New trust wants to protect digital Bitcoins like physical gold: In vaults

A U.S. regulatory filing for a Bitcoin investment trust from the Winklevoss twins said they will protect the virtual currency like gold bars—in vaults.

Cameron and Tyler Winklevoss, famous for their early association with Facebook, are selling the trust as a way for institutional and retail investors to invest in bitcoins without dealing with the hassle of exchanges and the thorny security problems around storing bitcoins.

The goal of the fund centers on an anticipated appreciation if bitcoins become more widely used as a means for exchange. Some businesses are using bitcoins, but volatile exchange rates and regulatory issues remain a concern.

In a 74-page document filed with the U.S. Securities and Exchange Commission on Monday, the twins write they will use a network of secure vaults around the U.S. to store their investors' bitcoins.

Their company, Winklevoss IP, owns intellectual property related to patent-pending technology that will be used by the trust, the filing reads. That includes what is described as a "proprietary security protocol."

A bitcoin is essentially a secret number that can be transferred to another computer using public-key cryptography. A bitcoin has a private key that if unencrypted allows the coin to be sent to another computer using peer-to-peer software.

A bitcoin transaction is seamless and fairly quick, but since the private key is often stored on a person's computer or with a web-based service, hacking remains a real risk.

Some bitcoin enthusiasts have written private keys down on pieces of paper in so-called "offline" wallets. But losing a private key to a bitcoin means that it can never be used and is lost forever.

The long list of risks highlighted in the SEC filing shows that an investment with the twins' trust is only for those with steely nerves. And they make no guarantee that the security system will be able to thwart hackers.

The trust's sponsor, Math-Based Asset Services, which is owned by Winklevoss Capital Management, is not liable for losses due to "failure or penetration" of the security system, absent gross negligence, fraud or criminal behavior by the sponsor, the filing reads.
 
Also, the people responsible for the day-to-day administration of the trust "will also not be liable for any system failure or third-party penetration of the security system."

They also anticipate their trust "may become a more appealing target of security threats as the size of the trust's assets grows."

The warnings may not put off people familiar with bitcoin, which has made a handful of people who bought in after the system launched in 2009 very wealthy.

Many others, however, have racked up losses after buying bitcoins during a rapid, speculative rise to $260 per coin in April before falling as low as $56. A single bitcoin sold for around $90 on Tuesday, according to the largest exchange, Mt. Gox in Japan.

The Winklevoss twins told The New York Times in April that they held as many as 1 percent of all of the bitcoins in circulation. There are about 11.3 million bitcoins in circulation, putting their holdings conservatively at $9 million today.

According to their plans, the trust would offer "baskets" of shares, of which each share is comprised of one-fifth of a bitcoin. The baskets would be redeemed in blocks of 50,000 shares based on an average bitcoin market price calculated from exchanges.

Envoy says U.S. loses trust in Hong Kong after Snowden

HONG KONG - The top U.S. diplomat in Hong Kong warned on Thursday of a "big struggle" ahead to repair Washington's trust in the semi-autonomous Chinese territory after the flight of fugitive spy agency contractor Edward Snowden.
Speaking publicly for the first time since Snowden flew from Hong Kong to Moscow on Sunday despite a U.S. request to hold him to face charges of espionage, Consul General Stephen Young told Reuters that Washington's confidence was "shaken".

"My point is simple - I've spent three years working for good relationship between Hong Kong and the U.S. and we've had a loss of trust at this point," said Young, who is due to retire later this year.

Re-building that trust, he said, "is not going to be easy because you have President (Barack) Obama's administration just starting its second term so it is not like you can say: 'We'll wait for these guys to change'."

Young did not specify how any deterioration in ties would play out but added: "I'll say specifically in law enforcement co-operation - where we have a whole series of agreements, and protocols and practices - our confidence has been shaken."

The United States and Hong Kong have enjoyed strong ties under the "one country, two systems" system that has underpinned the former British colony since it was handed over to China 16 years ago.

U.S. multinationals have a strong presence in the city while U.S. warships are frequent visitors to its highly-strategic port on the South China Sea.

Young had repeatedly praised Hong Kong officials and the strength of their ties with the United States in recent speeches, before Snowden's revelations about the scope of Washington's electronic surveillance systems.

In Washington, officials have admonished China for letting Snowden escape, but Young said he was not so worried about the broader U.S.-China relationship, given its importance and opportunities for dialogue.

"But in U.S.-Hong Kong terms, it is a bigger struggle because people in Washington don't usually wake up thinking of Hong Kong but now they do, and it is in a negative sense," he said.

Young's comments come as Hong Kong and Washington officials continue a war of words over the back-room maneuvering ahead of Snowden's departure.

U.S. Department of Justice officials have accused Hong Kong of having feigned confusion over Snowden's middle name to avoid detaining him before he fled to Russia.

They were responding to statements from Hong Kong's Secretary for Justice Rimsky Yuen that his officials had to wait for clarification of Snowden's middle name and passport number in U.S. documents before detaining him at Washington's request.

The U.S. authorities used the middle name James in some documents for Snowden, while a U.S. Justice Department document referred to him as Edward J. Snowden, Yuen said.

But Hong Kong immigration records showed Snowden's name as "Edward Joseph Snowden."

"These three names weren't completely the same, so we felt that there was a need for clarification. Otherwise when we issued the provisional arrest warrant, it could have caused legal problems," Yuen said.

Before any clarification could be given, Snowden left. He has asked Ecuador for asylum and is now in a transit area of Moscow's Sheremetyevo airport.

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