

“Our system supposes that a person who has been deprived of his freedom will try to regain it,” said Jon Gunnlaugsson, a former judge on Iceland’s Supreme Court. “It’s the responsibility of prison authorities to keep him there.”

Further, it is unclear whether the police had the right to continue holding Mr. Stefansson in prison in the first place. He was not under arrest at the time, because a judge’s order to keep him in custody had expired hours before his escape. In advance of a hearing to extend the custody order, the police persuaded Mr. Stefansson to sign a document agreeing to stay in prison voluntarily.

He immediately decided the agreement was bogus. In an open letter published in an Icelandic daily while he was on the lam, he wrote that given the circumstances, he was genuinely surprised to find himself the subject of a manhunt.

Paradoxically, one of Mr. Stefansson’s primary goals now is returning to the very place he was so eager to leave. At the prison near Amsterdam, he said, he was just a name and number, underfed and wary of his fellow inmates.

By comparison, he said, “Icelandic prisons are a hotel.”

Egill Bjarnason contributed reporting.

Goldman Sachs to Open a Bitcoin Trading Operation


“I would not describe myself as a true believer who wakes up thinking Bitcoin will take over the world,” Ms. Yared said. “For almost every person involved, there has been personal skepticism brought to the table.”

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Justin Schmidt, left, who will run Goldman Sachs’s Bitcoin operation, with Marianna Lopert-Schaye, vice president of principal strategic investments, and Neema Raphael, who leads research and development.

Credit
Andres Kudacki for The New York Times

Still, the suggestion that Goldman Sachs, among the most vaunted banks on Wall Street and a frequent target for criticism, would even consider trading Bitcoin would have been viewed as preposterous a few years ago, when Bitcoin was primarily known as a way to buy drugs online.

Bitcoin was created in 2009 by an anonymous figure going by the name Satoshi Nakamoto, who talked about replacing Wall Street banks — not giving them a new revenue line.

Over the last two years, however, a growing number of hedge funds and other large investors around the world have expressed an interest in virtual currencies. Tech companies like Square have begun offering Bitcoin services to their customers, and the commodity exchanges in Chicago started allowing customers to trade Bitcoin futures contracts in December.

But until now, regulated financial institutions have steered clear of Bitcoin, with some going so far as to shut down the accounts of customers who traded Bitcoin. Jamie Dimon, the chief executive of JPMorgan Chase, famously called it a fraud, and many other bank chief executives have said Bitcoin is nothing more than a speculative bubble.

Ms. Yared said Goldman had concluded that Bitcoin is not a fraud and does not have the characteristics of a currency. But a number of clients wanted to hold it as a valuable commodity, similar to gold, given the limited quantity of Bitcoin that can ever be “mined” in a complex, virtual system.

“It resonates with us when a client says, ‘I want to hold Bitcoin or Bitcoin futures because I think it is an alternate store of value,’” she said.

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From Bitcoin to Litecoin to Ethereum, we explain how cryptocurrency transactions work.


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Ms. Yared said the bank had received inquiries from hedge funds, as well as endowments and foundations that received virtual currency donations from newly minted Bitcoin millionaires and didn’t know how to handle them. The ultimate decision to begin trading Bitcoin contracts was approved by Goldman’s board of directors.

The step comes with plenty of uncertainties. Bitcoin prices are primarily set on unregulated exchanges in other countries where there are few measures in place to prevent market manipulation.

Since the beginning of the year, the price of Bitcoin has plunged — and recovered significantly — as traders have faced uncertainty about how regulators will deal with virtual currencies.

“It is not a new risk that we don’t understand,” Ms. Yared said. “It is just a heightened risk that we need to be extra aware of here.”

Goldman has already been doing more than most banks in the area, clearing trades for customers who want to buy and sell Bitcoin futures on the Chicago Mercantile Exchange and the Chicago Board Options Exchange.

In the next few weeks — the exact start date has not been set — Goldman will begin using its own money to trade Bitcoin futures contracts on behalf of clients. It will also create its own, more flexible version of a future, known as a non-deliverable forward, which it will offer to clients.

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“It is not a new risk that we don’t understand,” said Rana Yared, an executive overseeing the creation of the Bitcoin operation. “It is just a heightened risk that we need to be extra aware of here.”

Credit
Andres Kudacki for The New York Times

The bank’s first “digital asset” trader, Justin Schmidt, joined Goldman two weeks ago to handle the day-to-day operations, a hiring that was first reported by Tearsheet. In his last job, Mr. Schmidt, 38, was an electronic trader at the hedge fund Seven Eight Capital. In 2017, he left that job to trade virtual currencies on his own.

He will initially be placed on Goldman’s foreign currency desk because Bitcoin trading has the most similarity to movements in emerging market currencies, Ms. Yared said.

Mr. Schmidt is looking at trading actual Bitcoin — or physical Bitcoin, as it is somewhat ironically called — if the bank can secure regulatory approval from the Federal Reserve and New York authorities.

The firm also has to find a way to confidently hold Bitcoin for customers without its being stolen by hackers, as has happened to many Bitcoin exchanges. Mr. Schmidt and Ms. Yared said the current options for holding Bitcoin for clients did not yet meet Wall Street standards.

Goldman is known for pushing the envelope in the trading of complicated products. The firm faced significant criticism after the financial crisis for its profitable trading of so-called synthetic derivatives tied to the subprime mortgage markets.

Since the crisis, Goldman has made a big push to position itself as the most technologically sophisticated firm on Wall Street. Among other things, it has started an online lending service, known as Marcus, that has brought the firm into contact with retail customers for the first time. The virtual currency trading, though, will be available only to big institutional investors.

Mr. Schmidt said Goldman’s sophistication was a big part of the reason he was open to the job, despite many other opportunities in the virtual currency world.

“In terms of having a trusted institutional player, it has been something I have been looking for in my own crypto trading — but it didn’t exist,” he said.

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Blockchain Will Be Theirs, Russian Spy Boasted at Conference


Both of the delegates who recounted their conversations did so on the condition of anonymity, because discussions at the International Standards Organization, or I.S.O., are supposed to be confidential. Neither the Russian organizations overseeing the delegation to the I.S.O. nor the Russian delegates responded to requests for comment.

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The blockchain “really does create the foundation for the future that is coming,” said Gilbert Verdian, the head of the British delegation working on blockchain standards at the International Standards Organization.

Credit
Tom Jamieson for The New York Times

The sentiment expressed by the Russian delegate is as clear a sign as any of the significance that some governments are assigning to the blockchain — a technology that is now being applied to things as varied as financial trading and voting — and the degree to which it is becoming a subject of geopolitical battles.

The Russian interest in the normally wonky technical sessions has caused concern among other delegations, who worry that individual countries could push standards that would make the security of the blockchain technology vulnerable to surveillance and attack.

The I.S.O., based in Geneva, was created in 1947 to ensure that important technologies are built or measured in the same way all over the world. Over the years, it has created standards for food safety, film sensitivity and much more.

Russia is not the only country sending high-powered delegations to the I.S.O. technical committee focusing on blockchain standards, which got its start last year. The 25 countries with committee delegations sent over 130 people to the last meeting to discuss matters like a common method for security. China sent officials from the finance ministry while the United States had delegates from IBM and Microsoft, according to participants.

“It is a very sought-out technology today, because it really does create the foundation for the future that is coming,” said Gilbert Verdian, the head of the British delegation working on blockchain standards at the I.S.O. and the founder of the company Quant Network. “To get behind it and back it now is going to put people at an advantage, either politically or economically.”

The original blockchain is the shared database on which all Bitcoin transactions are recorded. It is kept by a distributed network of computers managed by many people, rather than one central authority. While there are now many virtual currencies, each with its own blockchain, there are also many government and corporate efforts looking at ways to use blockchain technology to securely record other kinds of data.

The New York Times Explains…

There are still significant questions about whether the technology will live up to expectations — and few projects have proceeded beyond the pilot stage aside from virtual currency networks like Bitcoin and Ethereum.

But in countries like the United States, China, Russia, Singapore and Switzerland, government groups have talked about using blockchains for myriad tasks, like issuing national currency or tracking identity records for citizens and visitors.

Within the young blockchain industry there is a widespread belief that the companies and countries that establish an early lead could guide the direction of the technology, for both commercial and national security purposes.

Emma Channing, a lawyer who frequently works with blockchain start-ups, recently raised an alarm about the intrigue at the I.S.O. standards group.

Ms. Channing said she was worried that countries that devote more resources to the process could successfully push their preferred cryptographic algorithms to be the standards, potentially creating so-called back doors that could be used in the future to spy on blockchain activity.

“In the context of software it is the perfect Trojan,” said Ms. Channing, a co-founder of the Satis Group, an American company that advises blockchain projects. “If something gets buried in it, these things will get adopted wholesale — and won’t be questioned on the way in.”

Ms. Channing recently emailed dozens of blockchain experts, trying to get them to volunteer as representatives to the I.S.O. delegations in their countries, so that the process does not become dominated by a few countries.

The chairman of the I.S.O. blockchain committee, Craig Dunn, rejected the idea that any country could shape the process. While I.S.O. proceedings are generally confidential, new standards must go through many stages, with many rounds of voting — first with smaller working groups and then with full national delegations.

CTCrypt 2017 — Standartisation of blockchain (Maxim Shevchenko) Video by BIS TV

“There has to be agreement and consensus across the member countries to take a standard forward,” said Mr. Dunn, who is also the head of the Australian delegation to the committee.

Few countries have made their interest in the blockchain as clear as Russia. President Vladimir V. Putin met briefly last year with Vitalik Buterin, the founder of Ethereum, the second most widely used blockchain-based virtual currency platform after Bitcoin.

Mr. Putin also put the blockchain at the center of his “Digital Economy” program for Russia, and his government has talked about creating a crypto-ruble, similar to Bitcoin.

One of the Russian delegates to the I.S.O. blockchain group, Maxim Shevchenko, gave a talk last summer in Russia in which he spoke about the country’s goals in the I.S.O. group. The bullet points on the slide included “possibility to influence the technology” and “implementation Russian standards and solutions worldwide.”

Another member of the Russian delegation, Alexey Urivskiy, told the Russian newspaper Vedomosti last year that the delegation at the I.S.O. committee was supposed to get Russian cryptographic algorithms into the standard. The Vedomosti article said that the head of the Russian I.S.O. delegation, Mr. Marshalko, was affiliated with the F.S.B.

Russia is not the only country pushing hard on the blockchain. Many Chinese government offices have been public about their interest in taking advantage of the blockchain technology for tasks like tracking people and products moving through industrial supply chains.

At the I.S.O. meetings last fall in Tokyo, the Chinese government sent one of the largest delegations, with at least nine people, including representatives from the finance ministry and the Chinese central bank, according to a delegate from another country who met the Chinese participants.

The United States delegation was led at the last meeting by a Microsoft employee and included a delegate from IBM. Microsoft and IBM are two of the global companies that have pushed hardest to develop blockchain technology.

At the first meeting of the I.S.O. blockchain group, the Russian delegation led a study group on security and privacy issues, which caused discomfort among some delegates from other countries, according to the two delegates who spoke to The New York Times. At a second meeting, oversight for these issues was transferred to a working group led by France.

Mr. Verdian, the head of the British group, said lots of delegations were jockeying to get an edge on the new technology.

“It will change how our society can operate, but at the same time, in harnessing this technology people might want to leverage that for their own gain,” he said. “We all owe it to each other to do it right so that it benefits all of us rather than a few.”

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A Former Top Wall Street Regulator Turns to the Blockchain


“There is a strong case for both of them — but particularly Ripple — that they are noncompliant securities,” he said in an interview. He believes that Bitcoin, the original virtual currency, can remain exempt from securities regulations.

Mr. Gensler will be one of the most influential voices to weigh in on a series of questions that are likely to shape the future of the nascent industry.

The Securities and Exchange Commission and the agency that Mr. Gensler led from 2009 to 2014, the Commodity Futures Trading Commission, are in the middle of determining how to categorize and crack down on many of the virtual currencies created in recent years.

Most of the focus has been on smaller currencies that were issued through so-called initial coin offerings, or I.C.O.s, a method of fund-raising in which entrepreneurs sell custom virtual currencies.

But Mr. Gensler believes that better-known virtual currencies like Ether and Ripple should be in that conversation as well and should likely be categorized as securities, given the way they have been created and sold.

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Mr. Gensler, right, in 2013, when he was the chairman of the Commodity Futures Trading Commission.

Credit
J. Scott Applewhite/Associated Press

“2018 is going to be a very interesting time,” Mr. Gensler said. “Over 1,000 previously issued initial coin offerings, and over 100 exchanges that offer I.C.O.s, are going to need to sort out how to come into compliance with U.S. securities law.”

The people behind both Ether and Ripple have argued that their tokens are not securities. But there are signs that the S.E.C. could be receptive to Mr. Gensler’s argument. Regulators have indicated in private meetings with industry participants that they are considering whether Ether should be categorized as a security.

All the outstanding Ether were worth around $65 billion at Sunday’s price, while the Ripple tokens in the hands of investors are worth around $35 billion.

If they are deemed to be securities, it could become illegal for Americans to trade them on most of the exchanges where they are now traded. That would make it harder to buy and sell them and depress their prices.

Mr. Gensler developed a reputation for standing up to powerful financial interests when he was the head of the Commodity Futures Trading Commission.

Before he got into office, some worried that his background at Goldman Sachs would make him hesitant to take on the big banks. But as the chairman of the commission he became one of the most aggressive watchdogs in the effort to rein in Wall Street after the financial crisis.

Joi Ito, the director of the M.I.T. Media Lab and a member of the board of directors of The New York Times, said the combination of Mr. Gensler’s record of independence and his knowledge of finance and policy was what made him so attractive to M.I.T.

Mr. Ito has built the Digital Currency Initiative at the Media Lab in an effort to gather a collection of virtual currency experts who don’t have a financial interest in them, though the initiative does provide financial support for some developers working on the Bitcoin software.

“It’s important that you have a core group of people who aren’t in it for the money, and who care about the proper architecture for the long run,” he said.

Mr. Gensler has a dual appointment as a special adviser to the Media Lab and a senior lecturer at the M.I.T. Sloan School of Management, where he will teach a class on the blockchain in the fall.

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Mr. Gensler said he believed 2018 would be a year of reckoning for virtual currencies. “Over 1,000 previously issued initial coin offerings, and over 100 exchanges that offer I.C.O.s, are going to need to sort out how to come into compliance with U.S. securities law,” he said.

Credit
Kayana Szymczak for The New York Times

The original blockchain is the ledger on which all Bitcoin transactions are recorded. The Bitcoin blockchain is updated by a network of computers so that no central authority is needed.

While most blockchain experiments are in an early stage, Mr. Gensler said he had become convinced that blockchain structures could challenge or replace many of the middlemen in the financial industry.

For now, though, his words are likely to have their greatest impact on the quickly evolving debate about how virtual currencies should be regulated.

Most industry experts, including Mr. Gensler, assume that Bitcoin is safe from being categorized as a security because it was not originally issued through an initial coin offering or a central organization, and the software is maintained by a decentralized group of developers. Some other large virtual currencies, like Litecoin and Monero, have similar designs.

But Mr. Gensler said Ether could have more problems because the first Ether tokens were sold in 2014, before the network was functional, by the Ethereum Foundation.

Ether could get off the hook, Mr. Gensler said, because its development has been more decentralized recently, and new Ether tokens are now given out to so-called miners through a network.

Aya Miyaguchi, the head of the Ethereum Foundation, said in an email that the foundation “neither controls the supply of nor has the ability to issue Ether, and the quantity of Ether that the foundation holds (under 1 percent of all Ether) is already lower than that held by many other ecosystem participants.”

But Mr. Gensler said it would be much harder for the Ripple token, known as XRP, to avoid being categorized as a security. The company that oversees Ripple’s development still holds most of the XRP tokens and does most of the work to make the software and the token valuable, he said.

A spokesman for the company Ripple, Tom Channick, said XRP should not be a security.

“XRP does not give its owners an interest or stake in Ripple, and they are not paid dividends,” he said. “XRP exists independent of Ripple, was created before the company and will exist after it.”

Mr. Gensler, who has no virtual currency investments, said he was not tied to any coin’s winning the race. But he does think changes are necessary before the blockchain experiments can go mainstream.

“I would be surprised if 10 years from now this isn’t somewhere in the financial system in a meaningful way,” he said. “But so much of the stuff that is being promoted now will not be around.”

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Tech Thinks It Has a Fix for the Problems It Created: Blockchain


The man who created the World Wide Web, Tim Berners-Lee, has said the blockchain could help reduce the influence of the big internet companies and return the web to his original vision. But he has also warned that it could come with some of the same problems as the web.

Blockchain allows information to be stored and exchanged by a network of computers without any central authority. In theory, this egalitarian arrangement also makes it harder for data to be altered or hacked.

Investors, for one, see potential. While the price of Bitcoin and other virtual currencies have plummeted this year, investment in other blockchain projects has remained strong. In the first three months of 2018, venture capitalists put half a billion dollars into 75 blockchain projects, more than double what they raised in the last quarter of 2017, according to data from Pitchbook.

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Ryan Shea, a co-founder of the start-up Blockstack, is one of many entrepreneurs who think blockchain technology could help people wrest control of their personal information away from the internet giants.

Credit
Sam Hodgson for The New York Times

Most of the projects have not gotten beyond pilot testing, and many are aimed at transforming mundane corporate tasks like financial trading and accounting. But some experiments promise to transform fundamental things, like the way we vote and the way we interact online.

“There is just so much it can do,” said Bradley Tusk, a former campaign manager for Michael R. Bloomberg, the former mayor of New York, who has recently thrown his weight behind several blockchain projects. “I love the fact that you can transmit data, information and choices in a way that is really hard to hack — really hard to disrupt and that can be really efficient.”

Mr. Tusk, the founder of Tusk Strategies, is an investor in a number of large virtual currency companies. He has also supported efforts aimed at getting governments to move voting online to blockchain-based systems. Mr. Tusk believes that blockchains could make reliable online voting possible because the votes could be recorded in a tamper-proof way.

“Everything is moving toward people saying, ‘I want all the benefits of the internet, but I want to protect my privacy and my security,’” he said. “The only thing I know that can reconcile those things is the blockchain.”

Blockchains assemble data into so-called blocks that are chained together using complicated math. Since each block is built off the last one and includes information like time stamps, any attempt to go back and alter existing data would be highly complicated. In the original Bitcoin blockchain, the data in the blocks is information about Bitcoin wallets and transactions. The blocks of data in the Bitcoin blockchain — and most of its imitators — are kept by a peer-to-peer computer network.

The novel structure allows people to set up online accounts that can securely hold valuable personal information without having to trust a single entity that can hoard, abuse or lose control of the data, as happened with Facebook and the consumer credit reporting agency Equifax.

A range of corporations and governments are trying to apply the blockchain model — for projects from the prosaic to the radical.

Various departments of the United Nations now have blockchain experiments looking to tackle climate change, the delivery of humanitarian aid and the identity challenges faced by stateless people.

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Blockstack’s New York office. The company built a way to record the basic details of one’s personal identity on a blockchain database and then use that identity to set up accounts with other online projects.

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Sam Hodgson for The New York Times

Coca-Cola and the State Department recently announced a project to register foreign employees on a blockchain in an attempt to eliminate forced labor.

These experiments have drawn skepticism from Bitcoin aficionados, who say blockchains are being applied to problems that could be more easily solved with old-fashioned databases.

Other critics say the rapid pace of blockchain development could lead to the same problem facing the broader tech industry: a willingness to disrupt and overthrow old systems before the replacement has been thoroughly tested.

“The blockchain industry is ready and waiting to say, ‘Yes, we are the solution,’ and they have every incentive to do so,” said Angela Walch, a research fellow at the Center for Blockchain Technologies at University College London. “But somebody needs to ask the question: ‘Is it actually better? Is it measurably better?’”

Many blockchain projects opened themselves to criticism and regulatory scrutiny by raising money through so-called initial coin offerings last year. These fund-raising campaigns often brought in tens of millions of dollars in minutes with little regulatory oversight.

But new blockchain efforts continue apace, motivated in no small part by concerns about the emergence of internet giants like Facebook and YouTube.

Most of the biggest internet companies make their money from collecting personal information and using it to sell targeted advertisements. This kind of massive data collection makes them vulnerable to hackers and outsiders who want to leverage the data — as was evident when Cambridge Analytica improperly gained access to 50 million Facebook profiles. And start-ups are using the blockchain in an attempt to pry control of all that data out of their hands.

Blockstack has built a way to record the basic details about your identity on a blockchain database and then use that identity to set up accounts with other online projects that are built on top of it.

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Muneeb Ali, a co-founder of Blockstack, which is one of a number of start-ups focused on using the blockchain technology that was created for Bitcoin.

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Sam Hodgson for The New York Times

The animating force behind the project is that users — rather than Blockstack or any other company — would end up in control of all the data they generate with any online service.

Blockstack is one of several blockchain-based projects hoping to create a new generation of online services that don’t rely on having unfettered access to our personal information.

The idea has gained enough steam that in the days after news of Facebook’s relationship with Cambridge Analytica broke, Twitter was filled with people calling for blockchain-based alternatives.

“As Facebook is collapsing we need to replace it with a blockchain based, decentralized platform!” one user, @GerdMoeBehrens, wrote.

“#blockchain WE NEED U NOW!!!” wrote another, @andymartin46.

But Mr. Berners-Lee has warned that the development of the blockchain could come with unintended consequences, like more activity from criminals operating outside the oversight of governments.

Even blockchain advocates say the hype has conditioned people to think that good answers are close at hand, when it could take five or 10 years for the technology to properly develop.

In fact, most blockchain projects are still plagued by concerns about privacy. For example, the widely used Bitcoin blockchain allows certain data — details of the transactions between users — to be seen by anyone, even if other data — the users’ identities — remains obscured. Voting start-ups have solved this by encrypting the data before putting it on a blockchain, but there are questions about whether this will solve other privacy concerns.

Blockchain-based accounts also rely on users keeping their own passwords or private keys, which people are famously bad at doing. With Bitcoin, when people lose their private key they lose access to the money in their account — if someone lost the private key to a blockchain-based online account, they could lose access to their identity.

“We’re not saying that tomorrow you can switch the flip and a blockchain is going to solve these problems,” said Michael Casey, a co-author of “The Truth Machine,” a new book on the blockchain. “What’s important is how it opens the door to a new way of thinking about the problems we face.”

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The Shift: Think Cryptocurrency Is Confusing? Try Paying Taxes on It


“It’s complicated as heck,” said Mike Schreibman, an I.T. consultant who attended. Mr. Schreibman pulled out his phone to show me a dashboard of all the cryptocurrencies he trades, and said that he was considering filing an extension to buy himself more time for analysis.

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A gathering in Manhattan last week included accountants who specialize in cryptocurrency tax preparation.

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Jeenah Moon for The New York Times

“Nobody knows what’s going to happen,” said Jeanne Lowdermilk, a lawyer who trades cryptocurrencies. “But the I.R.S. is the one agency you don’t want to mess with.”

Taxes have become an increasingly divisive topic among cryptocurrency fans. On Reddit forums devoted to cryptocurrency trading, some users exchange tips for dodging their tax obligations, including a method of hiding their assets by converting them into “privacy coins,” such as Monero, which are designed to be opaque and untraceable. They argue about whether the I.R.S. could use the blockchain, the digital ledger that records all Bitcoin transactions, to identify tax evaders in the future. And they ask for tax advice on complex situations, such as fly-by-night cryptocurrency exchanges that vanish suddenly, erasing the records of users’ transactions.

Cryptocurrencies are tax-unfriendly by design. Many of the early adopters of Bitcoin were libertarians and anarchists who were drawn to the technology’s stateless, decentralized nature. And while cryptocurrency transactions are permanently recorded on the blockchain, it’s possible for users to conceal their identities.

Until recently, the I.R.S. showed little desire to go after cryptocurrency income, since there was so little of it. But last year’s boom changed all that. The agency has formed a team of specialists to investigate cryptocurrency-related crimes, including international money laundering and tax evasion. In November, after a yearlong lawsuit, the agency won a judgment that forced Coinbase, the largest American-based cryptocurrency exchange, to turn over account records for more than 14,000 customers. In January, Coinbase sent 1099-K forms to a number of its current users, informing them that their trading proceeds were being reported to the I.R.S. and reminding them to pay the taxes they owed.

All of this confusion has created a cottage industry of specialized accountants who can keep traders out of tax trouble. Many of these accountants are cryptocurrency fans themselves, and they are more likely than your average C.P.A. to understand concepts like airdrops, hard forks and other bits of confusing crypto-jargon.

Mario Costanz, the chief executive of the tax preparation firm Happy Tax, told me that an influx of cryptocurrency trading clients had helped his business more than triple in the past year. Last year, Happy Tax opened a separate cryptocurrency division, Crypto Tax Prep, which already has several thousand clients and is the fastest-growing segment of his business.

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The tax gathering drew traders stressed out over their tax returns. A complicating factor for filers: Internal Revenue Service rules treat cryptocurrency as property rather than currency.

Credit
Jeenah Moon for The New York Times

“We’re preparing for a pretty insane last seven to 10 days of the tax season,” Mr. Costanz said.

Laura Walter, a Tokyo accountant who goes by Crypto Tax Girl on Twitter, said she had been inundated with requests for help with tax preparation this year.

“A lot of crypto investors are younger and don’t have a lot of experience trading stocks,” she said. When they find out they owe taxes on their cryptocurrency trades, she said, “a lot of people are kind of shocked.”

Part of what makes paying cryptocurrency taxes so difficult is that current I.R.S. rules treat cryptocurrency as property rather than currency. That means that every time you sell or transfer a digital coin for something else — whether you’re cashing out Ether for dollars, trading Bitcoin for another cryptocurrency or using Ripple to buy a cup of coffee — you’re creating a taxable event that must be separately recorded and accounted for.

Complicating matters even more, the timing of last year’s cryptocurrency boom made for some extra tax headaches. The price of Bitcoin rose more than 1,500 percent last year, with most of the gains coming during the last two months of the year. High prices caused many traders to sell Bitcoin in 2017, in order to lock in their profits. But instead of cashing out into dollars, many traders put their 2017 profits into new cryptocurrency investments, most of which have lost money in this year’s market slump. That decline has left some investors short of the funds they need to pay the taxes they owe on last year’s gains.

Ms. Walter said she had seen clients with cryptocurrency gains as large as $400,000 who did not withhold taxes during the year and subsequently lost money trading. “Now they’re stuck with these huge tax bills, and they don’t have the capital to pay it.”

Faced with such problems, some cryptocurrency traders have decided to avoid the issue entirely, by not declaring any cryptocurrency on their taxes and hoping for the best. According to Credit Karma, which provides tax-filing services, fewer than 100 of the 250,000 people who had used the company’s tax-filing software as of February reported cryptocurrency transactions, a rate below 0.04 percent.

Even the people at the cryptocurrency tax event in Manhattan admitted that most of the traders they knew weren’t planning to pay taxes on their crypto-gains.

“This is the smallest crypto event I’ve been to,” said Mr. Schreibman, the I.T. consultant. “No one believes they’ll get in trouble.”

All the traders at the event said they would do their best to pay their taxes in full. And they looked a little shellshocked, as if they had been rudely yanked out of a thrilling, consequence-free virtual world back into the real one.

Peter Baniuszewicz, a cryptocurrency trader from Brooklyn, told me that this year’s tax season had come as a jolt of reality.

“It’s not Monopoly money anymore,” he said.

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