October 2012 – user's Blog!

Where to Spend Your Bitcoins

For those who have bought or earned their first supply of bitcoins, no matter how large or how small, the first question that often goes through people’s minds is: what can I do with them? The Bitcoin community focuses heavily on the various ways that users can mine, buy, sell, or invest their bitcoins, and it is easy to forget that one of the key purposes of any kind of currency is, ultimately, to be able to spend it. However, Bitcoin does have a substantial underlying economy with a growing number of merchants participating; BitPay alone has over four thousand merchants using their payment processing system, and many more use competing services or manage their own sales platforms. A long, but even still only partial, list can be found on the Trade section of the Bitcoin wiki, featuring businesses offering all kinds of products. Particularly interesting are the low-end offerings; one of the advantages of Bitcoin is that it makes it much easier than almost any other consumer e-commerce system to manage very small amounts of money, and so the Bitcoin community has a number of offerings that take less than a few dollars, or even cents, to get started. No matter how Bitcoin-wealthy or poor you happen to be, the following list will provide an overview of some of the things that you can do with your hard-earned digital cash.

$0.01 – $2.5

Bitcointip – the Bitcointip Reddit bot allows you to support your favorite contributors on Reddit by tipping them bitcoin. Once you create a Bitcointip account and send your bitcoins to the deposit address, all you need to do is reply to any post with something like “+bitcointip 0.05 BTC”, and the funds will immediately be transferred to the recipient’s account, from which they can then withdraw the bitcoins at any time. If the recipient does not yet have an account, an account will be created for him.
Rugatu – Rugatu is a Bitcoin-based paid question-and-answer board. If you have a question that you want answered and are willing to pay ten cents to a few dollars for an answer, simply submit it to Rugatu and deposit your bounty. Once someone provides an answer which you find satisfactory, you will be able to release the bounty to that user.
SatoshiDice – if none of the other options in this category satisfy you, you can always gamble for a chance at increasing your supply of bitcoins to a level where you can buy something more respectable. SatoshiDice offers a wide range of probability distributions, returns an average of 98.1% of what players send in, and requires no account to set up – just send bitcoins to one of its addresses, and perhaps you will receive an even larger sum back. See also: Satoshi Circle, Satoshi Roulette.
Coindl – the iTunes of the Bitcoin world, Coindl specializes in digital goods. On Coindl, you will be able to find a small but unique collection of songs for 0.001-0.089 BTC each, as well as books, games, art and software. If you do not have that much, some items are even available on a pay-what-you-want basis.

$2.5 – $15

Bitmit – the Bitcoin-based auction site has products listed for as little as two dollars, and is very easy to use. At the low price range, you will be able to buy electronics like USB keys and headphones, books and, in the digital goods, section, even one-month premium subscriptions to various online services.
Ogrr – if you spend a lot of time playing online games, Ogrr is a trading forum that allows you to buy and sell your in-game virtual goods for bitcoin. Ogrr has subforums for a large number of games, including Diablo, World of Warcraft and Runescape.
Bitcoin swag – if you want to show off your Bitcoin pride, there are many places that offer you the gear to do just that. BitcoinPride sells T-shirts, BTCTrinkets sells various pins and keychains and CryptoAnarchy offers a large variety of shirts, keychains, magnets and more for sale.
Bitcoin Magazine – what better thing is there to spend your bitcoins on than a copy of the Bitcoin Magazine? Each copy of the print edition is sold for $8.88, free shipping included, although if you are looking for past issues you can often find them bundled for even cheaper.
Reddit Gold – Reddit’s premium offering offers some extra features on top of the usual Reddit experience, and access for a month can be bought for $3.99
VPN services – for less than $10 worth of bitcoins, you will be able to buy a month or two of access to services like ExpressVPN, Mullvad, SecurityKiss, BolehVPN and privateinternetaccess.com, which allow you to route your internet traffic through them to bypass country-wide internet blocking (both Chinese-style censorship and even in some cases country restrictions on services like Hulu and Pandora) and protect your privacy. In fact, Bitcoin is the perfect currency to buy privacy-protecting VPN services; the privacy that it offers, especially when combined with mixing services like that integrated into Blockchain.info’s wallet, ensures that when you are purchasing your anonymity you are anonymous to the provider as well. A more complete list of VPN options can be found here.
VPS and domain registration – if you are looking to start your business, one of the first things that you will need is a website, and that usually entails having a domain and a server to serve your website from. Fortunately, Namecheap, VPS6, BitVPS and many more exist to help you get just that – all payable with BTC.
OkCupid – it’s a common meme that computer nerds can never find love, but if you’re in that situation you are now one step closer to breaking the trend. OkCupid, a popular online dating site, is now accepting Bitcoin for its $10 per month premium service “A-list”, which offers a number of additional features including no advertising, filtering and better search options.

$15 – $100

File sharing – Bitcoin now lets you buy premium access to two of the world’s biggest names in online file sharing: Usenet and Mega. Usenet is the world’s oldest widely known internet discussion and file sharing service, with subdivisions called “newsgroups” for hundreds of different topics of discussion and files that are difficult to find anywhere else, and to Usenet can now be bought at bitusenet.com. Mega is a more traditional centralized file upload/download service created by Kim Dotcom, albeit with client-side encryption, and although Mega does have a limited tier of free service it also has multiple levels of premium access, which the officially endorsed bitvoucher.co sells for BTC.
Local businesses – a number of cities, particularly in the US and Europe, have at least one local restaurant that accepts Bitcoin. Going to such places offers benefits beyond just the food – it can also be a great way to meet other people who are part of the Bitcoin community.
Clothing – CryptoAnarchy, Bitmit, BitcoinPride and others all offer Bitcoin-branded clothing in the 1-2 BTC range, if you wish to take your enthusiasm for Bitcoin to a new, and much more visible, level.
Employment – ultimately, you do not even need a third party service to make your bitcoins worthwhile. Bitcoin is a free market composed of people around the world, and if you have a job that needs to be done, whether it’s art, translation or programming, just post it on any Bitcoin forum and you will quickly get people eager to work for your bitcoins so that they can spend them in turn.
Domain name hosting – if you want to set up an online presence for your business or even just have a personal website that you fully control, there are plenty of providers who will sell you a domain name for bitcoin. Some providers, like BitDomain.biz, are even willing to work with you if you wish to remain anonymous – something which is impossible for those providers that only accept credit cards.
Anything – many large merchants do not officially accept Bitcoin, but the Bitcoin community has come up with a collection of services that allow you to spend bitcoins with them nonetheless. The most popular is Bitspend, which has a form into which you can enter your shipping information and the product URL, which Bitspend’s staff then use to pay for the order with their credit card. There are also more specialized proxies available: BTCBuy offers Amazon, ThinkGeek, Sears, NewEgg, drugstore.com and Barnes and Noble cards from $10 to $350 in value, GamerKeys, which sells many popular PC games for bitcoins and Steambits, a proxy for the gaming service Steam.
Home accessories – there are many stores listed on the Trade section of the Bitcoin wiki which offer various electronics, tableware and home appliances, and a large selection of goods can be found on Bitmit as well.

$100 – $1000

Electronics – the Bitcoin Store, Bitmit, Bitcoinblaster.com and many other sites offer both low-end and high-end, new and used computers, tablets and phones for sale at similar prices to what can be found elsewhere. The Bitcoin Store’s prices are in fact usually even cheaper than leading traditional retailers like Amazon and Newegg, often to the point that it can even be more efficient for those who who have never used Bitcoin before to buy bitcoins through an exchange just to immediately spend them at the Bitcoin Store rather than buying the equivalent goods elsewhere with a credit card.
Precious Metals – if you want to convert your bitcoins to precious metals, Amagi Metals or Coinabul is the place to go. Recognized even outside of the Bitcoin community for their reliability and ease of use, these two stores are the easiest way to buy gold and silver coins for BTC. Note that if you want to convert your gold or silver into bitcoins to spend on any of the other options in this chart, Coinabul can do that too. Aside from the bullion sellers, there is All Things Luxury, which offers a large collection of gold and silver jewellery.
Travel – if you’re travelling to any city around the world, you can avoid currency exchange difficulties by carrying over your money in the form of bitcoin instead. Several cities have bed-and-breakfasts and taxis that accept Bitcoin, and even for your everyday use, you can always make a deal on Localbitcoins to exchange your bitcoin for local currency when you get there. For those who prefer a more structured tour, Bitcoin-friendly travel companies and private tour guides also exist.
Rental – real estate companies such as Finextra in Germany and Fat Property in Houston are now allowing you to pay for rent in BTC, and artists, developers and entrepreneurs in San Fransisco may be interested in 20 Mission, a living community designed for startups.

$1000 and above

Cars – the innovative car manufacturer WIKISPEED is accepting Bitcoin as payment, and private offers of cars for BTC are increasingly popping up.
Houses – at least one person is now selling his house for BTC in Alberta.

This page is, and will always be, a work in progress, and we would gladly welcome your ideas on what we can add. Your suggestion may appear in an upcoming issue of Bitcoin Magazine.

Thanks to everyone in the comments so far for your ideas!

Butterfly Labs Releases More ASIC Photos

Disclaimer: Bitcoin Magazine has previously run advertisements for Butterfly Labs. This article was written independently of this fact. -Ed.

In an upcoming article in our next issue of Bitcoin Magazine, Butterfly Labs, arguably the market leader of manufacturing and selling Bitcoin mining equipment, has released a sneak preview of their current state of development for their ASIC-based Bitforce SC line of computers, scheduled to be released in late November or December. As a sneak peek, we have two images for you.

The company has responded to recent criticism with some images. The photo above shows one of the boards in the Minirig SC, the $29,899 version of Butterfly Labs’ product that Butterfly Labs claims will be able to produce 1.5 terahashes per second while consuming only 1500 watts of power. This board, also shared by the Bitforce Single SC, is 92x92mm in size, and holds the entire processing power of a Bitforce Single SC. The Single SC as a whole will have a base area of 98x98mm fully assembled, and will be 74mm high. Each of the eight black squares on the board is a chip capable of computing 7.5 GH/s. Its theoretical maximum output is even higher, but the decision was made to limit the computing power of each chip to provide quieter operation. The Bitforce SC Mini Rig, the $29,899 traditional desktop computer-sized version of the Single, will use the same boards, but most likely with a higher clock rate. The Bitforce SC Jalapeno will use a modified board with only one chip, whose operating capacity is further reduced to meet the limited power availability through the USB bus.

Butterfly Labs promises to release more information in the coming weeks, and with the November/December ship date rapidly approaching, eager customers and those watching from the sidelines do not have very much longer to wait.

TorrentLeech.org Now Accepting Bitcoins

TorrentLeech.org, a torrent tracking service with a massive 500k userbase, is now accepting and even encouraging Bitcoins as donations and in exchange for VIP accounts.

TorrentLeech believes that “Bitcoin payments safeguard your privacy and protect your anonymity,” and are “strong believers of the Bitcoin.” For these reasons, they are offering 1-3 months of extra VIP subscription for each donation via Bitcoin, depending on the amount donated.

TorrentLeech has even gone so far as to create their own wiki page¹ to aid users in acquiring and using Bitcoins.

With the encouragement for users to use Bitcoin, and a userbase half the size of the estimated one million people using Bitcoin, this new donation policy could very well result in a large number of new Bitcoin users over the coming months.

[divider]

Do you think TorrentLeech’s announcement will have an effect on the number of active Bitcoin users? Leave a comment and tell us why, or send an email to ed@bitcoinmagazine.net.

Sources:

1) http://wiki.torrentleech.org/doku.php/bitcoin

Coinabul Celebrates One Year In Business

Disclaimer: Bitcoin Magazine has previously run advertisements for Coinabul. This article was written independently of this fact. -Ed.

Coinabul, Bitcoin’s largest gold and silver selling service, has announced that is holding a sale to mark an important milestone in its history: one successful year of operation. Jay Shore and Jon Holmquist, both self described “metal-bugs”, had started the business to help the Bitcoin community convert their bitcoins into precious metals in October 2011, and after a month of hard work, the business began to quickly take off. On December 3, the site saw a volume of over 1,000 BTC, and since then, has been seeing consistently higher volumes every month. The site passed 6,000 BTC in April, and, as of its first anniversary, Jon Holmquist has announced that the site has transacted a total of over 120,000 BTC.

Surprisingly, the main driving force behind Coinabul’s success is not its Bitcoin acceptance – rather, it’s the service’s ease of use. Coinabul’s web page proudly claims that Coinabul is known industry wide – not the Bitcoin community, Jon Holmquist clarifies, but the precious metals industry as a whole – for its speed and reliability. The task of claiming such a trophy turned out to be rather easy for a Bitcoin business for two reasons. First, as Holmquist writes, “conventional gold dealers are terrible at building websites.” Gold buyers are traditionally thought of as being an older and more conservative demographic, but the Bitcoin community is one of the few places where an interest in precious metals and internet technology intersect. Second, Bitcoin’s claims of being easier to work with for merchants than traditional systems are hardly exaggerated; Holmquist adds: “Not even a week ago I was trying to use APMEX’s shopping cart and I couldn’t even finish the transaction due to what I think were expired SSL certificates.”

Coinabul has expanded considerably since its last semi-anniversary event six months ago. Aside from its massive increase in trade volume, the business has continued to add features to the website and make it easier to use. The most notable new feature that Coinabul has added since then is an API which allows computer programs to purchase gold and silver automatically. Two possible use cases for this feature come to mind. First, one can use it to make limit orders and stop losses of gold or silver, converting a given supply of bitcoins into precious metals when the price hits a certain value. Second, one can connect the API to a merchant platform, so that a business can convert its revenues into gold and silver immediately and automatically. Shipping is now available worldwide, with sales tax exemptions in Canada and the EU. The process has become fairly efficient; gold and silver typically makes its way to the customer in under a week, and although shipments are sometimes hindered by customs officials suspicious about BTC-denominated invoices rapid delivery is the norm. Shipping costs are typically about 2% of the products’ value, including insurance, and so far, there has only been one serious incident relating to shipping, which the shipping insurance happily covered.

In some areas, Coinabul has encountered roadblocks. Almost since the site’s inception, its founders have been toying with the idea of allowing users to buy virtual gold and silver holdings that would remain stored under Coinabul’s control. However, although the idea has not been abandoned, progress has been slow. “It’s a very hard legal challenge,” Homlquist explains, “We’ve had some progress, but nothing to announce yet.” Coinabul’s difficulties are understandable; introducing gold storage as an add-on may seem like a simple matter of combining one product with another, but it also means that the business would be acting as a financial service, and not just a merchant as they are currently.

Shipping is another area Coinabul is still struggling to improve. Although Coinabul’s shipping has become considerably faster over the past six months and continues to do so, Shore and Homlquist had been planning to achieve a turnaround time of 24 hours worldwide for months – a figure which has, so far, proven elusive. Costs too have been a problem, as shipping costs have risen from under 2% to about 2.4% in the past few months. “We’re a small company,” Homlquist explains, “so we can’t negotiate like the big guys can.” However, the pair is confident that these and other problems can be resolved. Coinabul has already added some new employees, and will continue incrementally improving its infrastructure as it gains the scale and ability to do so.

Six months ago, Coinabul was also eager to start working with MintChip, the Royal Canadian Mint’s foray into digital money. “This should ease the barrier-to-entry for our less tech savvy potential clients, as well as appeal to the gold-bugs being turned on, for the first time, to digitized payments via the Canadian Mint,” Holmquist had claimed. Now, Homlquist reports, for the time being the MintChip project has been shelved. “We don’t see MintChip as expanding in the future,” Holmquist explains, although he adds “but on the off-chance that it does, we’ll accept it as payment.”

Coinabul’s anniversary sale offers $12 per ounce off gold purchases and $1.5 per ounce off silver – roughly 0.67% and 4.5% off the average cost of each one, respectively. After the sale, Coinabul’s founders are also organizing another event: Bitcoin Merchant Friday. Celebrating the second anniversary of the day the Bitcoin project was first registered on SourceForge, a number of prominent Bitcoin merchants, including Coinabul itself, will be holding sales on Friday, November 9. As for Coinabul’s business, their main target in the next twelve months is the USD market; although Coinabul has been growing quickly, Holmquist believes that the business will be able to do much more once it gains a significant foothold selling gold for US dollars as well. But, even if Coinabul becomes a mainstream trader of gold for USD, they do not intend to abandon their roots. “We built Coinabul around Bitcoin, Homlquist writes, “and I feel like Bitcoin has been growing around us too. Bitcoin has given us a solid foundation, solid roots, so now we’re actively exploring ways to enter the bigger market by transacting in USD. Hopefully we’ll be able to offer enough of a discount for clients using Bitcoin that USD customers will adopt!” As for Coinabul’s past, Holmquist is happy about the progress that his and Jay Shore’s business has made. “First month sucked,” he writes, “Second month was okay. Rest of it was a joy! We’ve had our fair share of issues, but we’ve sorted through them. The community has really supported us and we hope they continue to do so!”

Interview With GLBSE’s James McCarthy / Nefario

Last week, the Global Bitcoin Stock Exchange, for a long time the leading investment platform in the Bitcoin economy, suddenly and unexpectedly shut down. There has been much speculation about what has happened, as GLBSE founder James McCarthy (Nefario) maintained relative silence on the Bitcoin forums, and fears multiplied that government law enforcement agencies were behind the shutdown. Just like in the Bitcoinica case, there is also a substantial sum of Bitcoin deposits stored with the site, and so thousands of Bitcoin users around the world have a significant financial stake in the matter. In this interview, McCarthy will discuss the reasons behind the GLBSE’s shutdown, the historical background to the disagreement with his former business partner and currently most vocal opponent Theymos, and his perspective on the legality of Bitcoin services as a whole.

Vitalik: So, to start off, the main question that we’re all wondering about is: what happened? Why was the glbse shut down?

James: Well, after getting involved with Pirate, I lost nearly all the bitcoin that GLBSE users had left with us.

Vitalik: What do you mean “getting involved with Pirate”?

James: I kid, I kid. So basically, when I started GLBSE bitcoin was still considered very experimental. It wasn’t too long after that Pizza had been bought for 10K BTC. And for a long time GLBSE itself was very much a toy. We didn’t reach any sort of success until Feb/March this year. I’ve heard people asking why didn’t we involve a lawyer when the whole thing started, but the truth of the fact is that this was just a fun cool project, and it only became an issue when we became succesful. Also, at that time Intersango had just gotten a letter from the FSA stating that they didn’t consider bitcoin as currency.

Fast forward to just after the Bitcoin2012 conference in London, which was an awesome event with some amazing people. I had just moved to London and the decision was made to make GLBSE a legitimate company. We were succesful enough that it was certainly worth our while getting a solicitor. After spending some time I’d found what I consider to be a pretty good one. This being London, we’ve got some of the best securities solicitors in the world, so another part of that was my location – I couldn’t really find anyone while I was based in China, or even Manchester. So I spoke to the solicitor and explained everything to him, bitcoin, GLBSE, and the community. The solicitor went and spoke to some other people, got a second opinion, and went to the FSA. Keep in mind that this was after BitcoinGlobal had already had a shareholder meeting and the step to become a legit company had been discussed and approved.

Fast forward to last week, and the FSA and others finally get back to us. And things have changed. They were now unsure as to what they would consider bitcoin. Regarding the GLBSE, they believed that what was being done is very much a regulated activity. But this isn’t the largest problem.

Vitalik: You said on IRC that is was anti-money laundering (AML) first, then tax, then the regulations, right?

James: Yes. Money laundering and the finance of terrorism became the largest concern. Due to the properties of bitcoin, it’s very attractive for criminals, money laundering etc. Also due to the properties of bitcoin, it’s especially difficult to detect any relationship between accounts. So, for example, if you put requirements for AML on transactions over a certain size, you have no way to know if smaller transactions are linked. So for AML purposes bitcoin is exceptionally risky.

Long story short, the GLBSE was shut down because:

a) It was performing a regulated activity
b) I, being the operator, would be liable for the lack of AML provisions. Essentially I would go to jail if GLBSE continued to operate

Vitalik: The exchanges seem to be dealing fine with the AML stuff though, is your situation different?

James: Yes and no. All existing bitcoin exchanges that are not doing AML on all accounts (even bitcoin only ones) are at risk. In the event that bitcoin is considered a currency (which is highly likely), all existing regulations would then be retro-actively applied depending on jurisdiction. Also, for bitcoin exchanges who are dealing with bank deposits the depositors are somewhat known – as in, they have to transfer in from and out to a bank account, and those are linked to a persons identity.

Vitalik: Would you have to AML all accounts or just those above a certain threshold? Because I don’t know any exchange that doesn’t let you be anonymous for small values.

James: The GLBSE was bitcoin only. With bitcoin, it needs to be AML for all accounts. And that’s a risk the exchanges are taking. It’s not possible to tell if one bitcoin only account is connected or not to any other. A person could split one bitcoin transaction across several accounts, keeping the amount under the AML required level. In fact, this is what some users were discussing on bitcointalk , specifically to avoid the requirement for AML. That’s a big risk for exchanges to take and it grows as the popularity of bitcoin grows.

This is not just my opinion, this is what the solicitor has told me, and since it’s my neck on the line regarding the GLBSE and all it’s activities I’m much more inclined to listen to the solicitor – otherwise, why bother getting one?

Vitalik: What about the tax issues?

James: Very simply, the tax man will want their cut of bitcoin activity. Right now people might be able to get away with just by saying that their business is that they sold bitcoins, but once the amounts become worth while tax agencies everywhere will start asking how people managed to aquire those coins in the first place, and this is partly where the money laundering side of things comes in as well. Unless you’re are doing business with bitcoin anonymously you will have to follow all the existing rules and regulations of the jurisdiction you are based in

Vitalik: you said that you might try to make a legal exchange in the future. What would have to be done for that?

James: The initial plan was to make GLBSE itself a legal entity that met all the regulatory requirements, with the hope being that it would be something we could ease into. But it became very clear that this was not going to be possible. Plan B was to shut down GLBSE and start a new company, which from the begining followed all the rules.

Vitalik: And that turned out to be impractical too?

James: Not at all. Really I don’t have a conclusive answer on that, yet. Things in the non-bitcoin economy take a hell of a lot longer to get done than in Bitcoin land; people were complaining about why GLBSE wasn’t able to give them their bitcoin back right away (and started freaking out on the forums, in a large part thanks to theymos), really things don’t move that quickly offline.

Vitalik: Anyway, what are the difficulties with getting users their money back?

James: And I wasn’t going to do anything without the legals giving the me go ahead to do so. Users also need to keep in mind that it’s only been a little over a week since GLBSE shut down. I’m currently wading through the 800+ closed accounts for returning bitcoin and assets. A lot of that has to be done manually. Also, you can’t just withdraw your assets since they’re something that existed solely on GLBSE.

Vitalik: But isn’t transferring assets just a matter of telling the issuer who has how many?

James: Not exactly. When signing up users never agreed to have their contact details given to the issuer, and most of the issuers need a bitcoin address for them to payout to. Once the form went up, the whole process for closing your account is very very smooth and simple.

Vitalik: OK, you have a form up now, asking for email and BTC address. So, if you’re fine with giving your contact details to the issuers, the issuers can contact you by email from there. What happens if you don’t want that?

James: Then you’re choosing not to continue your relationship with your issuer. I’m sure your shares will still exist, but your issuer won’t know who you are, so you won’t be able to collect them.

Vitalik: so what is the plan for BTC deposits, if you’re not just sending them immediately?

James: As you may be aware, there are internal disputes in Bitcoin Global. I was hoping to get them sorted quickly. Since I don’t hold all users funds, but I do hold most of them. I’m not sure exactly how much Theymos holds, but it’s not what he publicly stated In July/September I had sent Theymos 3K BTC to be able to top up the hot wallet when I was on the road (I was going to be traveling for a few days). Last I remember he had about 1500BTC. Those were users’ deposits.

Vitalik: but if you have most of the money, would it be possible to do something like returning half pro rata immediately, and then returning the rest when you can?

James: I could probably do that. As I said earlier though, I need to go through the 800+ accounts first. Obviously not all of them, do them in batches. The first batch will be getting their coins either later today or early tomorrow.

Vitalik: Anyway, what is the internal situation of the company at the moment? I can see theymos is not really on your side anymore.

James: He hasn’t been on my side for some time. About 2 months ago, I had made a number of technical changes to GLBSE to bump up the speed. This ended up introducing a vulnerability, which was on the site for all of three days before I had found it and fixed it. It was a parallel programming issue. So the result was one user had discovered this vulnerability and had taken advantage of it. The user had gotten away with about 2500BTC. This was a big hit to GLBSE’s profits, but we had enough to handle this. After investigation I’d learned the user had a bitcointalk account, naturally with Theymos being the admin (and a BitcoinGlobal shareholder, as well as treasurer) I went to Theymos, provided him with the proof both in the block chain and from our records, to get the guy’s personal details. He flat out refused, under no circumstances would he release that information. At that point I thought that this was it and we’d have to just take the loss.

Vitalik: Did he say why he was refusing?

James: Said he couldn’t trust any information or records from GLBSE, or something along that line.

So he was a shareholder of glbse but didn’t trust the rest of the company? Sounds like that wasn’t the first disagreement.

Not just a shareholder, the treasurer. It was the first disagreement over anything GLBSE related. I’d given up my position as a moderator on bitcointalk about a year earler over him allowing someone to be hounded off the forum over their sexuality, it wasn’t acrimonious though. So really this incident was the first.

Moving on from that, I’d gotten the thief’s information through other means about a month later (from the theft) and got him to return all of the funds about 2 weeks ago. No easy task getting the information or getting him to return the coins.

Vitalik: Congratulations, I think that deserves a story in itself

James: Meh. The fact that Theymos was not willing to help with the theft wasn’t brought up in the next shareholder meeting. I was going to, but on the news that GLBSE was going to go legit he said that he would resign and sell out. He didn’t like the idea, but thats fine. Not a problem with people disagreeing. So he wanted to sell his (very small) share in GLBSE. After that information I thought the point about the theft was moot.

Vitalik: Well, I could understand that – he would need to stop being pseudonymous if btc global became an actual company, right?

James: Yes, which was fine. This is why they were going to sell their stake in the business, and I was ok with that. But then, he wasn’t happy with my choice to remove Goat from GLBSE. And then with the closing of GLBSE, a shareholder meeting happened on the Friday after it was closed. Theymos put forward a motion to remove me as CEO, but it did not even get 30%. It was him along with two others. We’re very unhappy with this course of events.

So right after he lost the vote (remember, Theymos never invested anything in GLBSE) he made that post on the forum, and he’s been on a quest to do as much damage to me and any GLBSE operations ever since. The others who were with Theymos are the ones who have been posting on the forums.

I’d explained since the begining of the meeting that if GLBSE continued I would end up in jail. He didn’t care. He was perfectly happy for that to happen

Vitalik: You did say at the conference in London that you were willing to relocate to another country if necessary.

James: Yes, but we’ve not exhausted the options in the UK at all.

Vitalik: So you would prefer a tightly regulated, possibly full AML on every issuer and buyer, UK exchange over the status quo someplace in Asia?

James: I would prefer to have an exchange/service where real businesses can raise capital for starting or growing without the fear of being arrested.

Vitalik: Is it true that the glbse bylaws disallow shutting down the glbse?

James: No. The purpose of the bylaws is to maintain and run GLBSE. If GLBSE is to close, then the bylaws have no purpose. Nothing states that GLBSE can’t be shutdown.

The purpose of this document is to codify the governing bylaws of BitcoinGlobal, whose initial stated purpose is the development and maintenance of the Global Bitcoin Stock Exchange trading platform, but whose operations may extend to other areas with approval of the Members.

This is what he is using as his main argument. He interprets this as a ban on the shutdown of GLBSE, when it really states that the purpose of BitcoinGlobal is to run and maintain GLBSE. No GLBSE means there is no purpose in BitcoinGlobal. It’s on those grounds he had me labelled as a scammer on the bitcointalk forums. He’s also put my life in danger by whipping up members of the forum. I’ve gotten several phone calls usually at 3-4am in the morning with death threats, one of which knew my address. I’ve only been living in this address a little over a week.

Vitalik: So, is there anything else that has happened this past week?

James: In terms of the scandals not so much. I’ve not been talking to anyone else much if anything at all, Bitcoin Global shareholders included. With the exception of the solicitor – since theymos and other shareholders have decided to selectively release information to the forums from the meetings and emails, I need to make sure all angles are covered. As far as the Bitcoin/legal situation, having a trading platform/secondary market where users can re-sell shares or assets they own is pretty much illegal unless you set up a registered stock exchange which would take tens of millions to do. However…

Vitalik: A crowd investing service like Prosper?

James: That is where we’re looking, crowd funding and the regulations around that area. Can there be a second market for that kind of thing? Sure, but that is something thats not going to be exactly legit.

In the long term, and speaking more about Bitcoin rather than the GLBSE specifically, if the largest proportion of the bitcoin economy is made up of black market goods and services, it’s going to eventually result in govenments around the world shutting down all the exchanges. This equates to economic sanctions on the “nation” of Bitcoin. So technically you can’t stop people using Bitcoin and trading with it, you can choke off the entry points into the economy. Without exchanges Bitcoin for the average person becomes pretty useless. We’re nowhere near the point when bitcoin can be self sustaining exchange free. The more legitimate businesses that use Bitcoin, not only will the overall Bitcoin economy grow in general, but the more difficult it will become for governments to cramp down on the exchanges as it will have a legitimate use.

So, I guess that’s it. Any more questions?

Vitalik: No, I think that’s all. Thanks for your time!

Global Bitcoin Stock Exchange Shuts Down For Good

Last Thursday, the Global Bitcoin Stock Exchange, the first and by far the largest securities exchange in the Bitcoin economy, unexpectedly shut down. The principal cause of the shutdown appears to be legal problems. As Nefario wrote in IRC chat^[1], “my problem actually is: 1) AML, 2) tax, 3) regulations, in that order.” The shutdown has already had an impact on the Bitcoin price, dropping it from about $12.9 to a low of $10.65 before a partial recovery^[2], and will have a significant impact on the Bitcoin economy over the next few weeks as the businesses listed on the exchange adjust to the loss of their main platform for attracting and interacting with investors.

The GLBSE was first launched by its founder James McCarthy, more commonly known by his forum handle Nefario, in May 2011. The site had a rocky start; the first IPO that was made through the exchange was Ubitex, a service which intended to help Bitcoin buyers and sellers avoid the banking system and trade bitcoins directly, meeting face to face and using cash. The IPO gathered over 1100 BTC (worth an average of about $10000 at the time, although the price was very volatile), but the service never had any success, and in August, its founder disappeared entirely. This IPO was likely not a deliberate scam. Its founder, Nathaniel Theis, was a minor, and the most likely explanation was that he simply got discouraged by the business’s initial failure and decided to cut himself off from his commitments.

The GLBSE did attract some legitimate business. Mining companies, businesses which use investors’ funds to buy Bitcoin mining equipment and pay out the bulk of the mining rewards that they generate as a dividend, were popular right from the GLBSE’s launch, and turned out to be largely legitimate throughout the exchange’s entire history.

However, there were further debacles. By fall 2011, the Lambert funds^[3], a set of investment funds operated by Peter Lambert which attempted to earn their profits through arbitrage and investment within the Bitcoin economy, were the largest assets trading on the exchange. From September to November, the value of the funds rose steadily, and although there was little on the GLBSE beyond these funds and the mining companies, the GLBSE’s userbase was slowly growing. In December, however, Peter Lambert mysteriously stopped communicating with his investors^[3]. On January 18, Lambert came back, and delivered the news that many were already suspecting was the truth:

For personal reasons, I have decided to get out of the bitcoin business. I have put up orders to buy back the outstanding shares of the LIF assets. Unfortunately, my trading strategy seems to have been flawed, we lost a bunch of money. I have been selling off the GLBSE assets held by the fund, but it appears many of the buy offers were not real, and I was only able to recover a small amount for the assets held. Many of the GLBSE assets turned out to be scams.^[4]

Despite this, the GLBSE kept growing. Three days after Lambert’s fateful declaration, Nefario announced that the GLBSE would be releasing a new version of its interface – GLBSE 2.0. The new interface would be a major step toward pushing the GLBSE into the mainstream, and included a number of improvements in usability. First, the original GLBSE’s authentication system, based on users storing private key files on their computers, was removed, and replaced with a traditional username/password authentication system. Nefario describes the motivations behind the original setup, and its replacement, thus:

The mistake made was that we (at GLBSE) thought the issue was to provide an anonymous asset(stock) market/exchange, so thats what our time effort and money went into. What we should have been doing was building a market for people to raise capital for their business or idea in bitcoin, and make it as easy as possible for people to do that while trying to keep investors safe.^[5]

Along the same veins, the GLBSE introduced a voluntary identity verification system, by which sellers could submit one or more pieces of identifying information, including address, phone number, email, Facebook account and a photograph of a widely recognized type of ID, to link them to a real-world identity. Users would see this information and be able to make judgments regarding their investments with this information in mind. Many legitimate businesses did submit such information, and trust in them improved, but many others continued operating anonymously.

The summer of 2011 saw a new type of security appear on the GLBSE: the Pirate Pass Through (PPT). Pirate was the name typically used to refer to a forum poster who went by the names Trendon Shavers and his forum handle pirateat40. He managed Bitcoin Savings and Trust (BST), an investment scheme that offered interest rates of up to 7% per week. The scheme expanded quickly, and evidence suggests that, as it was approaching its peak, its deposits were growing at over 100,000 BTC per month.

Many were concerned that BST was actually a Ponzi scheme, a fraudulent investment opportunity that has no underlying business to generate profits, but instead creates the illusion of one by paying out profits to earlier investors from the pockets of later investors. However, many more found the interest rates attractive enough to be worth the risk, and there was high demand for ways to make it easier to invest in the scheme. The Pirate Pass Through was the result of this demand; a security listed on the GLBSE investing in shares of BST and paying back the returns, minus an operator’s fee, as a dividend.

Some PPTs were honest about what they were doing, but many other investment funds were Pirate pass throughs by stealth. Offering investment funds of their own with returns from 2-4% and vague descriptions about investing in “arbitrage” and “the Bitcoin economy”, the operators of these schemes were actually investing either some or all of their investors’ funds with Pirate, either naively hoping that Pirate would not default or confident in their ability to quietly disappear in the resulting chaos if he did. By August 2012, official and unofficial PPTs were by far the largest sector on the exchange.

Like all Ponzi schemes, however, sooner or later Pirate was doomed to fail. And, on August 17, it did. Three days before the final collapse, the scheme attempted to increase its lifetime by reducing interest rates from 7% to 5%, but the attempt backfired as investors attempted to withdraw their deposits en masse. Pirate shut down^[6] Bitcoin Savings and Trust with a message on the Bitcointalk forums on August 17, and promised at first that deposits would all be returned. However, on August 28, even this promise fell away as Pirate announced that he was in default^[7]; since then, Pirate has ceased communication entirely, and efforts are still underway to find Pirate’s physical identity and location so that he can be prosecuted.

But Nefario was determined that the GLBSE would carry on. On September 16, he gave a speech on the exchange at the London Bitcoin conference, arguing that even without the Pirate pass throughs the GLBSE remained a significant part of the Bitcoin economy and was here to stay. In an attempt to show the GLBSE’s legitimacy, he underlined its crucial importance for the Bitcoin mining industry, estimating that at least ten percent of the Bitcoin network’s hash power is made up of computers bought with money raised through GLBSE IPOs. As for legal threats, Nefario was also confident. “If they say in the UK ‘You can’t run this thing anymore’,” he claimed, “that’s OK. We’ll just move somewhere else. We’re not using a bank account for this and the funds are sitting on a USB key so it’s easy to exploit differences in jurisdictions. We might want to move somewhere like Singapore or Hong Kong, for example.”

Since then, Nefario has hired a lawyer to help make the GLBSE a legitimate business, and as soon as the lawyer began offering advice Nefario almost immediately started to play a different tune. The GLBSE quickly shut down, and communication with the Bitcoin community has been limited since then. Internal shareholder relations have fallen apart; Theymos, a pseudonymous shareholder and treasurer at Bitcoin Global, believes that Nefario has been approached by legal authorities and the current events are really Nefario desperately doing everything he can to avoid prosecution. Nefario’s behavior is particularly problematic because, officially, he does not even fully control the exchange; the GLBSE’s parent company, Bitcoin Global, is itself a multi-shareholder enterprise, and a number of shareholders have expressed their disapproval of his actions. However, Nefario has stated on advice of his solicitor that he will ignore any attempts to remove him, and even that turned out not to be necessary; Theymos attempted^[8] to pass a motion to remove Nefario from his position as CEO, but he was unable to gather the required 51% support. According to Nefario, keeping control of the company is his only choice; Nefario writes, “keep in mind that GLBSE is linked to me and my identity, I’ve used my credit cards to pay for the domains, servers and other items. If I passed control of it to anyone else(especially an anonymous person), and it continued to operate, knowingly breaking laws and attracting attention then I would be found liable.” And, judging by Theymos’s inability to get 51% support, the majority of the GLBSE shareholders agree.

For those who are hoping that the GLBSE will recover, the odds are unlikely. Nefario himself has stated that the GLBSE is never coming back, and although he has hinted at the possibility of the GLBSE’s parent company, Bitcoin Global, creating a regulated and legal exchange to replace it, it is doubtful that enough Bitcoin businesses would be willing to go along with the issuer requirements that such a status would entail for the effort be worth it. Currently, many more are concerned with a far more pressing question: what will happen to the GLBSE deposits? Theymos has added fuel to these worries, claiming that users will be required to submit identification documents to get their money back. Nefario, while not explicitly denying this, has simply stated that “all deposits will be returned to GLBSE users.” Regardless of what happens, fortunately this time the issue is not as crucial as it was in the Bitcoinica crisis; the amount at stake has been claimed by Bitcoin Global shareholder Theymos to only be about 8000 BTC, as the rest of the value that GLBSE users have stored in the exchange exists in the form of shares. A share is nothing more than a formalization of a relationship between investor and issuer, so the GLBSE, being nothing more than the database holder, has no way to make off with this part of users’ funds. Furthermore, the GLBSE’s website now claims that the company is “currently working on a simple, safe, and easy to use method that will allow you to continue your relationship with your asset holders”; given that there is no evidence that the GLBSE’s databases have been confiscated or destroyed there is no reason to believe that this will take an excessively long time. Once the GLBSE’s issuers receive the data needed to continue their relationships with their asset holders, however, they will still need a platform on which to manage it.

What platforms may take the GLBSE’s place is a question that will soon be answered in an upcoming article…

[UPDATE: Nefario has contacted us and provided an explanation for the GLBSE’s inactivity, and corrected some misconceptions regarding the internal affairs of Bitcoin Global]

Intersango Shuts Down USD Trade

This morning, users of the Bitcoin exchange Intersango were greeted with an email from support stating that Intersango would soon be shutting down all USD-denominated trade on the exchange:

Intersango’s USD market will stop trading 2012-10-14 at approximately midnight UTC.

At this time we ask that persons with USD funds either place a withdrawal request or purchase bitcoins.

To facilitate persons wishing to purchase bitcoins Intersango has placed 625 BTC up for sale at 12.1 USD.

Unfortunately the USD market is simply too small to justify it’s ongoing operation.

The justification makes sense; while Intersango’s GBP and EUR exchanges traded 15,000 and 28,000 BTC in the past month, respectively, its USD trade has only seen a volume of 4,800 BTC, or $58,000, over the same period^[1]. With its fee of 0.65%, this amounts to a monthly revenue of $400. Intersango is still seventh in the USD market, and there are many exchanges in both the USD and other currencies that are willing to continue operating at much lower volume (including Intersango itself with a Polish division handling 2,000 BTC per month), but in the case of the USD the team behind Intersango evidently does not consider maintaining operations at such volumes to be worth it.

All four Intersango exchanges, with the exception of its minor PLN division, have been in trouble for months. The EUR volume, making up the bulk of Intersango trade, peaked at about 15,000 BTC per week in July before beginning a steady decline to a third of this value now. The GBP volume never even peaked; it had been roughly steady for eight months starting from last December, but precipitously declined from an average of 15,000 BTC per week to 3,000 BTC per week in the past one and a half months. And the USD volume has simply been on a slow and steady decline from 4,000 BTC per week to 1,000 BTC per week since June.

Intersango has suffered a number of setbacks in that time. One major blow was to its reputation, as the team behind Intersango was also a key player in the prolonged Bitcoinica debacle that took place three to six months ago. Another issue was banking problems; Intersango’s UK bank, Metro Bank, halted the exchange’s ability to send and receive payments in July, leading to weeks of delays^[2]. Finally, the exchange’s problems may have been largely simply a result of dropping BTC exchange activity in general. Since the closing of Bitcoin Savings and Trust on August 17, the volume of Bitcoin exchange activity on most exchanges, including the dominant player MtGox, has reduced significantly^[3] from the levels that the exchanges saw in the summer.

A successful Bitcoin conference in London in September did improve the Intersango team’s reputation, and banking problems of Bitcoin exchanges do tend to eventually be fixed, so Intersango does have a chance to turn itself around. However, the question is, will it? Is Intersango’s move to abandon the USD part of a strategic consolidation and retreat, or does it mean that the exchange is sinking into the depths of obscurity? Or will its trading volume simply stabilize at a level that is perhaps not as glamorous as that of MtGox, but is nevertheless profitable to run? At this point, only time will tell.

Sources

Butterfly Labs Offers Lifetime Warranty, ASIC Competition Surges On

About three months ago, Butterfly Labs was the first to announce a specialized Bitcoin mining device based on a technology with the potential to massively increase the computing power of the Bitcoin network per unit power and cost: the ASIC. ASIC, or application specific integrated circuit, is a technology taking specialization to a whole new level. Although FPGAs, or “field-programmable gate arrays”, are already used for Bitcoin mining, ASICs offer even greater improvements because they come specialized for one specific task right out of the factory. The process to create ASICs is hardly new, as they have been used for applications like digital voice recording for many years, but it has taken time to adapt the process to Bitcoin mining.

The statistics of Butterfly’s ASIC-based Bitforce SC lineup are impressive; dollar for dollar, the SCs are about thirty times as powerful as anything currently available, and, given the state of the Bitcoin network at the time of the announcement, each one would pay for itself in eight days. More recent specifications from Butterfly show that the power consumption is as low as the price; the middle-of-the-line $1299 SC Single would provide 60 gigahashes per second (up from 40 as per the original announcement) for only 60 watts, less than the company’s current FPGA offering.

The customer service offerings are as impressive as the product itself. Butterfly Labs now intends to offer a lifetime warranty on all of its ASIC products. As CEO and lead engineer Nasser Ghoseiri put it, “We’re making an infrastructure. Hardware is only part of it – our mission is to support the value of their investment by responding to market changes with things like the buy-back program, and making sure that their investment is safe.” Will the units actually last a lifetime? Butterfly’s Josh Zerlan says yes. The Bitforce SC ASICs are “not like the FPGA units at all… they are going to be far simpler and much more robust.”

Of course, many are incredulous, and ever since the original announcement, there have been concerns that the SCs would not actually be created and the whole thing was a scam – a worry that was heightened when it became public that one of the company’s employees had a criminal history. Some were also worried that if Butterfly’s offering was legitimate, it would be unhealthy for one company to have so much influence in a market, the whole point of which was to be decentralized.

Now, however, several other companies have joined the fray. The first is BTFPGA’s bASIC, which offered 27 GH/s for $1069 (a figure which has since been increased to 54 GH/s). The bASIC is intended to be the ASIC “successor” to BTCFPGA’s existing FPGA-based ModMiner Quad. Just like Butterfly Labs, BTCFPGA is offering a trade-in program^[1] by which existing ModMiner Quad orders that have been placed but not shipped can be replaced with orders for a bASIC, and any ModMiner Quads that are already in use can be traded in for a rebate. Also just like the ModMiner, the bASIC is intended to be completely open source.

Another option available to Bitcoin miners is the Avalon ASIC. Avalon’s ASIC, a project created under the umbrella of the upstart Bitcoin business incubator BitSyn.com, offers 60 GH/s for $1299. However, its power consumption is more worrying. An initial announcement suggested that the machine would consume 600 W, although a later post on the BitSyn.com forums stated that 600 W was a conservative estimate, and the actual power consumption would likely be 120-160 W. Given that Butterfly themselves took almost three months to come up with a power consumption estimate, and bASIC does not have any figures at all, the lack of precise specifications at this point is understandable; the ASICs are still under development, and shipping for the first 300 units will take place in January and February 2013.

Finally, DeepBit has released a line of ASICs of their own. DeepBit is well known for having been, at one point, the largest Bitcoin mining pool. DeepBit even exceeded 50% of the network’s total hash power for a few brief moments in 2011, although the mining pool has shrunk considerably in recent months, and is now not even close to first place^[2]. DeepBit has been making preparations for this ASIC offering since January, and is seeking to reclaim some of its former glory with the ASIC-based Reclaimer line. However, the results are not particularly impressive; the largest and most efficient of the line offers 80 GH/s for $2800. DeepBit may readjust its specifications in the future as Butterfly and bASIC have done, but at this point, its offering appears to be the least attractive of the four. Deepbit operator Tycho expects the Reclaimers to become available in March.

The sudden diaspora of competition on the Bitcoin mining market provides several positive signs. First, the existence of offerings from established players like Deepbit, and the similarity of the statistics across all of the companies, suggests that the ASIC offerings are indeed legitimate, and will provide the hashing power and efficiency at least near what they are offering. Second, it alleviates fears of market centralization. Finally, the development of ASICs in general is a very positive sign for the security of the Bitcoin network as a whole.

Bitcoin’s hashing power is likely to go up by at least a factor of 10 to about 200 terahashes per second, or 3 exaflops – likely the first use of the prefix “exa” (meaning 10¹⁸) ever to be employed in the computing world. Even billion-dollar government supercomputers are hard-pressed to match just one percent of that. From here, Essentially, this implies that the condition for overpowering the security of the Bitcoin network is changing. Formerly, all that one needed to do to overpower the rest of the network and gain the ability to pull off double spending frauds was to gain more hashing power than the rest of the Bitcoin network combined for a short amount of time. Now, of course, the same still holds, but doing so requires buying up large quantities of ASICs – in short, throwing in more capital investment than the rest of the Bitcoin network combined at least over the past few months. Right now, even with the ASIC revolution increasing the power of the Bitcoin network by a factor of ten, that is still only a few million dollars – although even now any attack will take months to prepare. From here, however, further improvements to mining technology will only come with iterative applications of Moore’s law, and so the capital barrier to pulling off a double spend will only go up as times goes on. If the Bitcoin network was precarious and vulnerable to any significant company, government or that may have wanted to bring it down before, it is now well on the path to lasting stability.

Sources

Bitcoin Usage for Political Donations Expands to Vermont

About a month ago, New Hampshire State Representative Mark Warden pushed forward the legitimacy of Bitcoin in two very significant ways. First, he was the first major political candidate to accept Bitcoin for political donations. This was a significant milestone, both because the regulations around political donations make utilizing Bitcoin a much greater challenge than for any other kind of charity, and because it means that Bitcoin has support “within the government.” Eric Olson, a Libertarian candidate in North Dakota, had been accepting Bitcoin for months before^[1], but the Libertarian party, like most other third parties in the United States, is much too small to attract significant media attention. Secondly, when New Hampshire’s Deputy Secretary of State approved the arrangement, the event marked the first official ruling of any kind in favor of Bitcoin’s legality.

But in the three weeks since, signs are showing that Mark Warden was not simply the first to reach a milestone; he may well have been the first to break a dam. Less than a month after Warden’s move and weeks after the New Hampshire Secretary of State’s approval, Jeremy Hansen, a professor of computer science and independent candidate, has just announced^[2] that he also intends to accept Bitcoin donations. Hansen does not have a political platform of his own – he strongly supports direct democracy, and intends to simply serve as a conduit for direct democracy if he gets elected. Barring constitutional objections, on each bill he would simply vote the way the people want him to. Although, like Olson, Hansen is not a mainstream candidate, unlike Olson he has also managed to get formal legal approval from both the Vermont Attorney General and the Vermont Secretary of State.

But Josh Jones, creator of Bitcoin Builder and developer of the custom system which Hansen uses to accept donations, intends for Bitcoin to go even further. He believes that “Bitcoin is perfect for campaign contributions because of its ability to do micro-transactions at low-to-no cost”, and to that end, has offered Hansen’s system to any candidate wishing to accept Bitcoin. “The system up now at http://www.bitcoinbuilder.com/donate/,” he writes, “allows political campaigns to create donation forms in one click that comply with the legal requirements Jeremy and I have identified.” And indeed it does. Going to the link, visitors are immediately presented with a form that allows them to create a donation campaign, whether for political purposes or otherwise, set or modify some basic settings like what personal information to require (the default is name, email, phone and address), click “Start Donation Campaign,” and have a link to a form which anyone can use to donate right away. If other candidates are interested, they now have the tools to start accepting Bitcoin far more quickly – Jones’s form is far easier to set up than even BitPay. The work of determining what kind of donation system works best has already been done by Warden and Jones, and getting approval for each additional state will only be easier with the weight of two established precedents in Bitcoin’s favor.