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The mysterious digital currency has spiked in value -- but what is it? 

Launched in 2009 by an anonymous developer, Bitcoin is an intriguing technological and financial experiment. Now it's making headlines, as Quartz reports, with a recent spike in value (approximately 1,300% since the beginning of the 2013). The Atlantic's Derek Thompson looked at the existential weirdness of Bitcoin, noting that starting your own currency is "not as complicated as it sounds. All you need is a system other people can understand and, most importantly, trust."

That may be easier said than done: Bitcoin is baffling but this video, above, tries its best to shed some light on the concept. Created by Duncan Elms, an animator, and Marc Fennell, a radio host and self-proclaimed tech geek, the short video describes the currency in a nutshell, from "mining" to currency exchanges, and how Bitcoin is poised to change the way we think about money. 

"This is a personal project done between other jobs," Elms writes on Vimeo, explaining that as a result, not all of the data is up to date. Still, it's a handy overview of how the system works.

Newsweek's first big cover story in its new print era, "The Face Behind Bitcoin," has a few problems. For starters, Dorian Satoshi Nakamoto, the man identified as the "face," denies having anything to do with the cryptocurrency.

Newsweek's first big cover story in its new print era, "The Face Behind Bitcoin," has a few problems. For starters, Dorian Satoshi Nakamoto, the man identified as the "face," denies having anything to do with the cryptocurrency. He told the Associated Press yesterday that Newsweek's reporter Leah McGrath Goodman misunderstood his less-than-perfect English, leading her to write that he was no longer involved in Bitcoin, when he only meant that he was no longer an engineer. ("I got nothing to do with it," he told the AP multiple times.) Newsweek editor Jim Impoco told Gawker yesterday that the mag stands by Goodman's story, but today, he's singing a slightly different tune. 

In a post on the website, Newsweek editors write, "The facts as reported point toward Nakamoto’s role in the founding of Bitcoin." That sounds a little different than "We stand by the story." Facts may point toward a conclusion but not confirm one. The editors then "[encourage] fellow members of the press and the public at large to focus on analysis of the facts at hand rather than rush to assumptions or resort to emotion." Unfortunately, it's typically the job of the reporter and the outlet to fully analyze the facts at hand before going to print.

This is not to say that Nakamoto didn't found Bitcoin — it's possible he's lying. But as many journalists and Bitcoin experts have pointed out, Goodman's case isn't as strong as she made it out to be. Reuters' Felix Salmon writes today,

Even within Goodman’s piece ... there are reasons to doubt her thesis. And in the wake of Nakamoto’s interview with the AP, there are more. His lack of fluency in English is clearly real; he has a credible explanation for the words he said in front of Goodman; and he has a guilelessness to him which would be very hard to fake, especially over the course of many hours with a skeptical reporter.

So what now? Well, former Newsweek editor Tina Brown had some kind words for Impoco and team on Bloomberg TV this morning: "All I can think of is I'm so glad I'm not the editor of Newsweek."

Digital thieves’ most crucial adaptation in recent years has little to do with their technical tools and everything to do with their business model.

It’s a good time to be a cybercriminal. There are more victims to target, there is more data to steal, and there is more money to be made from doing so than ever before.

It would seem to follow, then, that there’s been very little progress since 2007, when hackers stole at least 45.6 million credit-card numbers from the servers of TJX, the owner of TJ Maxx and Marshalls, catapulting the now-commonplace narrative of the massive data breach to national prominence.

But the truth is that the forces of cyber law and order have made lots of headway in the past decade. There are still large-scale data breaches, but credit-card companies are getting better at detecting them early and replacing customers’ cards as needed, payment networks are pushing microchip-enabled cards that render transaction data worthless to criminals, and law enforcement has gotten smarter and savvier. Just ask Albert Gonzalez, who masterminded the TJX breach and is currently serving a 20-year prison sentence.

The biggest shift in the past decade is that it has gotten much less profitable to do what Gonzalez did—namely, steal millions of payment-card numbers and sell them to fraudsters. According to the cybersecurity firm Intel Security, the price of a stolen payment-card record has dropped from $25 in 2011 to $6 in 2016. “We’re living through an historic glut of stolen data,” explains Brian Krebs, who writes the blog Krebs on Security. “More supply drives the price way down, and there’s so much data for sale, we’re sort of having a shortage of buyers at this point.”

Cybersecurity is often framed as a matter of keeping up with the rapid evolution of online attacks—patching software vulnerabilities and identifying new malware programs. But cybercriminals’ most crucial adaptation in recent years has little to do with their technical tools and everything to do with their business model: They have started selling stolen data back to its original owners. To keep cybercrime profitable, criminals needed to find a new cohort of potential buyers, and they did: all of us. At the heart of this new business model for cybercrime is the fact that individuals and businesses, not retailers and banks, are the ones footing the bill for data breaches.

This represents quite a departure from the model for most cybercrimes 10—or even five—years ago. It used to be that someone would steal a huge cache of stored data, usually credit-card numbers and billing information belonging to U.S. customers, and sell this data to other criminals, who would use it to manufacture fraudulent credit cards overseas. Those cards would then have to be brought back to the U.S. to be sold, in order to avoid triggering fraud alerts. Each stage of this process provided law enforcement with an opportunity to track the payments made between buyers and sellers of stolen information and monitor the movement of money between national borders. (Following this money trail ultimately led to the identification and prosecution of several cybercriminals, including Gonzalez.)

So, historically, the riskiest stages of cybercrimes have been the ones that come after the perpetrator has already successfully stolen data from a protected computer. Finding a way into a computer system to steal data is relatively easy, but finding a way to monetize that data—making sure that credit-card companies don’t cancel stolen card numbers before they’re sold, identifying buyers willing to pay a good price, and hiding those profits from the police—can be much harder.

But the calculus changes if victims can be persuaded to buy back their own data, in some cases because of a ransomware attack, which encrypts their computers until they pay a ransom. In other cases, some individuals and companies monitor the black market to see if their own stolen data is up for sale, and purchase it to prevent it from falling into the wrong hands. Whether victims are coerced into paying a ransom or voluntarily make a bid, the sale of stolen data back to its original owner solves a pressing problem for cybercriminals: It transforms data that was nearly worthless into a very valuable asset. The contents of any given person’s hard drive, for instance, would be unlikely to fetch a large sum on the black market. But to that person, that data is probably worth at least a few hundred (or even a few thousand) dollars. Conveniently for criminals, this also often means dealing not with a small group of fellow criminals, but instead with a much larger population of lay users who are unlikely to disappear behind bars.

Last fall, the government shut down the Silk Road, an online drug market. In the process of taking down the Silk Road, federal agents seized 29,656 Bitcoins. Just as with any other bust of this kind, the seized property was put up for auction.

Last fall, the government shut down the Silk Road, an online drug market. In the process of taking down the Silk Road, federal agents seized 29,656 Bitcoins. Just as with any other bust of this kind, the seized property was put up for auction.

The U.S. Marshals Service put up the Bitcoins for a twelve-hour auction on June 27. In order to participate, bidders had to register by wiring $200,000 to a government bank, weeding out any unserious and ineligible buyers. The auction received 45 registered bidders and 63 bids. On Tuesday, the results were (sort of) revealed.

"The U.S. Marshals Bitcoin auction resulted in one winning bidder," Marshals Service spokesperson Lynzey Donahue told CNET, "The transfer of the bitcoins to the winner was completed today."

While the Marshals office did not disclose the amount of the winning bid, or the identity of the winning bidder, we do know who didn't win. SecondMarket, Pantera Bitcoin, the Bitcoin Shop, Coinbase, Rangeley Capital, and CoinApex were all outbid, and these are some of the most important institutions within the Bitcoin community. This means whoever the winner was, they are very serious, and had a lot of cash to throw around.

The winner may even have paid above the market price at the time of the auction, around $570 per Bitcoin. However, they should still be receiving a handsome profit, as Bitcoin has since shot up to $650, in large part due to this successful auction.

Silk Road is a peer-to-peer commerce website like eBay, with a few important differences: it's only accessible through the anonymous network Tor, purchases can only be made with the digital currency Bitcoin, and much of the trade is in drugs. In a revealing piece for Gawker, Adrian Chen explored the underground site. It's worth reading the whole piece, but here's a key snippet:

Sellers feel comfortable openly trading hardcore drugs because the real identities of those involved in Silk Road transactions are utterly obscured. If the authorities wanted to ID Silk Road's users with computer forensics, they'd have nowhere to look. TOR masks a user's tracks on the site. The site urges sellers to "creatively disguise" their shipments and vacuum seal any drugs that could be detected through smell. As for transactions, Silk Road doesn't accept credit cards, PayPal , or any other form of payment that can be traced or blocked. The only money good here is Bitcoins.

Bitcoins have been called a "crypto-currency," the online equivalent of a brown paper bag of cash. Bitcoins are a peer-to-peer currency, not issued by banks or governments, but created and regulated by a network of other bitcoin holders' computers. (The name "Bitcoin" is derived from the pioneering file-sharing technology Bittorrent.) They are purportedly untraceable and have been championed by cyberpunks, libertarians and anarchists who dream of a distributed digital economy outside the law, one where money flows across borders as free as bits.

A member of Bitcoin's dev team emailed to correct Chen, saying that Bitcoin are not untraceable. Jeff Garzik notes:

If you visit the bitcoin wiki page on anonymity --

https://en.bitcoin.it/wiki/Anonymity -- the first sentence is

    While the Bitcoin technology can support[link] strong anonymity,

    the current implementation is usually not very anonymous.

With bitcoin, every transaction is written to a globally public log, and the lineage of each coin is fully traceable from transaction to transaction. Thus, /transaction flow/ is easily visible to well-known network analysis techniques, already employed in the field by FBI/NSA/CIA/etc. to detect suspicious money flows and "chatter."  With Gavin, bitcoin lead developer, speaking at a CIA conference this month, it is not a stretch to surmise that the CIA likely already classifies bitcoin as open source intelligence (no pun intended).

Further, if Silk Road truly permits deposits on their site, that makes it even easier for law enforcement to locate the "hub" of transactions.

Attempting major illicit transactions with bitcoin, given existing statistical analysis techniques deployed in the field by law enforcement, is pretty damned dumb.  :)