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Phishing for Bitcoin

It had to happen sooner or later: The two biggest tech stories of 2017—foreign cyber attacks and bitcoin—have come together perfectly in a single story. Namely, it looks like the infamous North Korean hacking outfit, The Lazarus Group, is running a spear-phishing campaign aimed at executives of cryptocurrency companies.

You may remember this gang from previous outrages such as the WannaCry ransomware outbreak, the hacking of Sony, and the $81 million cyber-heist from the Bangladesh Central Bank. Their latest scam, identified by Secureworks, involves sending emails about a Chief Financial Officer position that contain an infected Microsoft Word document.

As ZDNet reports, clicking on the document triggers a piece of malware that allows the attacker access to the victim’s computer. It’s unclear if any of the targeted executives have fallen for the phish or if the scheme has yielded the Lazarus Group any bitcoins. Let’s hope not—in part because crypto-currency companies know the risk of cyber-threats better than most, and should not be hiring people who click on random Word documents.

More broadly, the idea of North Korea phishing for bitcoin is intriguing because the phenomenon is at once so new and so old. It’s new because countries until very recently didn’t even take bitcoin seriously—and now, as the price of a bitcoin tops $18,000, rogue nations are telling their militaries to go forth and steal it.

At the same time, though, North Korea’s phishing antics can also be seen as a twist on the centuries-old military tactic known as privateering. Once upon a time, this tactic took the form of kings and queens granting letters of marque that allowed privateers to roam the oceans and plunder booty from enemy merchant ships. Today, North Korea is allowing its hackers to operate as digital privateers in search of crypto plunder like bitcoin.

This modern version of privateering is not as exciting as grand naval battles with cannons and cutlasses, but no doubt it’s just as lucrative. Have a good weekend.

Jeff John Roberts

@jeffjohnroberts

[email protected]

Welcome to the Cyber Saturday edition of Data Sheet, Fortune’s daily tech newsletter. You may reach Robert Hackett via Twitter, Cryptocat, Jabber (see OTR fingerprint on my about.me), PGP encrypted email (see public key on my Keybase.io), Wickr, Signal, or however you (securely) prefer. Feedback welcome.

THREATS

Bailing on Blockchain: In theory, it sounds great to create a coalition and build a distributed ledger tool for everyone. The reality is more messy: more than 15 members of the Hyperledger Project recently bailed and/or cut off their funds to the much-hyped blockchain project. This follows a similar break-up at R3, the blockchain-for-banks consortium.

Cutting off Kaspersky: The popular anti-virus product is tangled up with a good part of the US government’s IT systems—a big problem since the software maker is strongly suspected of ties to the Kremlin. The White House has hurried up efforts to cashier Kaspersky with an order banning its use anywhere in the government.

Creepy Keyboards: Key-logging software, which lets a third party record what you type, is a popular tool among spies and hackers—it’s not something you want pre-installed on your new computer. Yet that’s what HP did with hundreds of lap-top models. A security researcher discovered that anyone with administrative privileges could activate it. HP is working on a fix.

Easy there, Anderson: The normally bland Twitter account of CNN host Anderson Cooper spat out a string of abuse at Donald Trump in a tweet this week. The network portrayed it as a hack, pointing out that Anderson was in a different city from where the tweet was sent—the latest is that Anderson’s aide left a phone with the Twitter account unattended at the gym.

Feds Nail Mirai Miscreants: Remember that nasty botnet composed of hijacked IoT devices that took down servers across the east cost last year? Well, it turns out Brian Krebs was right: a Rutgers student running a Minecraft scam was responsible for the botnet havoc. The student and two others pled guilty and say they’re sorry.

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ACCESS GRANTED

“If you feed the beast, that beast will destroy you,” Palihapitiya advised his audience. “The short-term, dopamine-driven feedback loops that we have created are destroying how society works. No civil discourse, no cooperation, [but] misinformation, mistruth.”

 Facebook’s former head of user growth, Chamath Palihapitiya, recently offered a contrite and frightening account of what the company has built. David Meyer has a nice summary of his remarks.

ONE MORE THING

The best holiday movie ever? It’s decided. Wonderful holiday classics include It’s a Wonderful Life and A Christmas Carol, but some (including me) believe the best of the bunch is a little action film called Die Hard. Objectors have claimed Die Hard isn’t a Christmas movie but now a prominent head of state has settled the question. Thanks, Justin Trudeau, and Ho ho ho!

Exclusive: FCC plans to fine Sinclair $13.3 million over undisclosed commercials

WASHINGTON (Reuters) – The Federal Communications Commission plans to fine Sinclair Broadcasting Corp $13.3 million after it failed to properly disclose that paid programming that aired on local TV stations was sponsored by a cancer institute, three people briefed on the matter told Reuters.

The proposed fine, which covers about 1,700 spots including commercials that looked like news stories that aired during newscasts for the Utah-based Huntsman Cancer Institute over a six-month period in 2016, could bolster critics of Sinclair’s proposed $3.9 billion acquisition of Tribune Media Co.

Sinclair Broadcasting and a spokesman for the FCC declined to comment. Sinclair, which has told reporters previously the violations were unintentional, disclosed the investigation in financial filings.

Sinclair, which owns more than 170 U.S. television stations and is the largest U.S. operator, announced plans in May to acquire Tribune’s 42 TV stations in 33 markets as well as cable network WGN America and digital multicast network Antenna TV, extending its reach to 72 percent of American households. The FCC and Justice Department are reviewing Sinclair’s proposed acquisition of Tribune.

The proposed fine, which was approved by the five-member FCC earlier this week but has not yet been made public, is significant, officials said. The penalty represents an average fine of about $7,700 for each of the improperly aired spots but is significantly less than the maximum fine Sinclair could have faced under the law.

Sinclair will have the opportunity to respond to the proposed fine before it becomes final.

Reporting by David Shepardson; Editing by Nick Zieminski

In major shift, Rakuten plots to become Japan's No. 4 wireless carrier

TOKYO (Reuters) – Japanese e-commerce firm Rakuten Inc said it would apply for a 4G mobile license, aiming to become the country’s fourth major wireless carrier in a strategic shift that had analysts warning of an uphill battle to gain customers.

The logo of Rakuten Mobile is seen at its branch in Tokyo, Japan December 14, 2017. REUTERS/Kim Kyung-Hoon

Rakuten, which operates one of Japan’s most popular shopping websites, said it hoped to gain a new engine of growth, adding that having a mobile license would complement its e-commerce, streaming and fintech services such as online securities trading.

“There is no doubt that mobile devices are the most important user touchpoint for the expansion of existing services and new service development,” it said in a statement.

Rakuten said it aims to start offering mobile services in 2019 and wants to secure at least 15 million subscribers.

That would be a major jump up from the roughly 1.4 million customers it has through its mobile virtual network service where it rents network space from companies holding licenses.

A man uses a mobile phone in front of a Rakuten Mobile branch in Tokyo, Japan December 14, 2017. REUTERS/Kim Kyung-Hoon

The auction for 4G wireless spectrum is due to be held in January, with results expected by end-March.

Rakuten, worth some $13.9 billion by market value, said it was preparing to raise as much as 600 billion yen ($5.3 billion) by 2025 via interest-bearing debt such as bank borrowing to fund the move.

Slideshow (2 Images)

But analysts were skeptical about its prospects.

“I don’t like their chances – the market is pretty much fully penetrated,” said Dan Baker, an analyst at Morningstar in Hong Kong. “It would have to fund the network build-out and customer acquisition, and then its operating losses until it could get enough customers.”

Shares in Rakuten slid to be down 4.7 percent in afternoon trade by those of Japan’s biggest carriers NTT Docomo Inc, KDDI Corp and SoftBank Group all lost more than 2 percent on the prospect of more competition.

“It won’t be positive for any of the operators. SoftBank could be worst impacted – as the newest player, its customers could be most likely to switch over,” said Baker.

Reporting Thomas Wilson; Editing by Edwina Gibbs

Our Standards:The Thomson Reuters Trust Principles.

AT&T begins testing high-speed internet over power lines

NEW YORK (Reuters) – AT&T Inc has started trials in Georgia state and a non-U.S. location to deliver high-speed internet over power lines, the No. 2 wireless carrier said on Wednesday, marking its latest push to offer faster broadband service to more customers.

The AT&T logo is pictured during the Forbes Forum 2017 in Mexico City, Mexico, September 18, 2017. REUTERS/Edgard Garrido

AT&T aims to eventually deliver speeds faster than the 1 gigabit per second consumers can currently get through fiber internet service using high-frequency airwaves that travel along power lines. While the Georgia trial is in a rural area, the service could potentially be deployed in suburbs and cities, the company said in a statement.

“We think this product is eventually one that could actually serve anywhere near a power line,” said Marachel Knight, AT&T’s senior vice president of wireless network architecture and design, in an interview. She added that AT&T chose an international trial location in part because the market opportunity extends beyond the United States.

AT&T said it had no timeline for commercial deployment and that it would look to expand trials as it develops the technology.

“Potentially, it can be a really big deal,” said Roger Entner, an analyst at Recon Analytics. “You need the power company to play ball with you. That’s the downside.”

AT&T and Verizon Communications Inc, the largest U.S. wireless carrier, have also been testing 5G internet services in which the last leg of the connection is delivered via a radio signal to homes using high-frequency airwaves known as millimeter wave spectrum.

Verizon said in November it would launch the faster broadband service in three to five U.S. markets in 2018.

Reporting by Anjali Athavaley; Editing by Richard Chang

Our Standards:The Thomson Reuters Trust Principles.

South Korea considers cryptocurrency tax as regulators grapple with 'speculative mania'

SEOUL (Reuters) – South Korea said on Wednesday it may tax capital gains from cryptocurrecy trading as global regulators worried about a bubble, with Australia’s central bank chief warning of a ‘speculative mania” that has seen the digital asset making rip-roaring gains.

FILE PHOTO: A copy of bitcoin standing on PC motherboard is seen in this illustration picture, October 26, 2017. REUTERS/Dado Ruvic/File Photo

As bitcoin futures made their world debut on a U.S. stock exchange this week, policy makers have been forced to contend with cryptocurrencies becoming more of a mainstream play and the need to regulate them.

The world’s biggest and best known cryptocurrency, bitcoin BTC=BTSP, surged past $17,000 to new all-time highs this week, marking an almost dizzying 20-fold rise this year and feeding fears of a bubble.

Australia’s central bank governor Philip Lowe warned on Wednesday the fascination with the assets felt like a “speculative mania.”

The comments come days after his New Zealand counterpart said bitcoin appeared to be a “classic case” of a bubble, and cast doubt on its future. The chairman of the U.S. Securities and Exchange Commission (SEC) on Monday warned trading and public offerings in the emerging asset class may be in violation of federal securities law.

Digital currencies are very popular across Asia, with many retail investors giving up their daily jobs to trade them full time in countries such as Japan and South Korea, which together make up for more than half the global trading volumes by some estimates.

But the possibility of major losses if the bubble bursts and wild gyrations of 10-30 percent in a single day have instilled a sense of urgency among policymakers to come up with a regulatory response.

In Seoul, after an emergency meeting on Wednesday, South Korea’s government said it will consider taxing capital gains from trading of virtual coins and will also ban minors from opening accounts on exchanges, according to a statement obtained by Reuters ahead of its official release.

To be eligible, exchanges in South Korea will need to uphold investor protection rules and disclose all bid and offer quotes.

The measures need parliamentary approval. Seoul will maintain a current ban on all financial institutions dealing virtual currencies.

“The regulations in Korea will not have a negative effect,” said Thomas Glucksmann, head of marketing at Hong Kong-based exchange Gatecoin, adding that on the contrary, “licensing brings certainty, which encourages already regulated entities … to get involved in addition to skeptical retail investors.” 

In an interview with Reuters on Tuesday, the Seoul-based operator of the world’s busiest virtual currency exchange Bithumb, said it will fully comply with potential regulations from the South Korean government and adequately capitalize itself to protect its clients.

Elsewhere in Asia, China in September ordered Beijing-based cryptocurrency exchanges to stop trading and immediately notify users of their closure, in a move aimed at limiting risks in the speculative market. Economists and cryptocurrency advocates say the move was also intended to close an avenue used to evade Beijing’s capital controls.

Japan requires crypto-currency operators to register with the government. The Japanese government in April granted cryptocurrencies legal status as a means of settlement and in September officially recognized 11 digital currencies exchanges.

CRYPTO COINS WEAKEN

Bitcoin dropped to $16,575 on Wednesday, down 0.5 percent on the day, after losing $152 from its previous close. On Bithumb, it was down 2 percent at $17,083. Bitcoin futures maturing in January on the Cboe Global Markets Inc’s Cboe Futures Exchange XBTF8 were $17,700, having opened at $18,010.

Bitcoin-related shares in Seoul slumped in early trade on news of the government’s emergency meeting, before rebounding as the statement did not mention harsh restrictions. Vidente Co Ltd (121800.KQ) and Omnitel Inc (057680.KQ), which hold stakes of Bithumb, were up 4 percent and 7 percent, respectively. Bitcoin mining-related company JCH Systems Inc (033320.KQ) were up 1 percent.

While crypto trading has attracted anyone from hedge funds and finance professionals to housewives and college students, it is yet to lure institutional asset managers whose mandates require them to make long-term investments which do not chime with highly-volatile digital currencies, whose fundamental values are also difficult to define.

“BlackRock’s view is that this isn’t a financial asset that we would trade in terms of equities or fixed income instruments,” said Belinda Boa, head of active investments for Asia Pacific, BlackRock.

“There are questions around the store of value and the fact that actually for our clients we’re looking at longer term investments.”

Reporting by Dahee Kim, Cynthia Kim and Christine Kim in SEOUL and Michelle Chen and Marius Zaharia in Hong Kong; Writing by Marius Zaharia; Editing by Shri Navaratnam

Our Standards:The Thomson Reuters Trust Principles.

Amazon's cloud unit expands in China, with new partner in Ningxia

BEIJING (Reuters) – Amazon.com Inc said on Tuesday it was expanding its cloud computing business in China with a new local partner, aiming to win share in an increasingly crowded and highly regulated market.

FILE PHOTO: Amazon.com’s logo is seen at Amazon Japan’s office building in Tokyo, Japan, August 8, 2016. REUTERS/Kim Kyung-Hoon/File Photo

Amazon Web Services (AWS) will start offering customer services based out of the northwestern Chinese region of Ningxia in partnership with local firm Ningxia Western Cloud Data Technology Co Ltd (NWCD), the U.S. firm said.

“AWS has formed a strategic technology collaboration with NWCD, and NWCD operates and provides services from the AWS China Ningxia Region, in full compliance with Chinese regulations,” Amazon said in a statement.

The move comes a month after AWS said it will sell the hardware assets of its Beijing-registered cloud unit for up to 2 billion yuan ($302.06 million) to its partner Beijing Sinnet Technology Co Ltd to comply with new regulations.

China launched strict new regulations in June that require foreign firms to store data locally and outsource hardware elements to local partners.

Cloud services have become a crowded and competitive field in China in recent years, with domestic companies, including Alibaba Group Holding Ltd, opening dozens of new data centers in just the past year.

Chinese firms account for roughly 80 percent of total cloud services revenue in China, according to Synergy Research Group.

U.S. companies Amazon, Apple Inc and Microsoft Corp must jump over hurdles to compete, facing new surveillance measures by China and increasing scrutiny of cross-border data transfers.

The infrastructure for the new data centers in Ningxia was built by NWCD affiliates using specifications provided by AWS, an Amazon spokesman told Reuters.

While the AWS services offered in China are similar to services offered elsewhere, they are separated from other regions globally and customers enter agreements with Sinnet and NWCD rather than with AWS, Amazon said.

(This story has been refiled to correct paragraph two to show Ningxia is a region, not a city. Specifies Ningxia is in northwest China.)

Reporting by Cate Cadell in Beijing and Jeffrey Dastin in San Francisco; Editing by Muralikumar Anantharaman

Our Standards:The Thomson Reuters Trust Principles.

Bitcoin Futures Launch to a Dramatic Start

Bitcoin futures jumped more than 20% in their eagerly anticipated U.S. debut, which backers hope will encourage wider use and legitimacy for the world’s largest cryptocurrency even as critics warn of the risk of a bubble and price collapse.

The launch on Sunday night may have caused an early outage of the Chicago-based CBOE Global Markets’ website. The exchange said that due to heavy traffic on the CBOE Global Markets website, the site “may be temporarily unavailable.”

The one-month bitcoin contract opened trade at 6 pm (2300 GMT) at $15,460, dipped briefly and then rose to a high of $18,700.

As of 0430 GMT, it was up 16% from the open at $17,940, with 2,211 contracts traded.

On the Luxembourg-based Bitstamp, bitcoin prices surged 7% to $15,720. It is up more than 1,400% so far in 2017, and its gains in the past month have been rapid.

Experts had worried that the risks associated with the currency’s Wild West-like nature could overshadow the futures debut, but so far the price action has been unlike the wild swings seen in the past few weeks. Bitcoin tumbled 20% in 10 hours on Friday.

“Even if there is an institution or institutional-sized trader out there, they are going to want to make sure that the mechanics work first, just for the futures,” said Ophir Gottlieb, chief executive officer of Los Angeles-based Capital Market Laboratories.

“I think the excitement will come when the futures market is established. That can take a few days,” Gottlieb added.

The futures are cash-settled contracts based on the auction price of bitcoin in U.S. dollars on the Gemini Exchange, which is owned and operated by virtual currency entrepreneurs and brothers Cameron and Tyler Winklevoss.

Market participants said the launch of the futures contract wouldn’t necessarily reduce volatility in the cryptocurrency.

“There are no ways to arbitrage between the market and other exchanges, CBOE cannot settle Bitcoin as far as I know,” said Leonhard Weese, president of the Bitcoin Association of Hong Kong.

“Regular bitcoin traders don’t have access to it, and the trading desks that use the futures market don’t have access to bitcoin.”

CRYPTIC CURRENCY

While bitcoin’s price rise mystifies many, its origins have been the subject of much speculation.

It was set up in 2008 by someone or some group calling themselves Satoshi Nakamoto, and was the first digital currency to successfully use cryptography to keep transactions secure and hidden, making traditional financial regulation difficult if not impossible.

Central bankers and critics of the cryptocurrency have been ringing the alarm bells over the surge in the price and other risks such as whether the opaque market can be used for money laundering.

“It looks remarkably like a bubble forming to me,” the Reserve Bank of New Zealand’s Acting Governor Grant Spencer said on a television program run on Sunday.

“We’ve seen them in the past. Over the centuries we’ve seen bubbles and this appears to be a bit of a classic case,” he said.

Many investors have stood on the sidelines watching its price rocket. However, it is possible to buy bitcoin without having to spend the full price of one coin. Bitcoin’s smallest unit is a Satoshi, named after the elusive creator of the cryptocurrency.

Somebody who invested $1,000 in bitcoin at the start of 2013 and had never sold any of it would now be sitting on around $1.2 million.

Heightened excitement ahead of the launch of the futures has given an extra kick to the cryptocurrency’s scorching run this year.

The CME Group is expected to launch its futures contract on Dec. 17.

CONTROVERSIAL MOVE

Bitcoin fans appear excited about the prospect of an exchange-listed and regulated product and the ability to bet on its price swings without having to sign up for a digital wallet.

Others, however, caution that risks remain for investors and possibly even the clearing organizations underpinning the trades.

“You are going to open up the market to a whole lot of people who aren’t currently in bitcoin,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.

The launch has so far received a mixed reception from big U.S. banks and brokerages, though.

Several online brokerages, including Charles Schwab Corp and TD Ameritrade Holding Corp, did not allow trading of the new futures immediately.

The Financial Times reported on Friday that JPMorgan Chase & Co, Citigroup Inc would not immediately clear bitcoin trades for clients.

Goldman Sachs Group Inc said on Thursday it was planning to clear such trades for certain clients.

Bitcoin’s manic run-up this year has boosted volatility far in excess of other asset classes. The futures trading may help dampen some of the sharp moves, analysts said.

“Hypothetically, volatility over the long run should drop after institutions get involved,” Gottlieb said. “But there may not be an immediate impact, say in the first month.”

This post has been updated.

Hotly anticipated bitcoin futures surge 21 percent on debut

NEW YORK/SYDNEY (Reuters) – Bitcoin futures jumped more than 20 percent in their eagerly anticipated U.S. debut, which backers hope will encourage wider use and legitimacy for the world’s largest cryptocurrency even as critics warn of the risk of a bubble and price collapse.

Virtual currency Bitcoin tokens are seen in this illustration picture, December 8, 2017. Picture taken December 8. REUTERS/Dado Ruvic/Illustration

The launch on Sunday night may have caused an early outage of the Chicago-based CBOE Global Markets’ (CBOE.O) website. The exchange said that due to heavy traffic on the CBOE Global Markets website, the site “may be temporarily unavailable.”

The one-month bitcoin contract <0#XBT:> opened trade at 6 pm (6.00 p.m. ET) at $15,460, dipped briefly and then rose to a high of $18,700.

As of 0430 GMT, it was up 16 percent from the open at $17,940, with 2,211 contracts traded.

On the Luxembourg-based Bitstamp BTC=BTSP, bitcoin prices surged 7 percent to $15,720. It is up more than 1,400 percent so far in 2017, and its gains in the past month have been rapid.

Experts had worried that the risks associated with the currency’s Wild West-like nature could overshadow the futures debut, but so far the price action has been unlike the wild swings seen in the past few weeks. Bitcoin tumbled 20 percent in 10 hours on Friday.

“Even if there is an institution or institutional-sized trader out there, they are going to want to make sure that the mechanics work first, just for the futures,” said Ophir Gottlieb, chief executive officer of Los Angeles-based Capital Market Laboratories.

“I think the excitement will come when the futures market is established. That can take a few days,” Gottlieb added.

The futures are cash-settled contracts based on the auction price of bitcoin in U.S. dollars on the Gemini Exchange, which is owned and operated by virtual currency entrepreneurs and brothers Cameron and Tyler Winklevoss.

Market participants said the launch of the futures contract wouldn’t necessarily reduce volatility in the cryptocurrency.

“There are no ways to arbitrage between the market and other exchanges, CBOE cannot settle Bitcoin as far as I know,” said Leonhard Weese, president of the Bitcoin Association of Hong Kong.

“Regular bitcoin traders don’t have access to it, and the trading desks that use the futures market don’t have access to bitcoin.”

CRYPTIC CURRENCY

While bitcoin’s price rise mystifies many, its origins have been the subject of much speculation.

It was set up in 2008 by someone or some group calling themselves Satoshi Nakamoto, and was the first digital currency to successfully use cryptography to keep transactions secure and hidden, making traditional financial regulation difficult if not impossible.

Central bankers and critics of the cryptocurrency have been ringing the alarm bells over the surge in the price and other risks such as whether the opaque market can be used for money laundering.

Sparks glow from broken Bitcoin (virtual currency) coins in this illustration picture, December 8, 2017. Picture taken December 8. REUTERS/Dado Ruvic/Illustration

“It looks remarkably like a bubble forming to me,” the Reserve Bank of New Zealand’s Acting Governor Grant Spencer said on a television program run on Sunday.

“We’ve seen them in the past. Over the centuries we’ve seen bubbles and this appears to be a bit of a classic case,” he said.

Many investors have stood on the sidelines watching its price rocket. However, it is possible to buy bitcoin without having to spend the full price of one coin. Bitcoin’s smallest unit is a Satoshi, named after the elusive creator of the cryptocurrency.

Somebody who invested $1,000 in bitcoin at the start of 2013 and had never sold any of it would now be sitting on around $1.2 million.

Heightened excitement ahead of the launch of the futures has given an extra kick to the cryptocurrency’s scorching run this year.

Slideshow (3 Images)

The CME Group (CME.O) is expected to launch its futures contract on Dec. 17.

CONTROVERSIAL MOVE

Bitcoin fans appear excited about the prospect of an exchange-listed and regulated product and the ability to bet on its price swings without having to sign up for a digital wallet.

Others, however, caution that risks remain for investors and possibly even the clearing organizations underpinning the trades.

“You are going to open up the market to a whole lot of people who aren’t currently in bitcoin,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.

The launch has so far received a mixed reception from big U.S. banks and brokerages, though.

Several online brokerages, including Charles Schwab Corp (SCHW.N) and TD Ameritrade Holding Corp (AMTD.O), did not allow trading of the new futures immediately.

The Financial Times reported on Friday that JPMorgan Chase & Co (JPM.N), Citigroup Inc (C.N) would not immediately clear bitcoin trades for clients.

Goldman Sachs Group Inc (GS.N) said on Thursday it was planning to clear such trades for certain clients.

Bitcoin’s manic run-up this year has boosted volatility far in excess of other asset classes. The futures trading may help dampen some of the sharp moves, analysts said.

“Hypothetically, volatility over the long run should drop after institutions get involved,” Gottlieb said. “But there may not be an immediate impact, say in the first month.”

Additional reporting by Chuck Mikolajczak and John McCrank in NEW YORK; Michelle Chen in HONG KONG; Editing by Lisa Von Ahn, Will Dunham and Kim Coghill

Our Standards:The Thomson Reuters Trust Principles.

AI Is Still Dumber Than a 5-Year-Old, Say Scientists

In previous columns, I’ve explained that there’s a lot of hype surrounding the incremental improvements of the decades-old programming techniques collectively identified under the marketing buzzword “Artificial Intelligence” aka “AI.” 

What’s NOT hype is that those programming techniques (pattern recognition, neutral nets, ect.) have gotten incrementally more effective than they were in the past at playing games and performing speech recognition, automated translation, and so forth.

What IS hype are the all-too-common and all-too-visible claims that AI will soon be able to perform complex tasks that involve anything resembling common sense, such as negotiating business deals, customer support and selling products.

Don’t believe me? Well, maybe you’ll believe a team of AI experts at Stanford University that is measuring the progress of AI. The press release issued last month announcing the index makes the following, startling (but not to me) admission:

“Computers continue to lag considerably in the ability to generalize specific information into deeper meaning, [while] AI has made truly amazing strides in the past decade… computers still can’t exhibit the common sense or the general intelligence of even a 5-year-old.”

As you’re probably aware, AI is very good at playing games like poker, GO, and (most famously) chess. Chess programs now play the game at a level that could reasonably be described as “superhuman.”

When it comes to anything that requires common sense, however, AI is almost helpless. To illustrate this, examine these three chess pieces carefully:

An AI program might be able to figure out (by image comparison) that the piece on the left is a knight and the piece in the middle is a queen. I say “might” because the AI program might also think that they’re simply statues or knick-knacks. 

However, even if the AI identified the two objects as chess pieces and correctly identified their rank, it could never figure out what’s immediately obvious to anyone who plays chess: that the piece on the right combines the moves of the knight and the queen.

Furthermore, without being reprogrammed by a human, no chess program could play and win a game using that piece. By contrast, a human chess player would and could immediately adapt to game play using that piece.

Here’s another example. Carnegie Mellon has a poker program, Libratus, that can play Texas Hold ’em at a tournament level and win against human opponents. This is impressive because, unlike chess or GO, poker involves unknowns.

More precisely, it contains “known unknowns” in the sense that the number of cards and their values are known but their specific position within the deck is unknown. Also, while a specific wager is unknown, the nature of the wager is within known bounds.

But what happens if we introduce unknowns that are not known to the program? If the players decided, for example, to make “suicide cards” wild or to play with a Tarot deck rather than a standard deck, Libratus wouldn’t even be able to identify a winning hand.

This is an important point because many of the wilder claims surrounding AI conflate games like chess and poker with human behaviors and institutions that are infinitely more complex.

Put simply, playing a game with pre-defined rules never requires common sense. Playing in real life always requires common sense.

For example, the co-creator of Libratus founded a firm that’s will apply the technology to “business strategy, negotiation, cybersecurity, physical security, military applications, strategic pricing, finance, auctions, political campaigns and medical treatment planning.”

Some of those applications, such as business strategy and negotiation, are unbounded human behaviors that have flexible rules that constantly change. They require common sense.

Consider: the rules for poker and Texas hold’em can printed on three sheets of paper using standard fonts. By contrast, Amazon currently lists 32,163 books on “business negotiation.” That’s a lot of complexity!

While poker seems like a good metaphor for business negotiations, such negotiations are far more complex and involve numerous “unknown unknowns.” 

For example, I heard a rumor that during the negotiations for IBM’s acquisition of Lotus Development Corporation in the mid-1990, an IBM executives displayed a loaded gun during a meeting in a conference room.

The story may apocryphal but I’ve encountered behaviors equally weird and emotion-laden, if perhaps not quite as dramatic. Unlike games, functioning in the real world requires “the ability to generalize specific information into deeper meaning.”

Which AI still can’t do and where there has been no progress or breakthroughs. 

By the way, many of the systems and applications advertised as “AI” in fact use humans, sometimes hundreds of them, as backups, according to a recent, aptly-title article in the Wall Street Journal, “Without Humans, Artificial Intelligence Is Still Pretty Stupid.”

In short, there’s a huge amount of hype surrounding AI, most of it coming from AI experts and executives who stand to profit if the business world, in general, believes that AI is a huge leap forward rather than just the repackaging of well-established tech.