Month: October 2013

Written by: Chang Jia (www.8btc.com)

Translated by: James Choi (www.8btc.com)

Edited by: Elizabeth T. Ploshay (Bitcoin Magazine)

Bitcoin has become so popular today in China that even Damas (Chinese aunts who dance in the square) are talking about it. Chances were rare, however, of hearing about Bitcoin in China two years ago. Just two years ago, it was very exciting to meet someone sharing the same interest in Bitcoin.

8BTC.com was like a sloop when first established in 2011. It was not before too long that 8BTC received the first donation from QQagent, the moderator of the Chinese sub-forum of Bitcointalk, as well as the Chinese translator of Satoshi’s Bitcoin White Paper. I never met him in person, yet we still trusted each other and believed the Age of Exploration for Bitcoin was coming. Lao Duan, who was one of the first Bitcoiners, a famous blog writer and the founder of the first Bitcoin fund in China, also joined us later on. The sloop was upgraded to a brig as we updated our domain name and network host. We went through these changes in 2011 together, when the fervor of Bitcoin quickly reached its peak and subsided even quicker. Today QQagent and Lao Duan both left 8BTC due to personal reasons, yet they are always remembered on our About Us page on our website.

In 2013 Bitcoin became famous again in public, while more and more sailors were joining 8BTC. For example, Wuwangbuhuan joined 8BTC as both our pen names appeared in the same report and I was quite impressed by his insight. Really and BigChubbyCat joined 8BTC despite our differing opinions. They were fanatic Hayek advocates while I disagreed with the understanding of Hayek. Shuikongkong, Songhuanping, Atrax and James also then joined 8BTC, as we all participated in the collective writing of the book “Bitcoin- An Open-Source Experience of Money”.

Li Jun is also a special member among our writers, as he initiated the campaign of writing the first book of 8BTC about Bitcoin. I appreciated his plan of co-writing the book and together we invited friends to join the campaign, to finish the book with great enthusiasm. We had no intention of reaching consensus on the content, but rather tried to show different perspectives and thoughts. That’s why you can see different or even opposite views in this book, just like what Bitcoin communities show us — an open self-organized system accepts supports from all sectors to develop.

The same principle applies to the organization of 8BTC. Critics of Bitcoin as well as of myself are invited to join 8BTC. There was a dispute of copyright between 8BTC and its competitors in August 2013, while BigChubbyCat and Hu Yilin objected openly to the BY-NC-SA (Attribution – Non-commercial – Share-alike) agreement of 8BTC. I was quite upset at first but still chose to respect their choice. Consequently they could make a copyright statement to allow redistributing their articles on other websites, or choose not to display the sidebar of WordPress when publishing their articles on 8BTC. By doing so, the advertisements of 8BTC are not displayed in the pages of their articles, meaning that they refuse to receive sponsorship from the revenue generated by the advertisements of the website and they are thus not bounded by the BY-NC-SA agreement.

8BTC is like a Flemish galleon now, with more than thirty writers. Our 8BTC website is run by the enthusiasm of volunteers, as most of us write the articles in our free time. It was Shen Bo who told me that 8BTC had the potential to become a great ship and helped to make a closer connection between 8BTC and the Bitcoin community. Thanks to the assistance of Elizabeth, we are about to establish a long-term cooperation with Bitcoin Magazine. James and I as well as other 8BTC members will write in the columns on Bitcoin Magazine and introduce the information and news from the Chinese Bitcoin community. Meanwhile 8BTC will also help to promote the use of education resources Bitcoin Foundation and Bitcoin Education Committee to China, as well as translate the content of Bitcoin Magazine into Chinese.

In the past two years, some members have left 8BTC while some others have joined us. This is similar to the Bitcoin network where some nodes go offline and new ones go online, yet the system is still running well. We are implementing the idea of distributed autonomous corporation (DAC) unconsciously. Currently Baozougongqinwang, one of our famous members, is planning to set up a digital-money investment fund. Really and Juxie are making their efforts to promote derivative applications of Bitcoin like Mastercoin and Bitshares. Li Jun and Wuwangbuhuan are establishing a consulting firm. Thanks to the relatively loose regulation, the prospect of Bitcoin in China is promising. As a pirate ship in the Age of Exploration for Bitcoin, 8BTC hopes to help its members to reach their own docks.

Written By: Chang Jia (8BTC.com)

Translated By: James Choi (8BTC.com)

Edited By: Elizabeth T. Ploshay (Bitcoin Magazine)

The California Department of Financial Institutions when issuing the ultimatum of a cease and desist order to the Bitcoin Foundation, perhaps made a mistake. The Bitcoin Foundation does not serve as a money transmitter. The Bitcoin Foundation was quick to respond: “The Bitcoin Foundation does not maintain business operations in California or sell or issue payment instruments, which means the Foundation is not subjected to the Department of Financial Institution’s jurisdiction.”

In the past three years, more than 120 programmers have submitted over 5,000 code improvements for the Bitcoin client, while thousands of programmers developed applications and websites for Bitcoin. However, it is impossible to find an administrator or an operating organization in this concentration of computing power which is the largest to date. Bitcoin is such a unique decentralized product that anyone can get involved to develop code, or set up a node, or process trading data by completing the computing tasks within the network, but no individual or organization can really dominate Bitcoin, even founder Satoshi Nakamoto himself. Some believe the true identity of Satoshi is a collection of three individuals, as an uncommon scientific phrase appeared both in the Bitcoin White Paper and in a patent application filed by those three people. It can also be noted that the Bitcoin White Paper is written in the first person “we” rather than “I”.

Wikipedia, run by only five people, is similar to Bitcoin as it promotes decentralization and has removed the fence of professional institutions, inviting everyone to be involved in the field of knowledge, thus making it possible for individuals to complete epic projects of knowledge via large-scale cooperation. Bitcoin, administrator-less, breaks the monopoly of financial Brahmans and creates a decentralized reality of millions of LSI devices defeating a central server guarded by high-ranked flamens via distributed self-organization.

Wikipedia is a 24/7 library that never closes and can be viewed and edited at any time. Likewise, Bitcoin is the global cloud online 24/7, with no more frustrating “non-business hour” roadblocks. The large-scale cooperation of both Wikipedia and Bitcoin is quite open-ended. As long as a page of Wikipedia is not locked, anyone can edit it to make it more accurate. In Bitcoin communities, anyone can code, develop applications and can work towards greater security. Both have endogenous mechanisms of motivation. The activists in the Wikipedia community can gain more respect and approval of articles by voting. Wikipedia is based on sharing knowledge. In the Bitcoin economy, miners mine to process trading data and provide computing power, while at the same time gaining Bitcoin in payment. The voting right represented by the computing power bestows the mine’s strong sense of citizenship. Their responsibility and motivation help secure the whole network of Bitcoin and disincentivizes a 51% attack.

The result of self-organization is specialization. There are three types of protections in Wikipedia: full, semi, and move. An administrator has a strict framework to prevent trolls from making non-constructive edits, while super users can block the trolls according to advice from elite editors. In the world of Bitcoin, the flat distributed network is under quiet transformation. Some nodes may have more connections, more computing power, or other functions that an ordinary client doesn’t have. Bitcoin has some ASIC devices with tremendous hash rate, public wallets with blockchain.info, wallets set to receive interest from a Bitcoin bank, mobile clients on smart phones, or offline wallets with a cold storage mechanism.

Specialization also brings efficiency, which is an old rule of economy that still applies in open-ended self-organized projects. The users of Bitcoin realize that it is not necessary for everyone to download the blockchain. Everyone just needs an online wallet or light clients. Also it is not required for everyone to become a  miner. Electronic wallets are not even necessary, as some prefer to remember a private key in mind, making it impossible for anyone to find the treasure some hide in any physical storage equipment. It can’t be denied, however, that physical storage is part of the Bitcoin economy. Like the big stone accidentally lost in the sea by people on Yap Island, cold storage wealth should be considered valid. Some don’t even like the concept of Bitcoin but still can use the blockchain and Namecoin, a distributed domain name system that merged with Bitcoin blockchain by merged mining. Individuals who understand Bitcoin can create new currencies like colored coin, Mastercoin and Bitshares. These variants of Bitcoin can perform financial functions such as distributed stocks, futures, and Bitcoin assets linked to real world currency. Such variants of Bitcoin are undeniably part of the Bitcoin ecosystem.

I personally initiated a campaign of writing the first book on Bitcoin in China not long ago, and the process was totally decentralized. This book was written by more than ten members of the Chinese Bitcoin community from China Business Network and 8btc (www.8btc.com). There was no unified theme nor tight organization. The views of the writers were quite different and at times even contradictory. Yet, a difference in views has not stopped us from completing the book. This book represents a small-scale open-ended cooperation, as well as a critical thinking experiment. Similar to Bitcoin, all ideas can be included in an open platform to continue to evolve to highlight the essence of an open self-organization.

 

The Bitcoin economy has now surpassed 2 billion USD and transactions sizes between USD and BTC continue to rise. Just this morning, lead Bitcoin payment processing company, BitPay, announced the processing of the largest Bitcoin merchant transaction ever of 1 million USD. BitPay not only set a record, but also processed, cleared and settled this transaction next business day for Butterfly Labs. BitPay, unlike PayPal, the lead USD payment processing company, guarantees no reversibility or chargeback of payment.

BitPay issued the following press release:

BitPay Processes $1 Million Bitcoin Merchant Transaction  

Processes, Clears, and Settles to Merchant’s Bank the Next Business Day

ATLANTA — October 29, 2013 — BitPay, the world’s largest payment processor for virtual currencies, announces that it has processed its largest bitcoin merchant transaction ever, a single order for $1,000,000 for Kansas City-based bitcoin mining hardware manufacturer Butterfly Labs.  BitPay  processed, cleared, and settled the transaction within their normal one business day time frame directly to Butterfly Labs’ bank account.

 “The speed, reliability, and certainty of payments over the bitcoin network is expanding at a rapid pace, and in many regards has already surpassed the functionality of our 60-year old credit card networks,” states Tony Gallippi, co-founder and CEO of BitPay.  “Butterfly Labs can now ship this merchandise with confidence that there will be no reversibility or chargeback of the payment, which is a significant risk found when accepting credit cards online or PayPal.”

Butterfly Labs sells bitcoin mining hardware, which is part of the distributed computing network that secures the bitcoin accounting ledger.  The amount of computing power of the bitcoin network has grown exponentially this year, from 20 Terahashes per second (Th/s) on January 1, 2013, to 3000 Terahashes per second today.  The network took 4.5 years to reach 1000 Th/s, then one month to reach 2000 Th/s, then and week to reach 3000 Th/s.  

BitPay has also expanded the translations of its checkout process into 40 languages, with new additions including French, Chinese, and Portuguese.  Customers making a bitcoin purchase with BitPay can now view and complete the entire checkout process in their native language. Business selling electronics, jewelry,  and  computers can now increase their exports to emerging markets as these items tend to be the most often purchased internationally.

For businesses reaching international customers, accepting bitcoin through BitPay offers a tremendous value.  The business can accept a payment from customers in any country on earth, with no risk of fraud or chargebacks, which makes it ideal for businesses selling high-priced items online.

CEO Tony Gallippi will be speaking on Bitcoin’s Place in the Global Financial Market at Webit Congress November 6th in  Istanbul, Turkey.

About BitPay

BitPay is a Payment Service Provider (PSP) specializing in eCommerce, B2B, and enterprise solutions for virtual currencies. Visit https://bitpay.com.

Contact

Jan Jahosky

407-331-4699

jan@bitpay.com

 

Richard Kohl is a founding member of PikaPay.com, a mobile wallet that lets you send bitcoins to anyone on Twitter. He is also a board member of the Dutch Bitcoin Foundation.

From Holland with Love

The city of Amsterdam, capital of the Netherlands and home to the world’s oldest stock exchange, established in 1602, has played a role throughout history as a safe harbor for new ideas. Now it may be on its way to becoming an important Bitcoin destination, and not only for its innovative Bitcoin businesses and its flurry of international Bitcoin conferences.

This past June Dutch Finance Minister Jeroen Dijsselbloem gave a Bitcoin-friendly report to Parliament. He said:

Bitcoin is not electronic money… At present its eventual impact on the real economy seems negligible…Bitcoin is not a financial product as defined by law. (Mediation in) the purchase or sale of Bitcoins is not a financial service either, so the Financial Supervision Act does not apply.

According to these statements Bitcoins are officially recognized as local currency without any special compliance or licensing requirements. As it now stands, trading with bitcoins in the Netherlands is legally no different from barter with sticks of butter, plastic chips or bottles of beer.

Right now anyone with a Dutch bank account can buy bitcoins online in real time without any registration process. Several Dutch services are helping users buy (and sell) with an existing payment system called iDeal. The purchased coins can be directly transferred into a mobile wallet called PikaPay that you can create just by signing in with your Twitter Name. (Disclosure: I am involved in PikaPay.)

Many other ingredients are in place to make Amsterdam a city with a lot of Bitcoin in its future. Source Forge ranks The Netherlands as country number 8 in downloads of the client software so far this year. This month Dolf Diederichsen decided to launch his startup bit4coin in Amsterdam to benefit from the attractive atmosphere, and BitPay, one of the best-funded Bitcoin companies, has picked Amsterdam as the site of its European HQ.  Both Mr. Diederichsen and BitPay CEO Tony Gallippi cited the regulatory environment as reason to establish companies here. “I believe there is a lower risk of regulatory overreaction here than we have seen in some other markets,” Mr. Diederichsen said.

Of course the banks are not all happy about this situation. On October 19, 2013 one of the country’s oldest daily newspapers, Het Financiële Dagblad, published a critical article asking the government to regulate Bitcoin. The four main arguments behind the call for regulation were:

1. Bitcoin is digital money that can be used anonymously.

2. Therefore regulators can’t estimate systemic risk.

3. Thereby making Bitcoin a threat to the “stability and trust” of the current financial system.

4. Regulators should restrict “bad coins” (the ones they don’t like) in favor of “good coins.”

The authors of the piece, Bas Straathof and Remco Mocking, are both researchers from the Dutch Bureau for Economic Policy Analysis, an independent policy research institution 80% funded by the Ministry of Economic Affairs.

The Dutch Minister of Economic Affairs, Henk Kamp, is a member of the conservative Freedom and Democracy Party (VVD), whereas Finance Minister Dijsselbloem is a member of the relatively more liberal and possibly more Bitcoin-friendly Labor Party (PVDA). The current government in the Netherlands is a coalition between these two parties. At least one of the opposition parties is known to be investigating its position on Bitcoin so that there may eventually be a number of different political perspectives on the cryptocurrency from which citizens of the Netherlands can choose.

While it’s unlikely that any meaningful steps would be taken on the basis of publications like the piece done by Mr. Straathof and Mr. Mocking, it does show a burning need for education and awareness at all levels of society. The Dutch Bitcoin Foundation, of which I am a board member, was recently created to help raise the level of conversation from “bad coins” versus “good coins” to something more substantial to help Bitcoin reach its true potential in Dutch society.

When researchers and policymakers begin to have even an inkling of Bitcoin’s deeper significance – more than “anonymous digicash created by evil hackers to buy contraband from drug dealers” – there’s a better chance that banks and governments of the world will start to get serious about cleaning up the global mess they’ve created.

Bitcoin is not a problem that needs to be regulated. To quote our Dutch Minister of Finance, “Bitcoin is not electronic money.” Bitcoin is a movement that has grown into a technology that is created by a community of the world’s best and brightest as a solution to that very problem of stability and trust.

—

Update:

A slightly longer form of Straathof and Mocking’s article has appeared online (in Dutch).

A short (Dutch language) interview has also been published.  In the interview they state, “It is unlikely that Bitcoin will ever prove to be a trustworthy alternative to national currencies like the dollar or euro because no government will guarantee it.”

 

 

Bitcoin is now becoming a household name as, once again, the price of each coin is nearing 200 USD and more companies are selecting to accept payment in this convenient, yet new payment option. With the recent closure of Silk Road and the US government’s temporary shutdown, Bitcoin has proven to be a force to be reckoned with.

What makes Bitcoin unique? It is a digital, decentralized, cryptocurrency and a gateway to send money anywhere around the world with just the click of a mouse or the scan of a QR code to anyone with internet access. Proponents of Bitcoin pride themselves in supporting the lead cryptocurrency, which is based on peer to peer transactions. Yet, one must never take the decentralized nature of Bitcoin for granted.

Unfortunately, any system can trend back towards centralization if not carefully monitored and safeguarded. As humans, we can, unfortunately, move towards centralized structures for an, often times, false sense of “security” and “certainty.” Centralization tends to create more problems than naught when the power to make decisions falls into the hands of a select few. History provides evidence of the tremendous failure of central planning with the collapse of the Soviet Union, massive starvation and lack of development in North Korea, and right now a bloated US Government with a growing bureaucracy with an accompanied skyrocketing debt. On a US-centric note, how can a Washington bureaucrat really know and meet the needs of a school teacher in California or a farmer in Iowa? In the end of the day, each individual knows what is best for his/her needs and with systems and societies based on greater individual responsibility, in turn systems will be stronger and more diverse and meet more needs than blanket solutions and inefficient “one-size fits all” policies. So, while there is comfort in having to be responsible for less in the short-run, there are too many unintended long term consequences.

Bitcoin is not just a currency, but a movement towards decentralization in society, government, financial systems, and thought. Bitcoin has served as a catalyst to provide power to individuals seeking to separate themselves from constricting governing bodies and failing central banks. To date, Bitcoin has been characterized as an open source project prompting discussion of the role of money in society, the danger of current banking structures, and the creative decentralized solutions to centralized problems in society today.

A model of organized decentralization is key to the success of Bitcoin around the world.  Decentralization does not equate to chaos, but many individuals at work to promote a project with the common goal of strengthening a project and not placing trust in one entity. The best example of organized decentralization would be grass roots activism and organization within the Bitcoin community instead of central actors making all major decisions and protocol adjustments.  Each member of the Bitcoin community serves a unique role and has a distinct voice and part to play in keeping the Bitcoin currency on a pathway to success, growth in value and utility, and a global reach. Most members of the Bitcoin community already recognize that the larger the user base, the less volatile the currency, and the greater legitimacy lent to the currency.

Open source software is also vital to the preservation and strengthening of Bitcoin. With decentralization in the development community, there is greater room and leverage for an increased number of individuals to enter the community and contribute. The question, then, may arise as to how the Bitcoin Qt client can remain decentralized. An option which has prompted growth in Bitcoin development is when businesses have given back to the Bitcoin community through hiring individuals to solely work on the Qt client. There is value in the marketplace of ideas as trial and error and diversity of thought inspires the development of the strongest wallets, payment processors, and software. There is too much risk in entrusting all development and protocol to a few. The Bitcoin community must continue its commitment to the open-source ideals that make Bitcoin the resilient system it is today.

As Bitcoin continues to increase in value and central banks continue to disappoint, it is clear that decentralization leads to healthier societies and global financial success.  What will become of Bitcoin? To date, Bitcoin is the most successful cryptocurrency and is still in earlier stages of development.  What we do know: a model of organized decentralization is vital to the success of the Bitcoin currency and movement.

 

As far as open-source protocols go, one area in which Bitcoin is unique is the sheer difficulty of making any changes to the protocol. Unlike most other protocols, where features can be added, modified or deprecated at a moment’s notice, in the world of Bitcoin even the slightest change requires the simultaneous cooperation of the vast majority of the entire Bitcoin network. The reason for this is simple: in Bitcoin, and in Bitcoin alone, absolute consensus is required. On internet protocols like HTML and CSS, if a web browser interprets some style elements incorrectly, the worst that can happen is that the webpage renders incorrectly. In Bitcoin, on the other hand, a single transaction being incorrectly valid or invalid makes the entire block invalid, potentially causing the entire network to split in half as it did in March 2013. As a result, most of the decisions that Satoshi Nakamoto made in 2008 we are essentially stuck with. Although Satoshi’s choices were by no means perfect, fortunately it appears that he has been right more often than not; in fact, there are several instances in which we are all better off for the choices Satoshi made for reasons that even he did not imagine.

Addresses as hashes of public keys

One of the interesting, and to many at first slightly confusing, aspects of Bitcoin is the precise relationship between private keys and Bitcoin addresses. It is widely understood that you send transactions to a “Bitcoin address”, and claiming money sent to your address requires you (or rather, your Bitcoin wallet) to create a transaction containing a digital signature made with the corresponding “private key”. Bitcoin addresses can be safely handed out publicly, whereas private keys need to be stored securely in an encrypted Bitcoin wallet. For example, here is a randomly generated private key:

5JexEhxcSeADA4MmpHq426zC2935JHKc2de1nphv75u8TRhAqqP

And its associated address:

1MEMPfCcqatuWxHWFsFcyhDTq3eV61xLB4

But what is the relationship between these two values? The answer lies in a branch of mathematics known as public key cryptography. Although the term cryptography is usually associated with the art of securely sending secrets, public key cryptography is actually even more often employed for another purpose: authentication. For example, suppose that a software company wants to send an update to all of its users, but wants to do so securely, so that others cannot publish fake updates containing computer viruses. With public key cryptography, the software company can create a key pair, consisting of a private key and a public key, and include the public key in the software. When the company sends out an update, it digitally signs the update using a cryptographic digital signature algorithm with its private key, and the clients, upon receiving the update, can verify the validity of the signature using their copy of the public key. If an attacker, without knowledge of the software company’s secret private key, tried to make a fake update, the signature would fail to verify, and even if the attacker modified a legitimate update in transit the signature would also fail to verify.

One can see how this can be used in a Bitcoin-like currency: everyone publishes their public keys, and sending from A to B requires A to sign a message containing B’s public key with his private key. From this, the protocol would be able to infer that A authorized a transaction sending some money to B.

Bitcoin, however, is more complicated. A Bitcoin address is not the public key; rather, the Bitcoin address is the hash of the public key. A hash is a function that can take anything as an input, and produces a fixed-size output, with the property that it is nearly impossible to invert. That is, given a message M, it is easy to calculate hash(M), but given hash(M) it would take until beyond the heat death of the universe to find M. With Bitcoin, the relationship between private keys and addresses is as follows:

So how do transactions work? Aside from the obvious information about the transaction itself, a Bitcoin transaction contains two things: the spender’s public key, and a signature made with the spender’s private key. Anyone verifying the transaction checks (1) that the hash of the public key is the spender’s address, and (2) that the signature verifies with the public key. Taken together, these facts are a proof that the transaction was made (or authorized) by the owner of the private key corresponding to the spender’s address.

The point of this is surprisingly mundane: under the elliptic curve DSA cryptosystem that Bitcoin uses, a public key is 512 bits long, meaning that it would take close to a hundred characters to represent. For example, here’s what a public key looks like:

04b52fd5a616a8f08ccad58469102f86fc7891e5aa4262ab8d43e41767c17d45b
80850044a62af51783609176daf02fc46221057a8de11ee6ae8743065b27a4b5e

Meanwhile, the corresponding Bitcoin address in hexadecimal form is just:

4b463093e6fc3135a4de2ff577c4b658198777a9

And in its more familiar base58 form:

1obodiqhAZ3GD9onBXRZ9v7hshkuBreCu

In reality, however, this does not accomplish nearly as much as Satoshi thought it did. As it turns out, there is a way of encoding public keys in a much more compact way, taking up only 257 bytes:

03c5c9833d00bed3211a5f3733316ecf6ebc407806d70caa14862f1e2e8c2f852d

And if we had decided to put this into base58 form:

15sqRCowBDTfyuxPQD3ba8sN3wBB8MwGbo6gsBEGeKmUbNQADGh

Not really that much longer than the addresses we use today. So did Satoshi’s choice simply introduce unnecessary complexity and waste? As it turns out, the answer is no. There is another very good reason to use the hash-of-public-key address construction: quantum cryptography. Quantum computers are capable of breaking elliptic curve DSA (ie. given a public key, a quantum computer can very quickly find the private key), but they cannot similarly reverse hash algorithms (or rather, they can, but it would take one 2⁸⁰ computational steps to crack a Bitcoin address, which is still very much impractical). Thus, if your Bitcoin funds are stored in an address that you have not spent from (so the public key is unknown), they are safe against a quantum computer – at least until you try to spend them. There are theoretical ways to make Bitcoin fully quantum-safe, but the fact that an address is simply a hash of a public key does mean that once quantum computers do come out attackers will be able to do much less damage before we fully switch over.

The 21 Million BTC limit

One somewhat controversial property of Bitcoin is its fixed currency supply. There are currently 25 BTC being generated every 10 minutes, and this amount cuts in half every four years. All in all, there will never be more than 21 million BTC in existence. On the other hand, each bitcoin can be split into 100 million pieces (called “satoshis”), so it will not become difficult to use Bitcoin if its value goes up the same way it would become problematic to trade with dollars if each penny was enough to buy a car. Thus, all in all, the total number of currency units that will ever exist stands at 2,100,000,000,000,000: 2.1 quadrillion, or about 2^50.899. In choosing this figure, Satoshi was much luckier, or wiser, than most people realize. First of all, the number is considerably less than 2⁶⁴ – 1, the largest integer that can be stored in a standard integer on a computer – go above that, and the integers wrap around to zero like an odometer.

Second, however, there is another, lower threshold that the total satoshi count manages to fall just below: the largest possible integer that can be exactly represented in floating point format. Integers are not the only kind of number that computers can store; to handle decimal numbers, computers use a format known as floating point representation. Floating point representation is essentially a binary version of scientific notation. For example, here are some values that you may be familiar with if you studied any physics:

• Mass of the Earth: 5.972 * 10²⁴ kg
• Mass of the Sun: 1.989 * 10³⁰ kg
• Speed of light: 2.998 * 10⁸ m/s
• One lightyear: 9.460 * 10¹⁵ m
• Mass of a proton: 1.672 * 10^-27 kg
• Planck length: 1.616 * 10^-35 m

Notice how scientific notation allows you to express all of these values with reasonable accuracy despite their wildly varying scales. Floating point notation is essentially scientific notation in binary; when you store the number 9.625, your computer stores “1.001101 * 10¹¹” (or rather, it stores 01000000 00100011 01000000 00000000 00000000 00000000 00000000 00000000, which is the same thing in high-precision serialized form). In this high-precision form, the “significand” (the part that’s not the exponent) has 52 bits. What this means is that high-precision (more precisely, “double precision”) floating point numbers are good enough to exactly store integers up to 2⁵³, but not higher – if you go higher, you start lopping off digits at the end. Bitcoin’s 2^50.9 satoshis are, in exponential terms, just below this maximum.

Why do we care about floating point values if we have integers? Because many higher-level programming languages (eg. Javascript) do not expose the low-level “floating point” and “integer representations”, instead providing the programmer with only the concept of “number” – represented in floating point form, of course. If Satoshi had chosen 210 million instead of 21 million, Bitcoin programming in many languages would be considerably harder than it is today.

Note that Stefan Thomas in his BitcoinJS library did not take advantage of this, so that library uses a specialized “big number” object instead of a plain number to store transaction output values. When asked about this, Thomas replied that he realized that using regular numbers was possible, but BitcoinJS needed to include the “big number” library regardless, since elliptic curve arithmetic requires numbers up to 2⁵¹², so the choice was arbitrary. My own BitcoinJS fork (which also adds other improvements) does use plain numbers to store the number of satoshis, a decision motivated largely by the desire to be compatible with external sources of transaction output data such as sx and pybitcointools.

Choosing the right elliptic curve

Elliptic curve cryptography, the kind of cryptography used by Bitcoin to digitally sign and verify transactions, is not a single standardized way of signing messages; there are in fact many different “curves” to choose from. To understand what different “curves” are, it first helps to have a basic understanding of how the math behind ECC works. In general, an elliptic curve is a set of points (x,y) on a two-dimensional plane such that the equation y² = x³ + ax + b holds, where a and b are parameters of the curve. Here is what one elliptic curve looks like:

Elliptic curve cryptography relies on operations called “point addition” and “point doubling” on such a curve, operations which are best described in diagrams:

Essentially, to add two points P and Q, trace a line between them, locate the other point on the curve that the line intersects, and trace a vertical line from that point to get your answer. However, for cryptographic purposes these ordinary elliptic curves have a weakness: they’re imprecise. If you do very many point additions, floating point rounding errors will slowly accumulate, and eventually the result will be entirely meaningless noise. Thus, elliptic curve cryptography uses an elliptic curve with two modifications. First, the equation is now y² = x³ + ax + b + kp, where k can be any integer and p is some large prime number (a parameter of the curve alongside a and b). Second, x and y must be integers. Although the resulting set is hardly a “curve”, surprisingly enough the same math still works, and the restriction to integers avoids rounding errors.

There are many different curve parameters that could be used; the SEC2 document provides the standard ones. In general, however, the curves fall into two categories: “pseudorandom” curves and Koblitz curves. In a pseudorandom curve, the parameters a and b are chosen by a specified algorithm (essentially a hash) from a certain “seed”. For secp256r1, the standard 256-bit pseudorandom curve, the seed is c49d360886e704936a6678e1139d26b7819f7e90, giving rise to the parameters:

p = 115792089210356248762697446949407573530086143415290314195533631308867097853951
a = 115792089210356248762697446949407573530086143415290314195533631308867097853948
b = 41058363725152142129326129780047268409114441015993725554835256314039467401291

The obvious question is this: where did the seed come from? Why was the seed not chosen to be some more innocent-looking number, like 15? In light of recent revelations regarding the US National Security Agency subverting cryptographic standards, an obvious concern is that the seed was somehow deliberately chosen in order to make the curve weak in some way that only the NSA knows. Thankfully, the wiggle room is not unlimited. Because of the properties of hash functions, the NSA could not have found one “weak” curve and then gone backward to determine the seed; rather, the only avenue of attack is to try different seeds until one turns out to generate a curve that is weak. If the NSA knows of an elliptic curve vulnerability that affects only one specific curve, the pseudorandom parameter generation process would prevent them from standardizing it. However, if they knew of a weakness in one in every billion curves, then the process offers no protection; for all we know, c49d360886e704936a6678e1139d26b7819f7e90 could have been the billionth seed that the National Institute for Standards in Technology tried.

Fortunately, Bitcoin does not use pseudorandom curves; Bitcoin uses Koblitz curves. In Bitcoin’s secp256k1, the parameters are:

p = 115792089237316195423570985008687907853269984665640564039457584007908834671663
a = 0
b = 7

That’s it. And even p is quite simple to generate; it’s only 2²⁵⁶ – 2³² – 977 (in the interests of fairness, p and a in secp256r1 are also fairly simple; it’s b that’s problematic). The simplicity of these parameters gives the NSA / NIST very little wiggle room to create a deliberately bad curve. And even the specific values of 0, 7 and 977 can be justified by security and efficiency constraints, so the chance that Bitcoin’s elliptic curve parameters were chosen with any malicious intent is very low indeed. When Dan Brown, the current chairman of the Standards for Efficient Cryptography Group, was asked about this, he replied: “I did not know that BitCoin is using secp256k1. Indeed, I am surprised to see anybody use secp256k1 instead of secp256r1.” If secp256r1 is actually compromised, then since Bitcoin is one of the few applications that is using secp256k1 instead of secp256r1, Bitcoin has truly dodged a bullet.

By: Chang Jia (8btc.com)

Translated by: James Choi (8btc.com)

Edited By: Elizabeth T. Ploshay (Bitcoin Magazine)

The fierce “arms race” of the Bitcoin network has triggered concern over network fairness. At the beginning of Bitcoin’s birth, every individual could mine Bitcoin easily with a personal computer. According to Hal Finney, an early partner working with Satoshi, he gained thousands of Bitcoins within a few weeks by mining with his personal computer. Yet, today Bitcoin has become the “private mine” of mega mining corporation and professional miners who own many ASIC devices, which to some appears unfair. People also worry that Bitcoins are concentrated in the hands of a small group of people, which in turn hinders promotion of the currency. The Coase theorem states, however, that with zero or little transaction cost and clear property rights, the market could reach its Pareto efficiency of resources allocation, no matter to whom the property is given. A system would also be fair if the ownership of the rights of property is established from the start.

Satoshi did thoroughly consider the design of the Bitcoin mining mechanism. He was confronted with two options: one allocating Bitcoins to all users according to the number of the nodes, namely one-IP-address-one-vote; the other allocating Bitcoins to the miners according to the computing power, namely one-CPU-one-vote. He chose the latter considering the security of Bitcoin network. He wrote in the White Paper that “If the majority were based on one-IP-address-one-vote, it could be subverted by anyone able to allocate many IPs.” Miners obtain Bitcoins by processing transaction data, which may be viewed as an incentive mechanism. In retrospect, however, miners should put in their computing power to obtain Bitcoins which could be deemed as a public resource. Since the security of the Bitcoin network is proportionate to the network’s computing power, the computing power put in by miners are used to ensure the security of the network, enabling normal users to trade safely without putting in any computing power. This is fair to both the users and the miners.

Although the initial allocation of Bitcoins was established by the protocol, the market decides final allocation. Users possess the right to collect computing power from miners and this right can be sold, meaning miners “pay” the computing power to users in exchange for the ownership of Bitcoins in the block. On the other hand, miners possess the right to obtain Bitcoins in a block and this right can also be sold, which means users can then purchase Bitcoins from miners without putting in computing power. If the computing power paid by miners is higher than the revenue generated by mining, miners would put in less computing power. If the expense paid by users to purchase Bitcoin is higher than the mining cost, more and more users would join the mining industry. The market would reach equilibrium at the end and a highly-efficient allocation between computing power and Bitcoins could be reached.

In the first days after Bitcoin was created, transaction cost was almost zero and some special users could realize certain goals with small-amount-transaction. For example, Wikileaks coded some secret files in the blockchain with huge quantities of small-amount-transactions; gambling websites like SatoshiDice informed their users of the gambling results (or even sent commercials) with small-amount-transactions. These past actions have put more burdens on the blockchain. Some view that those users who overused the small-amount-transactions have taken too much public resource, and they support a transaction tax. This Pigouvian-Tax-like design can reduce the junk transaction to a huge extent and equalize the private cost and social cost of the transaction.

The rule of levying the transaction tax of Bitcoin, when calculated is economical. It would discourage trivial payment, meaning that if the output of a payment is less than 0.01BTC, a transaction fee of 0.0001BTC would be collected. A payment with Bitcoins having a longer history and value is prioritized. The trade data is then “weighed” and a fee is collected for each kilobyte. As a unit tax, the transaction tax could be levied relatively ideally with the adjustment of deft mathematical algorithm. Consequently those who do a lot of small-amount-transactions must refrain due to the high costs, while regular users can still keep the cost edge compared to traditional ways of payment. Thus, micro-adjustments can still be made by updating the protocol.

 

This past week, Bitmarkers launched to integrate Bitcoin into the commercial casino market. Bitmarkers provides services to individuals interested in traveling to and enjoying the gambling hub of the world, Las Vegas, but with the Bitcoin currency. Those interested can work through Bitmarkers to book a hotel, determine the amount to gamble, fund and get started with a Bitmarkers account, receive floor credit to gamble with, fly to Vegas, and cash out on the casino floor or receive payout in BTC. CEO and Co-Founder, Ardon Lukasiewicz, provided an overview of Bitmarkers:

Bitmarkers is bringing the excitement of bitcoin to Las Vegas. By introducing their risk-free system to integrate bitcoin with commercial casinos’ $140bn+ market, they have defined a new market for casinos. Bitmarkers is the simplest, most private, and cost saving solution to transferring money in and out of casinos for all types and levels of play. By utilizing casinos’ interest-free loans called markers, a player can now fund their Bitmarkers account with bitcoin to fund their trip with just a laptop or cell phone. They are tackling the convoluted and costly system of transferring money and protect against money laundering. “Bitcoin is fully traceable and [a] player’s identity is verified through gaming’s trusted third parties,” says Ardon Lukasiewicz CEO of Bitmarkers. Single players in these casinos can generate hundreds of millions of dollars in casino revenue alone and Ardon is excited to introduce these players to a better option which ultimately may be the largest transaction volume increase of practical use in bitcoin history.

Players that use Bitmarkers benefit from frictionless transfers, a simplified marker process by making it digital, increased international privacy, and the removal of a specific player’s country and bank methods that limit their decisions. In doing so, they have created a new way to gamble that is a win-win for players and casinos. Beyond Las Vegas, Bitmarkers has set its sights on international partnered casinos and especially Macau’s robust gaming market. Macau’s market is multiples larger than Las Vegas and has strict transfer rules due to money laundering problems. Currently, Macau’s best option to fund a trip is through VIP groups and loading credit cards at pawn shops for an average 10% cut off the top. By authenticating player identity through Bitmarker’s gateways, they plan to be the most anti-money laundering transfer option and make sending money frictionless to these casinos.

“We envision a player wanting to keep their money in bitcoin for the growth potential, but also because it will enable players a frictionless way to fund their trips,” says Ardon. By keeping a player’s funds in bitcoin, they remove the need to repetitively work with post-trip payment and hurdles. Gambling and bitcoin seems to have a long-term relation in both the online gambling and now the commercial realm. Players can stay up to date on the latest news and gain founder membership to their “secret forums” by applying for their beta at www.bitmarkers.com/announcements.

Bitcoin Magazine looks forward to continuing to learn of new Bitcoin related companies and ideas to expand the utility and widespread use of Bitcoin as currency and movement.

Del 17 a 19 del pasado mes de setiembre se celebró en Andorra, el pequeño país situado a tres horas de Barcelona, la Digital Currency Summit; un foro de debate de tres días de duración en la que se tratató el uso y importancia de las cryptocurrencies para Bancos, Gobiernos, Inversores y para el público en general. Para ello se realizaron conferencias y debates en base a cuatro hilos conductores “Introduction to Digital Currencies”, “Investment oportunities”, “Regulation: Laws and taxes” y “Financial and Banking” además de una presentación de diferentes startups y proyectos relacionados con las criptomonedas.

Andorra es un microestado formado por 85.000 personas y caracterizado por un fuerte -y tradicional- sistema bancario que, usualmente, ha sido considerado paraíso fiscal -aunque no lo es- por su secreto bancario y un sistema fiscal bastante flexible. Ha sido, históricamente, un centro financiero importante y un lugar dónde depositar dinero.

Para Alex Puig, el organizador del evento, Andorra era un enclave idóneo para la realización de este evento. Para él, cómo programador de software, entusiasta de Bitcoin y conocedor del mundo startup y bancario de Andorra, fué una oportunidad de acercar una tecnología revolucionaria a banqueros, políticos, statups y inversores. ¡Y vaya si lo consiguió! El networking que hubo durante los descansos y en las comidas entre personas de diferentes ámbitos fué impresionante aunque se hechó en falta la presencia de representantes de la política andorrana, que no hicieron acto de presencia.

El nivel de las charlas y debates fué excepcional con ponentes de la talla de Jon Matonis, Constance Choi, Marco Santori, Flavio Pripas que nos ofrecieron des de una aproximación a las criptomonedas, las DAO’s, las posibilidades financieras de Bitcoin y sus derivados y cómo los Bancos y Startups pueden adaptar bitcoin en su modelo de negocio.

Estas últimas fueron las charlas que más interesaron al sector banquero, representado en la cimera por bancos cómo “Banca Privada d’Andorra (BPA)” y “MoraBanc”, que ven cómo el mundo está cambiando y la banca se está adaptando muy lentamente. Actualmente, entre la comunidad Bitcoin, no son pocas las voces que piensan que Bitcoin no aporta mejoras sustanciables en su uso cómo moneda en comparación con los métodos tradicionales  y ven más revolucionario el uso de Blockchain y Bitcoin cómo herramientas financieras y de creación de servicios; un modelo más interesante para el sistema bancario.

Así lo expresa Juan Carlos Salinas, de MoraBanc que vió en las conferencias un potencial enorme en Bitcoin aunque reconoce que para ellos aún es pronto para adentrarse en él cómo una oportunidad de negocio. Joan Manel Fernández, de BPA, reconoce que les es difícil considerar Bitcoin cómo algo importante en el futuro ya que supone ceder la confianza en intermediarios financieros en una nueva estructura descentralizada y consideran que eso no es sencillo aunque tienen claro que seguirán estando al día y en contacto en el sector Bitcoin.

Por otra parte, los dos lamentan que no haya habido apoyo institucional ya que ven Andorra cómo el sitio perfecto para el augue de este tipo de inciativas tecnológicas tal cómo ya sucede en varios Estados pequeños y flexibles cómo Malta, Gibraltar o la Isla de Man. Lo mismo piensa Jon Matonis que, en su entrevista para el Diari Ara, expresió que la política andorrana debería alentar a la banca -o no poner trabas- en el uso de esta tecnología ofreciendoles la seguridad y cree que la banca debería ser menos conservadora si quiere atraer más inversión.

Hablamos de todos estos temas con Alex Puig, el organizador del evento,

Ferdinand Reyes: Buenos días Alex, podrías explicarnos el enfoque de esta Cimera y sus características diferenciadoras respecto a otras?

Alex Puig: Nuestro enfoque era formativo, no queríamos una conferencia sólo para aquellos que ya conocen las criptomonedas sino que nos interesaba formar a directivos con poder de decisión dentro del sector financiero. Queremos ser el punto de reunión entre los emprendendores más disruptivos, creando nuevos modelos de negocio, y el sector financiero, quizás aún un poco clásicos, pero ya con ganas de avanzar hacía el siglo XXI.

FR: Qué valoración hacéis de la Cimera? Ha cumplido vuestras expectativas?

AP: Sí y no. En el aspecto cualitativo sí, las charlas han tenido un nivel muy alto y el networking durante el evento ha satisfecho a todo el mundo mucho más de lo que preveíamos. En los dos días de congreso he visto crearse muchas relaciones profesionales y alianzas que devendrán negocios provechosos. Por otro ladro me esperaba más curiosidad sobre esta tecnología y que Andorra podría atraer muchos asistentes. En ese aspecto me hubíera gustado llenar el Palacio de congresos.

FR: En que estado se encuentra Bitcoin en Andorra? Cual es su futuro?

AP: A día de hoy, como en muchos otros sitios, es alegal. No existe una posición al respecto de las criptomonedas, almenos no oficial. Si hubiera una reacción de gobierno y se pudiera establecer un marco regulatorio estable, Andorra tendría un gran potencial para atraer a startups Bitcoin, al no ser un paraiso fiscal y tener un sector bancario fuerte y arrelado en el país.

FR: Andorra es un país con fuerte flexibilidad a nivel económico para empresas y inversiones. Ha tenido la repercusión que esperábais en el ámbito financiero y gubernamental?

AP: En el sector privado sí que la ha tenido. Grandes empresas de aquí y, incluso, algunso bancos han cambiado el punto de vista que tenían de las criptomonedas y han hablado de estudiar más internamente su funcionamiento y aplicaciones. En cuanto al Gobierno está todo por ver, es una de sus prioridades buscar un modelo de negocio sostenible para el país, de manera que no se tenga que depender del turismo. Aún así no mostraron demasiado interés en el Summit.

FR: Planejeu ja un següent pas o algun altre projecte?

AP: Pues sí, ya estamos trabajando para llevar el Digital Currency Summit a Barcelona y Madrid en mayo de 2015.

FR: Muchas gracias Alex por la entrevista y por esta fantástica cimera.

Me fuí con un buen sabor de boca de esta Cimera por su nivel de organización, la proximidad de sus organizadores y la familiariedad con la que conversé con decenas de personas, espero que en los proximos eventos de Barcelona y Madrid se incremente la asistencia por que la calidad de las ponencias y las oportunidades que te brinda el networking durante los descansos valen sobradamente la pena.

Lea esta entrevista en inglés

Alternative cryptocurrencies have been an important part of the Bitcoin ecosystem for a long time; the first one to reach any prominence, Namecoin, was first released in early 2011, and since then many more have entered the stage. We have Litecoin running with an alternative mining algorithm that is less skewed toward specialized hardware, Primecoin trying to make the process of mining more useful to society at large and offering very fast transaction confirmations, PPCoin doing away with traditional mining entirely, Krugercoin making confirmations even faster, and a new one appears to be popping up every week. More recently, a new type of cryptocurrency has started to appear: Bitcoin blockchain-based overlay currencies. These currencies, of which Bitshares and Mastercoin are currently the two leading contenders, do not try to live on their own blockchains; rather, they are a sort of overlay networks on top of Bitcoin, piggybacking on the Bitcoin transaction system to store data. Every Mastercoin transaction is a Bitcoin transaction, but the way in which the transaction is interpreted is different; what a Bitcoin client might see as an innocent transfer of a few satoshis a Mastercoin client may well see as the creation of a whole new currency inside the Mastercoin network. Are alternative currencies the future? Are any of the current ones likely to succeed, or is there still a missing piece of the puzzle? Read this interview for a glimpse into the state of alternative currencies right now.

Ron Gross is heavily involved in the Mastercoin project, but also runs Bitblu, a business whose goal is to make it easier for people to diversify their savings across many different alternative currencies, and Meni Rosenfeld is a cryptocurrency enthusiast and a key Bitcoin community organizer in Israel.

Vitalik Buterin: Ron, could you talk a little about your business, Bitblu?

Ron Gross: Bitcoin is the first digital currency. And as we know there are other clones or forks. Some of them are proper code forks, some are more spiritual forks. I consider Ripple a sort of fork; maybe fork is not the right word, but it’s another cryptocurrency, and Mastercoin is another one, and maybe more will appear in the future. A question that a lot of new Bitcoiners ask when they consider investing in Bitcoin is, why invest in Bitcoin? Maybe another currency will take its place, and Bitcoin will not fulfill its vision of being the One True Currency. Bitcoin obviously has strong network effects and it’s in a great position right now, and there is a chance that all the other coins will either stay small for a long time or people will abandon them. But there are also other possibilities, and Bitblu is offering our customers the ability to work with all of these other coins, and really manage their investments over time – not just in exchanges like btc-e, where they can buy a certain amount of coin and that’s it. We have a very product-centric vision, we are always thinking about how we can make the user experience very simple and easy for people that do not understand these new currencies but want to invest a bit in them, and we will offer new tools for diversification. We will offer new indexes that automatically diversify across all the currencies, just like someone who wishes to buy stocks can buy Nasdaq, the S&P 500, and other indices. So we are developing indices for the Bitcoin and cryptocurrency space.

It’s a project that I’m starting with another founder, but Meni has also played a vital role in advising the company, and that’s important to note.

VB: About cryptocurrencies in general, what do you think are the most promising right now?

RG: Bitcoin is of course number one. I usually just go by market cap, that’s usually a good indicator. XRPs, or Ripple, have a huge market cap. Bitcoin today is worth around $1.5 billion, Ripple is around $1 billion, and most people don’t realize this. Up until a few weeks ago most people could complain that Ripple is closed-source, and not really decentralized; I think that these claims are starting to wear off as they are now open-source and maybe they will be truly decentralized in the future.

Meni Rosenfeld: It will never be truly decentralized because the underlying currency is 100% pre-mined. If you are talking about building a new economy based on peer-to-peer and so on, you can’t do that if the currency that you use was all started by one company that does whatever it wants with it.

RG: That may be a valid point. They have a strong team backing them, so they are certainly a viable player in this space, the payment network and the currency.

Mastercoin is also interesting in its own right. Litecoin is getting a lot of traction in the last six months. It does offer the promise of a more decentralized currency than Bitcoin because it reduces the power concentration of mining companies. That’s the promise; it still remains to be seen if the promise will be fulfilled. Maybe soon enough we will see an ASICminer for Litecoin. There are also other projects that are trying to build a currency that is even harder to optimize or do in parallel than Litecoin. There are currencies that use six or more different algorithms, and something that is very easy to compute by a computer, but hard to build dedicated hardware for.

PPCoin is also a very interesting concept; Meni and myself, by the way, have done a bit of work on proof of stake originally, and Sunny King has taken this and other work and built a coin using that. PPcoin tries to eliminate the mining industry altogether. It starts with proof of work mining and slowly moves to proof of stake, so it is very interesting. If it can be done, then of course we don’t need to waste all this electricity and CPU cycles. One caveat with PPCoin is that it’s a bit harder to analyze, so to understand what the exact money supply will be and the security model. I personally also like Primecoin, which is innovative and is trying to make the computations create a new public good. It’s a matter of debate whether the chains of prime numbers that are generated are actually useful to anyone or not, maybe some mathematicians can testify. It’s certainly an interesting role, trying to make the computations more useful for everyone.

MR: I don’t think that any of the current alts are really interesting. Maybe there will be interesting ones in the future, but if you take for example Litecoin, I don’t think it’s true that it will be more decentralized, because there will be ASIC miners. It will take a bit more time, but once it happens the same thing will happen that happened with Bitcoin. If you do a currency with a proof of work that is really immune to ASICs, then we will have CPU mining vs ASIC mining, but then the question is, is this better or worse? I don’t know.

About Primecoin, it’s nice that they use a completely different work function, but I don’t think their function is really all that useful, and I also don’t think that it’s really possible to do something which is useful, because in order to be good for cryptocurrency mining you need some very specific properties which I don’t believe are compatible with any “useful computation”, so I’m a bit pessimistic about that. About proof of stake, that’s an idea which I support and I’m one of its early pioneers. I don’t think any of the current implementations are really good. But, there is a concept of “proof of activity“, which is like a probabilistic proof of stake, so maybe that’s a good direction for doing something which is not pure proof of work, as proof of work is very expensive. And as for Ripple, the idea of a credit network is very powerful, but the problem is that the XRP currency is centralized, so I hope we will see something which is decentralized but also has a fair distribution of the underlying currency.

RG: anyone can fork it now, so maybe that will happen.

MR: [There is also] Freicoin, the currency whose main feature is that there is demurrage, which is equivalent to perpetual inflation, which has some advantages and disadvantages. If they do the inflation and it’s pretty mild, then maybe it can work. But what’s interesting is that the same people who work on Freicoin are also working on developing FreiMarkets, which is an extension that can be applied to Freicoin or to Bitcoin or whatever, and it has a lot of interesting features like hierarchical transactions and so on, and also tag-based coloring of coins. So there are a few variants, which are currently still in the works. Whatever currency it will be applied to will become much more interesting.

RG: Another thing to add. First, regarding FreiMarkets, currently there is a bunch of these projects going about. Mastercoin is one of them, there’s FreiMarkets, there’s BitShares, PeerShares. I have a limited amount of time, I can’t understand each and every one of them. It’s clear that there will be at least one decentralized market that follows these principles. Maybe it will be something else that takes the best of each of them, so it will be interesting to see how this develops. I want to add one more theoretical coin that doesn’t exist yet, but I think it would be really interesting to develop, which is a quantum-resistant coin. There is a branch of algorithm research that specializes in developing algorithms that are immune to quantum computers. There are encryption and hashing algorithms that a quantum computer can’t efficiently break. Regardless of the existence and performance of current quantum computers, it’s useful to have a hedge against them. About the mining algorithms, it’s important to understand that the proof of work algorithms in Bitcoin can be changed. Theoretically, if there is a consensus of 51% or more ,maybe 60% or 70% of the Bitcoin miners and users, then the entire SHA256 algorithm of Bitcoin can be replaced with whatever people agree would work. That doesn’t change the fundamental workings of Bitcoin. But the thing is that in practice it would be extremely difficult to do this. Maybe what would happen in the real world, whether there is a scrypt-based or quantum-based proof of work, is that there would be a new coin and people would just buy the new coin instead. That will be easier on a political level I think.

VB: That is actually,something that I’ve heard from some Litecoin developers. A long time ago they had a DDOS attack against their chain where someone basically published a few million single-satoshi transactions, which every node now needs to download and verify, so what they’re thinking of is essentially deleting those satoshis.

RG: Well, that’s not something that can happen in a decentralized currency.

VB: The specific rule that they’re thinking of is to make very very small outputs unspendable, and to add some kind of fee that you would have to pay for every output depending on how long ago it was spent, so you can see how in Bitcoin it would be politically impossible.

RG: Alright, I need to go, this was very interesting, thank you.

VB: Thank you!

In the first two parts of this series, we discussed the Bitcoin Alliance of Canada, a national Canadian Bitcoin organization “dedicated to raising awareness and adoption of bitcoin in Canada, to promoting Canadian participation in international bitcoin efforts and furthering study and research in bitcoin and other virtual currencies”, and Anthony Di Iorio’s own perspectives on why he set up the Alliance the way that he did and what he sees in the future of Bitcoin organization. Here, Anthony Di Iorio shares his views on a different area of interest in his Bitcoin life: the Bitcoin gambling scene.

Vitalik Buterin: So when did you first get involved in Bitcoin gambling?

Anthony Di Iorio: At the start of 2013, I was looking for a developer to start doing some projects, and on Reddit someone reached out and put a post saying “I’m a developer, I’m looking for someone with business ideas”. I responded, and in the next couple of days I flew to work with my developer and we worked together to hammer out SatoshiCircle. The idea for SatoshiCircle came out of the success with Satoshi Dice. Back then there was a limited number of games, there was Seals with Clubs, there was BitZeal, and our first concept was to come up with a graphical user interface for Satoshi Dice. In discussions with my developer it was decided that we would try to be different. We did not want to take on huge risks. When you’re setting up a site like that you draw in customers by having big payouts, but then you’re also taking on a huge risk having to cover what could potentially be big losses. We decided to cover the middle. We wanted to make sure that it was an easy-to-use game, we wanted to make sure that the graphical user interface was sharp-looking, we didn’t want logins, we wanted to have a secret URL system; we took what InstaWallet was trying to do, the same kind of concept, but we learned about some of the issues that they were having with some of the URLs getting out; they had issues with some of them on Google. We were very confident with our secret URL system, so we didn’t feel the need to have a login at all. You’re given a secret URL, you’re given a personal deposit address to play the game, there were graphics and a spinning wheel, there were also themedpenguins that appeared upon hitting certain results. We launched in March and it became one of the top Bitcoin gambling sites.

VB: What happened next?

ADI: I realized that I did not want to be an operator of a gaming site when my fous turned towards establishing the Bitcoin Alliance of Canada, so a couple months ago I sold the operation; I’m no longer involved with it whatsoever, and this has allowed me to focus on the Alliance full-time. I have done some talks to some organizations about Bitcoin and gambling; I still have some passion for Bitcoin and gambling and I believe it’s going to change the online gambling space. I had been asked to do talks at gaming conferences to talk about Bitcoin and gambling; however, I have decided to completely remove myself from that space and instead focus on talks and presentations centered around Bitcoin as a whole. I want to get better at talking about Bitcoin, dealing with people and discussing the benefits of Bitcoin; that’s where I focus my efforts. I took a month off in September, re-energized; now I’m pushing forward heavily with the Alliance and the Toronto Bitcoin community meetup group.

VB: What about Rushwallet, the online no-login instant Bitcoin wallet you were working on?

RushWallet, I’m still considering that. I still think there’s a need for an Instawallet system that’s clean, easy to use, no bells and whistles. If we could bring what we had with Satoshi Circle, we didn’t have one case of a URL getting compromised. The only time we had one issue was when some guy posted his secret URL on a forum; there’s nothing we can do about that. We had an excellent customer service record, nobody ever lost their account; we never had any issue. If we can iron out a few issues with RushWallet, I believe it can be a valuable service to the Bitcoin community.

VB: So what do you think will be the future of Bitcoin gambling?

ADI: It’s getting a little packed in the gambling space, it’s really blowing up right now. Every site right now has to be transparent. You have to announce your percentages, you also have to be provably fair, and people want instant play and instant deposits and withdrawals. There are some established [mainstream poker sites] that are saying that there is no way they will use the benefits of Bitcoin because of the regulation and licensing, but then you have other guys that are setting up sites in other countries, and they’re just going forward; I still think that Bitcoin offers many advantages. Just look at JustDice. Look at their payouts, they’re like a lottery. However, now you’re balancing this risk of holding onto all of this money, and that’s a huge risk; as an operator I would not want any type of risk like that.

But I do like the concept that JustDice came up with, it’s pretty revolutionary. The house edges are getting lower and lower, they started out with SatoshiDice at 1.9%, Satoshi Circle at 1.7%, JustDice with 1%, and they’re getting lower and lower still, and operators are going to have to figure out some kind of concept that would let the house edges get to zero. I believe eventually things will turn toward peer to peer betting; there was already Peerbet, a site offering a peer-to-peer betting system. So that’s where I see it going. When you’re competing on house edges it’s going to get smaller and smaller, and it will be up to the operator to develop new ground-breaking ideas or concepts that will allow them to get paid. Right now you have 1%, then someone is going to come up with something that’s 0.9%, then 0.8%, and then there’s a point where it’s at zero and there are other ways to get revenue.

See also: part 1 and part 2 of this series.

If you are interested in finding out more about the general topic of Bitcoin gambling, feel free to also read http://bitcoinmagazine.com/6091/the-bitcoin-gambling-diaspora/

At the eighth annual Western Union Consumer Protection & Compliance Conference held September 18th, 2013, Jay Postma, CAMS, President, MSB Compliance Inc. and  Scott Apodaca, CAMS, Senior Manager, Western Union gave a presentation entitled “Emerging Risk of Digital Currency (E-Currency / Bitcoin / Liberty Reserve) [PDF link].”

The conference was billed as the go-to place to “Stay up-to-date and learn about the latest consumer protection efforts, regulations, enforcement trends and strategies used to detect and combat fraud, terrorist financing and money laundering.”

Conference registration was free to Western Union Agents and employees. Individual conference registration was open to consultants, vendors, exhibitors and others for an additional fee.

Legacy Banking and Bitcoin Mingle

Some might be surprised to learn that a member of the Bitcoin Foundation presented at this conference. As it happens, Jay Postma, co-author of the subject presentation is an individual member of the Foundation. Moreover, as mentioned, his co-presenter, Scott Apodaca is a representative of Western Union.

However, the comingling of old and new should come to no surprise to those that have been following Roger Ver the “Bitcoin Jesus,” Jon Matonis, Executive Director of the Bitcoin Foundation and the open nature of the Bitcoin Foundation in general.

Earlier this month Ver posted a popular photo on Twitter of the Director of Products for Western Union wearing a Bitcoin button in front of the BitPay booth at the Money2020 Emerging Payments & Financial Services conference.  Western Union was founded in 1851.

Earlier this year, Jon Matonis was invited to talk at SWIFT or the Society for Worldwide Interbank Financial Telecommunication, the “global provider of secure financial messaging services.”

John described the experience in his Forbes article “Bitcoin Comes To SWIFT:”

“The undeniable march of Bitcoin definitely left an impression on SWIFT, however Bitcoin as a network is an existential threat. Bitcoin as a non-political, non-corporate unit of account is not.”

Swift has also been blogging about bitcoin on Dialogue, the “Voice of The SWIFT Community.”  SWIFT was founded in 1973.

The Bitcoin Foundation’s mission is to “help people exchange resources and ideas more freely” to standardize, protect and promote Bitcoin, appears to allow anyone to join as a member and receive voting rights. The Bitcoin Foundation was founded in 2012.

Not Ready For Primetime?

A slide from Emerging Risk of Digital Currency presentation asks if Bitcoin is ready for International Money Transfer and concludes “NO”  for the following reasons:

Worldwide use of bitcoin is growing

-but there is not sufficient use and liquidity yet for massive adoption

 Also, consumer interfaces to bitcoin are not sufficiently mature yet

-ease of use, clarity of transactions, taxation issues, etc.

 And…many regulatory issues are yet to be adequately addressed

It is also explicitly stated in one of the slides that:

“Western Union does not have commercial relationships with Digital Currency companies or providers who buy, sell or trade in digital currencies and will also prohibit consumers from using Western Union services if it is determined transactions are associated with E-Currency.”

The World Bank Weighs In

Earlier this month, The World Bank had a press release: “Migrants from developing countries to send home $414 billion in earnings in 2013.”  It highlighted that:

– Developing world to receive $414 billion in remittances in 2013.

– Remittances to India, China will total $131 billion.

– Cost of remitting money remains high.

“Cost of remitting money remains high.”

The cost will remain high if The World Bank does not have serious discussion on the merits of Bitcoin. Maybe they just need to mingle more?

Stefan Molyneux,  host of the Freedomain Radio recently had a fantastic Youtube video “The Truth About Bitcoin” and explained (at 4 minutes 40 seconds) how “Recently, someone transferred 6.5m in BTC for a fee of 6 cents (0.0000009% fee)” and further compared what those fees would be using legacy financial institutions. However, he didn’t include a comparison to Western Union. Western Union doesn’t appear to make  its fees for transfers of more than $2,000 transparent on its website. In any case, it cost about $8 or .8% (less than one percent)  to send $1,000 to Argentina from New York City for “money in minutes transfer” and it also costs $8 for a 3 day transfer and $68 or 6.8% for a similar “money in minutes” transfer to Cyprus. I tried to use the same link to move the money in reverse but it appears that there is only an option (at least on the web) to move money from Canada and the United states to another destination. To be fair I haven’t done an in depth analysis of Western Union’s services (and haven’t personally used their services).

Yet there is nary a mention of Bitcoin in the World Bank Website… well there are some comments left at CGAP or the Consultative Group to Assist the Poor. CGAP is “housed” at the World Bank and apparently the World Bank scrapes their website for inclusion in their search engine. CGAP works toward a “world in which everyone has access to the financial services they need to improve their lives.” One comment apparently left by an employee of Coinlab last August under a post on “What Do International Remittances Mean for Mobile Money?:”

 “I am curious what you think about Bitcoin for international remittances. It seems like it gets around some of the barriers listed above. Bitcoin is less exposed to regulatory hurdles because there is no individual centralized entity which controls it. Operationally, it is a breeze compared to starting an international money transfer business: anyone with an internet connection can start using the protocol to transfer value from anywhere to anywhere in the world in minutes for free. If you’d like to learn more about Bitcoin, drop us a line to info [at] coinlab.com . We have no official connection to the protocol, we are just building services off of it…”

Oh, and there is Michael Klein’s paper at the World Bank earlier this year, “The Next 30 Years: What future for finance?” where he stated that “Volatility and disarray…paved the way for disruptive business models in finance” where “Encrypted, distributed peer-to-peer networks such as the old Bitcoin of 2009 provided real alternatives…” and snarkily added:

 “In 2037 the annual Nakamoto conference in honor of the pseudonymous inventor of bitcoin honored the 90th birthday of Ian Angell Professor Emeritus of the London School of Economics. Ian’s vision of a future with private “off-planet banking” at last seems to become reality…”

Michael Klein worked at the World Bank for more than twenty-five years, most recently as Vice President for Financial and Private Sector Development for the World Bank Group as well as Chief Economist, International Finance Corporation and apparently is still a blogger for the Bank.

Western Union Flirting with Bitcoin

Back in April the was an article from Fox Business News (that has curiously disappeared) entitled “Bitcoin Buzz Draws Western Union and MoneyGram.”  As always, Reddit was there and Reddit user Cowboy_Coder had the following comment which received the most votes:

 “If they move early, Western Union could establish themselves as the defacto method of exchanging cash to and from bitcoins, all around the world.

If they hesitate and wait too long, they will find themselves irrelevant and obsolete. Make the smart decision WU.”

 Michael Terpin  co-founder of BitAngels recently had a guest post on VentureBeat “Bitcoin’s road from perdition: What will hurt and help the controversial digital currency:”

 “A fully licensed, established money transmitter adopting Bitcoin: Be it eBay’s PayPal (oh, the irony), Western Union or Moneygram (who briefly worked with ZipZap and, by extension, BitInstant), a fully licensed mainstream transmitter with a track record of compliance in both AML (anti money laundering) and KYC (know your customer) regulations would undoubtedly lead to a new wave of usage among heretofore tenuous early adopters, both on the consumer and merchant side.”

Doing the Dance

It is fascinating watching legacy banking and Bitcoiners do this dance. Right now each partner is learning the next move from one another. Neither have the lead in this dance.  We have a lot to learn from one one another during these exciting times. Bitcoin has been called frictionless… its also a financial lubricant. Bitcoin may not be “ready for primetime” but something tells me Western Union is getting ready. Get ready to mingle!

 

In the last part of this series, we talked about the state of Bitcoin in Israel and the efforts of Israeli Bitcoin community organizers Meni Rosenfeld and Ron Gross in running the Israeli meetup group. Here, we talk about the next stage in the Israeli Bitcoin community’s growth: the effort to set up an Israeli Bitcoin Association. National Bitcoin organizations have been a popular subject lately, with the Bitcoin Alliance of Canada soon to announce its official launch and similar organizations in other countries now picking up worldwide. But what is the benefit of having a national Bitcoin organization, and what would such an organization do? At least for the case of Israel, Rosenfeld and Gross explain below.

Vitalik Buterin: So what as the original idea behind the Israeli Bitcoin Foundation-

Ron Gross: Association.

Meni Rosenfeld: We went with “foundation” previously, but now we usually use “association”; first, it’s a more accurate translation for the name which it has in Hebrew, and second we originally started to work as part of the global Bitcoin Foundation in the US, but right now it doesn’t look so good about our cooperation with them, because they have some very problematic terms for the partnership.

RG: I would say it’s their approach.

VB: But before we get into that, what was the original idea behind the Israeli Bitcoin Association?

RG: Well, the original idea that still holds is very simple: Israel today has a lot of issues around Bitcoin banking. It’s very difficult or impossible for Bitcoin businesses to open bank accounts. It’s hard for private people to deal with Bitcoin. Even wiring money within Israel from one person to another, if the word Bitcoin is on the transaction, a lot of banks will refuse the transaction. If they try to wire money abroad, it’s very difficult for people and companies to work with Bitcoin. There hasn’t been a lot of clear communication from regulators compared to other regulators in the US and Europe. So I think our first goal is to establish lines of communication between the community, businesses, the banks and the regulators, just try to get everyone to talk. The end goal is not just to try to get everyone to talk, but also to establish some sort of regulation that would allow businesses and people to work with Bitcoin.

MR: That’s one part of the vision for the association; the other part is to work on education and outreach, getting as many people as possible to know about Bitcoin and to know accurate information about Bitcoin, so that’s a continuation of what we’ve been doing all along with texts we wrote, information websites and so on. So we want to do that, but on a much larger scale.

VB: what are some of these texts?

MR: There is the website bitcoin.org.il. The vision was to run it as a community website; in practice it’s a content website where mostly Ron and I write articles on a few Bitcoin topics, usually how to use it and why we need Bitcoin ,what does it mean and so on. We want to be the go-to site whenever someone hears about Bitcoin and wants to learn more. Lately this site was a bit neglected, but we do plan to gather more manpower and develop it to be a more complete resource.

RG: This website, bitcoin.org.il, is the homepage of the Bitcoin community. From it, you can reach all the other relevant websites: we have a Facebook page, a Facebook group, a Meetup group, a wiki, an IRC channel, a Google group, so a lot of ways to communicate. Meni also moderates the Hebrew section of Bitcointalk. The meetups have been recorded and uploaded to Youtube. The meetups are for the general public, but we’re also having some private meetings with institutions, regulators and banks, just trying to get the information out there. Those are the types of people that don’t usually come to meetups. So we usually go to one of them and share the information.

MR: There are also more public lectures. People invite us to lecture at universities, companies, etc.

RG: an amusing anecdote that I’ll share with Meni’s permission is that he was once invited to a bachelor party to talk about Bitcoin.

MR: so apparently you don’t have strippers in bachelor parties anymore, you have Bitcoin lecturers. And they paid me.

VB: In Bitcoin?

MR: Yeah, I think it was Bitcoin.

Israel and the Bitcoin Foundation

Note: Those interested in seeing other views on the subject of the Bitcoin Foundation’s international chapters are encouraged to also read Jon Matonis’s clarifications here:

http://bitcoinmagazine.com/7605/internationality-democracy-and-reforming-the-bitcoin-foundation/

And an op-ed by Aaron Koenig, organizer of the below mentioned discussions in Amsterdam, here:

http://bitcoinmagazine.com/7637/how-to-decentralise-the-bitcoin-foundation/

VB: Next, to that other point you raised earlier, which is, what were the aspects of the Foundation’s approach that you found so problematic?

RG: So we started talking about forming the Israeli Bitcoin Foundation, as we called it, and the vision was always to be a chapter of the Global Foundation, even before they came out and publicly announced that there was a chapter program. We needed an organization for Israel, and we wanted to cooperate with the Foundation. We approached the Foundation and started a dialogue, and we were then selected as one of the five countries to work with the alpha program for the chapters; we discussed this locally, and then we started getting the terms from them. So first we got the more general terms in an email, and then we got the official contract that they proposed. Basically, they proposed a sort of a revenue sharing model, where they will collect all of the member fees and the donations and within a certain period, maybe on month, they will transfer a half of that – a half of the member fees and a half of the donations – to us. And we won’t have any option of accepting either of these on our own.

At first, we were basically alone with them. We didn’t know who the other groups were; we were discussing this internally, trying to understand, is this acceptable or not? We sort of reached an agreement that maybe we’ll do a 50% share of the member fees, maybe, but the donations I think were a no-go. We needed to maintain a way for anyone who wanted to donate to the Israeli association to do it without having half of the donation taken away. We started reaching out and finding other similar organizations in other countries. We tried to reach most or all of the pilot programs and a few other organizations that weren’t in the pilot program.

We just had a few meetings in Amsterdam, and they were all in the same situation as us. They received the same kinds of conditions, sort of a dictated proposal from above without an open dialogue, and we reached a conclusion. None of us, none of the people in that room want to just accept these kinds of conditions written in a top-down fashion by the Foundation that is effectively today a US foundation. Nobody appointed them to be the world foundation, and in the latest election even though one or more of the candidates were foreign those candidates weren’t elected. The foundation is de-facto a US entity. So all of us decided that we don’t want this kind of cooperation with them, and we are not sure what we are getting in exchange for all these fees that will be sent outwards.

We actually talked about creating something else, and we are still discussing what that something else will be. The general direction right now would be for each country, and each section or area to establish their own organization, and for these organizations to have some loose ties with some kind of umbrella organization but without necessarily any formal structure, voting or fees because we tried to think, if we had a sort of global Bitcoin organization, what sort of decisions would this organization do, and we didn’t find any decisions that this organization would do. It’s not authorized to make changes to the Bitcoin protocol, as that is not how the Bitcoin protocol works, and regarding regulation, that is specific by country or by region. We are still discussing the details of this.

MR: The general idea is to build the structure gradually and naturally. We can start with each country building their own association, and of course share information, tips and whatever and cooperate if possible, and from there we see what kind of structure makes sense for the organization and go with that, and maybe in the future we will have something more formal if we need it. One thing that I am told is that when working with regulators you have much more power if you are part of a bigger global movement, so if there’s benefit in creating such a formal global organization, then we’ll do it, but we don’t have to do it right now.

RG: I have to add on this, in our communications with the Bitcoin Foundation, they have been communicating with us, mostly via email (I haven’t had a Skype call with them for a long time), but we got a sort of mixed message. We got a message from them that they are actually setting up a new umbrella organization that the Bitcoin Foundation will be a member of. We interpreted this as a positive signal that they are actually trying to do the right thing, but then we learned in Amsterdam that this is not actually the case.

They are setting up a new organization registered in the UK. They haven’t discussed this with anyone in the UK organization, they just ended up doing it in their own, and they intend for the board of directors of the new organization to be the exact same board that they currently have in the Bitcoin Foundation. So it’s more like outsourcing their management not to get sued by the US; I don’t know the motivation, but this is not the type of global organization we want to build.

VB: I was [talking to Anthony] of the Bitcoin Alliance of Canada, and one idea he had was to have a sort of global organization based on something like the global Green Party movement. Or another example might be the global Pirate Party movement as well. So it would be a loose charter that any organization would abide by, but otherwise it’s just informal cooperation.

RG: We have a Google Group right now where we’re discussing these issues. We are of course open to working with the Bitcoin Foundation; we want to include them, we don’t want to fight anyone else. But we want to treat them as equal members in the global organization,and this is apparently not how they see things.

After the conference we broke up for a bit, everyone is trying to get the opinion of their local organization. We also have a meeting with our board where we update the board on what happened in Amsterdam and try to get a clear message from the Israeli organization. We haven’t had the chance to update everyone. A lot of organizations are in the same kind of state. It will take a few weeks or a few months, but we will get something going.

 At the first evening of the Bitcoin conference in Amsterdam, about 20 Bitcoiners from Argentina, Australia, Belgium, Canada, Germany, Hungary, Israel, the Netherlands and the UK gathered around a dimly lit table in the first floor of a café near the conference venue to discuss the Bitcoin Foundation’s efforts to start “national chapters“. There had been some irrititation about the Foundation’s plans and not everybody was happy with the way they were executed.

So it became obvious that a meeting of the founders of national Bitcoin associations would make sense. Having met many people from many countries at international Bitcoin conferences this year (in San José, London and New York) and being involved in setting up a German association, I initiated the meeting and started a Google group to keep the conversation going.

Some of these associations – or associations-to-be – were among the “chosen ones“ which had received drafts for so-called affiliation contracts by the Bitcoin Foundation. These contract drafts were generally perceived as “one-sided“ and “top-down“. Some international association founders were so upset by them that they questioned whether to cooperate with the US based Foundation at all.

I was a bit suprised by this, as in a meeting in Berlin with the Foundation’s executive director Jon Matonis, my impression was that Jon prefers a truly decentralised model. He described his plan to set up an umbrella organisation based outside the US with the newly founded local associations as its members, and to me it seemed that he really wanted to change the current US-centric structure of the Foundation in order to reflect the global, decentralized nature of Bitcoin.

A lot of criticism towards the US Foundation stems from its mixed nature: it has members from all over the world, but it is registered under US law and all board members are US citizens. Some people have the impression that international member fees and donations are spent on US lawyers to solve US problems. Jon was aware of this and I understood that the board had agreed to re-invent the Foundation.

Yet nothing of this was expressed in those drafts, which reminded some of McDonalds franchisee contracts. I don’t know why and how this happened. But in my opinion, it is not the point whether the conditions how to divide member fees and donations described in these affiliate contracts are fair or not. I don’t think a contract between the US Foundation and any association in another country is needed at all. There is no reason for the US Foundation to play a special role; it should be one member of a global “Federation of Bitcoin Associations“, without any special privileges or “superpowers“. Such a global federation would need some slim by-laws to define its purpose and structure, but nothing more.

Some people in the meeting questioned whether we need a global organisation at all. They argued that although Bitcoin is a global phenomenon, the job to educate regulation authorities and politicians about Bitcoin needs to be done on the local and national level. Most participants in the meeting, however, believe that being part of a global network does provide everyone with a better standing in talks with local politicans and media – just like Greenpeace usually has a far stronger impact than a local environmental group.

When we had to leave the Amsterdam café (as they wanted to open their dancefloor which we had occupied), the general mood was very positive and optimistic. It was a pleasure to see many people for the first time and to find out that we all have very similar views on how to work together. Our overall consensus was that we do want to cooperate with the US Foundation, and that we do think that some global organisation makes sense, but a global “Bitcoin Federation“ (or “Bitcoin Alliance“, as the Star Wars fans prefer) should be built not from the top down, but rather from the bottom up. It should be as decentralised as possible, without a strong headquarter, rather a loose network of local nodes that enables its members to exchange ideas and experiences and to join forces when necessary.

A truly global Bitcoin Federation should follow the good old principle to “think globally, act locally“.

The Bitcoin price has been shooting up quickly in the last few weeks, a movement that has surprised many especially since most predicted that the Bitcoin price would fall below $100 or even $50 following the demise of Silk Road. Although Bitcoin certainly did crash on that day, hitting a three-month low of $85 for a few moments, the price steadily picked up, regained its original level and is now higher than it ever was with the exception of only three days in Bitcoin’s history, all during the media-fueled frenzy culminating in a spike in April this year. What has been fueling the price movements? To some, it is the downfall of the Silk Road itself, as many people believe that with the loss of what was probably the “shadiest” part of the Bitcoin community, mainstream institutions will be much more willing to take it seriously. To others, it is the rapid growth of the Chinese community, bolstered by a division of Chinese Google equivalent Baidu accepting Bitcoin for one of its services.

Today, a massive spike in the Bitcoin price, accelerating hyperexponentially from roughly $180 on MtGox to a high of $195, provides some strong evidence that it is in fact China that is playing the principal role. Here is the chart of the Bitcoin price between roughly 7:00 and 10:00 GMT today:

The pattern is one that has been replicated many times in Bitcoin’s history. Here, for example, you can see the Bitcoin price’s movements just before it broke $30 for the first time in one and a half years this February:

In both cases, the exact same scenario unfolds: a powerful psychological threshold is pushed against, offers resistance, and when the threshold is finally broken the market erupts in a wave of exuberance that quickly leads to a minor spike, a subsequent crash and a consolidation. The pattern can even be seen in the downward direction as well, at those times when Bitcoin is in its downward swings. This time, however, there is one major difference: the psychological threshold in question was measured in CNY, not USD. Nearly every Chinese exchange followed the same pattern of brushing up against 990 CNY, staying there for some time, and then finally breaking through 1000 CNY and shooting up by six percent almost immediately afterward. In US dollars and Euros, the exchange rates of $165 and EUR 120, respectively, are comparatively meaningless.

Although it might be hard to believe, the Chinese Bitcoin exchanges are in fact responsible for much more trade volume than those in Europe and the United States. BTCChina, the most prominent Chinese Bitcoin exchange, currently shows roughly the same volume as MtGox and BitStamp, and there are plenty of other exchanges that have not received as much public attention outside of China, but whose volumes add up to even more than BTCChina altogether. However, these statistics were always known to be somewhat unreliable, as Chinese Bitcoin exchanges have very low fees, encouraging speculation. If Bitstamp had a de-facto 0.15% fee, one could expect much more speculative trade happening on there as well. This rally certainly does not by itself provide solid proof that there is much non-speculative Bitcoin activity going on in China – for that, we may need to wait for a few more months for the Chinese Bitcoin community to catch up, but what it does show is that, as of today, the Bitcoin markets are dominated by the Chinese. The sleeping dragon appears to be finally waking up.

Ever since the Bitcoin Foundation was first announced by lead Bitcoin protocol developer Gavin Andresen in September 2012, it has been the subject of constant criticism. An organization that describes itself on the front page of its website as having the mission of “freeing people to transact on their own terms” and “standardizing, protecting and promoting the use of Bitcoin cryptographic money for the benefit of users worldwide”, has alternately been called a wealthy Silicon Valley business club, a United States-focused organization, or a group of wannabe dictators trying to unilaterally impose their visions on the Bitcoin community. Some have even accused the Foundation of wanting to centralize Bitcoin and transform the project into a more regulator-friendly product without its more controversial properties for their own personal gain. At the same time, however, the Foundation has proven to be an invaluable tool in supporting Bitcoin’s growth. It is paying a full-time salary to Gavin Andresen, forcefully and proactively defending Bitcoin in front of regulators, and paying out grants to projects that would have a hard time funding themselves otherwise. As Bitcoin continues to grow, local communities are seeing the benefits that formal organization, properly done, can bring, and a single question is increasingly coming to the forefront of the public discussion: what is wrong with the Bitcoin Foundation, and how can we fix it?

Conspiracy theories aside, the Bitcoin Foundation certainly has made efforts to address every one of the concerns that have been leveled against it. Claims that the Foundation was not democratic were addresses with an election in September. Concerns over conflicts of interest escalated to a climax when Coinlab, a Bitcoin business whose CEO Peter Vessenes was on the Bitcoin Foundation’s board of directors, sued MtGox (whose CEO Mark Karpeles is also on the board) in May; however, the crisis was resolved when Peter Vessenes stepped down in July. The perception that the Bitcoin Foundation harbored too much of a pro-regulatory ideology was weakened when Jon Matonis, a known proponent of underground and informal economies, became the executive director after Vessenes. And, finally, the issue of internationality was addressed with the Bitcoin Foundation’s new international chapter program.

Especially after the election in September, many people’s perceptions of the Bitcoin Foundation have improved considerably, as they saw some of the recent reforms, and perhaps also the electoral victory of Elizabeth Ploshay over other, more business-oriented, candidates, as a sign that the Foundation’s leadership is genuinely interested in making the organization more fairly organized and inclusive. To others, however, the electoral results and the international chapter program were simply proof that, ultimately, everything remains exactly the same. The two winners of the board election, Elizabeth Ploshay and Micky Malka, are both in the United States, cementing the perception that the Bitcoin Foundation was an irretrievably US-focused organization. And, as Bitcoin Alliance of Canada founder Anthony Di Iorio believes, this result was to be expected. Because the original five directors, with the exception of Mark Karpeles, were all American, the Foundation attracted a predominantly American member base, which was then more likely to elect Americans. “In my opinion,” Di Iorio summarizes, “they were structurally flawed from the start, and in turn this skewed the membership very early on”.

Transparency and Democracy

The other topic dear to Di Iorio’s heart is that of transparency and democracy. The Bitcoin Alliance of Canada is unique among Bitcoin organizations because of how the organization was created democratically, and transparently, right from the start. As Di Iorio describes it:

In April I put out a press release making a general call for anyone that wanted to get involved. Over the next two to three months I communicated with hundreds of people across Canada. After a few more press releases and a last call for involvement, it was time to put together the board of directors. Through input from the community, it was decided that two groups would be commissioned: one group of board applicants, and another group to serve as an independent board election committee. Of the thirteen applicants, seven board members were ultimately elected by the fifteen-member election committee. Having applied myself, I became a member of the board.

Although Di Iorio certainly did take leadership in the Alliance’s formation, he did so publicly and openly and gave everyone months of advance warning before every critical step so that everyone could have ample chance to participate. Compare to that the story of how the Bitcoin Foundation was created: in August, Gavin Andresen let slip that there would be some big news coming up in September. Over the next few weeks, Andresen let the Bitcoin community speculate on what the news was going to be, and at the end of September Andresen abruptly announced the organization, fully formed, to the world in a forum post. The five original directors were all established Bitcoin business leaders, who received their spots automatically, essentially simply because they were in the right place at the right time. And even today, all but two directors were appointed, and all but three part of the same original group.

The International Chapter Scandal

The worst part of the backlash, however, has revolved around the Bitcoin Foundation’s international chapter. Some in the Foundation see its efforts at trying to get organizations in other countries to sign on as national chapters as a genuine attempt at diversification, but the opinion in other parts of the world is different; in fact, what many Bitcoin users see is what is essentially an American organization expanding out into the world much like a megacorporation, or even a neo-colonial empire. What is the difference between genuine international outreach and neocolonialism? The story of Ron Gross, a co-founder of the Israeli Bitcoin meetup group and soon to be Israeli Bitcoin Association, proves instructive. Gross says:

So we started talking about forming the Israeli Bitcoin Foundation, as we called it, and the vision was always to be a chapter of the Global Foundation, even before they came out and publicly announced that there was a chapter program. We needed an organization for Israel, and we wanted to cooperate with the Foundation. We approached the Foundation and started a dialogue, and we were then selected as one of the five countries to work with the alpha program for the chapters; we discussed this locally, and then we started getting the terms from them.

So first we got the more general terms in an email, and then we got the official contract that they proposed. Basically, they proposed a sort of a revenue sharing model, where they will collect all of the member fees and the donations and within a certain period, maybe on month, they will transfer a half of that – a half of the member fees and a half of the donations – to us. And we won’t have any option of accepting either of these on our own.

At that point, the Israeli Bitcoin community members discussed internally and agreed that, while the 50% membership revenue split might be reasonable, there was no way they would be willing to deny people the right to donate specifically to the Israeli group directly. They then started to reach out to other national organizations, and what they found was a growing consensus that the Bitcoin Foundation’s conduct, as they perceived it, was unacceptable:

We just had a few meetings in Amsterdam, and they were all in the same situation as us. They received the same kinds of conditions, sort of a dictated proposal from above without an open dialogue, and we reached a conclusion. None of us, none of the people in that room want to just accept these kinds of conditions written in a top-down fashion by the Foundation that is effectively today a US foundation. Nobody appointed them to be the world foundation, and in the latest election even though one or more of the candidates were foreign those candidates weren’t elected. The foundation is de-facto a US entity. So all of us decided that we don’t want this kind of cooperation with them, and we are not sure what we are getting in exchange for all these fees that will be sent outwards.

This is the effect that the impression of top-down control that the Bitcoin Foundation’s approach provides is having on Canadian, European and Israeli community members alike: very many of them see these actions as simply yet another instance of a typical American arrogance and desire for control, and want to have no part in interacting with the Bitcoin Foundation in this way. That does not mean that they see the Foundation as evil and wish to avoid any kind of contract with them whatsoever; “we are of course open to working with the Bitcoin Foundation,” Gross clarifies. “We want to include them, we don’t want to fight anyone else. But we want to treat them as equal members in the global organization, and this is apparently not how they see things.”

The Other Side of the Story

Of course, the Bitcoin Foundation sees things very differently; in the view of the organization’s current Executive Director, Jon Matonis, much of what Di Iorio, Gross and others have come out to say is the result of serious misconceptions about what the Foundation is trying to do. Rather than trying to limit local organizations’ freedom, Matonis says, the objective of the contract was actually to limit the amount of effort that the organizations would need to put in. “Our objective,” Matonis writes, “was to provide a turnkey solution for local chapters that did not want to mess around with membership dues and the infrastructure on collecting them, and did not want to have to have a giant footprint in their country that required them to hire staff.” By delegating many core functions to the Bitcoin Foundation, the contract would sharply reduce the amount of effort needed to maintain a national organization. “They could keep their full-time jobs; all they had to do was register five board members for a legal non-profit in their country, take care of some translation for the website and handle some media events in their country.”

Matonis is very aware that some national organizations would prefer to maintain their independence, and for them he is willing to offer a much more restrictive partnership that would essentially consist only of the two organizations linking to each other on their websites. The Foundation is simply offering the tighter partnership first because it feels that it would be easier for national organizations to follow, and would give them the opportunity to spend more time focusing on activities beneficial to the community within their own country rather than wasting their time on administrative work that can be better handled by the foundation.

What about the concerns over the seemingly top-down imposition of the contracts? “I understand that,” Matonis says, but he argues that much of the animosity was the result of a misunderstanding:

We never received a draft from [the Israelis] or anyone. I would have been happy for someone to take the lead and give me a draft to mark up. A little bit of it is cultural; as you know the American way is to throw out something acting like it’s your final offer to sign, but we negotiate more than anything. I think they didn’t realize that everything in there is negotiable just because they saw it in this legal format. But yeah, give me some pushback. Don’t just say no and start crying, change a paragraph and tell me what you want it to say, but I think they just burned the village instead.

As for the 50% tax on donations, arguably the most contentious part of the agreement, Matonis writes:

That’s the part we have the most flexibility on. What we didn’t want is for them to go solicit industry membership using the Bitcoin Foundation’s name and then keeping the entire industry membership to themselves because that is not really fair. We have the most flexibility on the donation side, especially the anonymous donation side. To be honest, the smallest part of our funding. The largest part is industry memberships followed by the individual memberships, and then the last category is the regular ad-hoc donations.

So every single term in the agreement, which Gross and many other community organizers alongside him saw as being handed down in its final form from above, was actually open to negotiation all along – especially that one term which they were uncomfortable with the most. Can this misconception simply be excused as a regrettable blunder by the Foundation and the local chapters alike? Perhaps yes; but perhaps, others might believe, the responsibility falls primarily on the Foundation for being so opaque. If the Foundation had been as open as the Bitcoin Alliance of Canada in its dealings, putting out a public draft and saying “this is the general form of the agreement we’re thinking of, anyone feel free to share your own thoughts and comments”, and then sending the standard contract through months of open and public negotiations, this whole scandal could have been avoided entirely.

The United States and the World

Aside from these concerns, there still remains one major piece of the puzzle in the drive to make the Foundation a truly fair global organization: setting up a truly equal structure where the US is not inherently at the top. Right now, the Bitcoin Foundation intends to be a worldwide organization, representing the interests of Bitcoin users no matter where they are. At the same time, however, it has many of the characteristics of a US organization: its board of directors is largely American, it focuses on US legal issues, and it is registered in the United States. In order for the Bitcoin foundation organizational structure to be truly fair, these two functions would need to be split up, with a separate US foundation acting as one of the world foundation’s members just like everyone else.

First of all, however, there is the question of exactly what a world foundation would actually do, and whether or not it is even necessary to have one. Ron Gross clearly believes the answer is no:

We tried to think, if we had a sort of global Bitcoin organization, what sort of decisions would this organization do, and we didn’t find any decisions that this organization would do. It’s not authorized to make changes to the Bitcoin protocol, as that is not how the Bitcoin protocol works, and regarding regulation, that is specific by country or by region.

Gross’s partner in organizing the Israeli Bitcoin community, Meni Rosenfeld, has similar thoughts on the matter, arguing that “the general idea is to build the structure gradually and naturally.” Rosenfeld continues: “We can start with each country building their own association, and of course share information, tips and whatever and cooperate if possible, and from there we see what kind of structure makes sense for the organization and go with that, and maybe in the future we will have something more formal if we need it.” Di Iorio too shares the same views, advocating for a set of national organizations united under little more than a common charter,similar to the organizational structure of the global Green Party movement.

Matonis, on the other hand, believes that there certainly are tasks that are most well-suited for a global organization to handle, and maintaining such an organization has clear benefits for Bitcoin users today. Matonis argues:

Basically, some of the local country groups want to be fully independent and they do not want to share in any membership dues, which means that they would not have any of the membership dues going to compensate core developers or any of the grand programs that the Bitcoin Foundation is undertaking. Would Israel have the capacity to hire Gavin or the other developers that we are hiring? I don’t think they want to do that, they want someone else to do that.
And that applies to legal defense as well. If the Silk Road case turns into a key disclosure case, we’re going to be submitting amicus curiae briefs defending the keyholders for Bitcoin, because it has such broad implications. If one of these pops up in Israel or Holland, and we want to make a statement, we can easily throw attorneys or resources at it, even though we’re coming from another country, because it has international implications as well. If the Thailand thing was real, we would love to be there, challenging why they’re banning bitcoin. So we’re always on the lookout for those kinds of cases that have an impact, and it’s not just the US.

“Those kinds of things cost a lot of money and need a lot of coordination with attorneys in multiple countries, and that can best be achieved by us putting together our resources,” Matonis concludes. “I mean, we’re still less than a one-million-dollar organization.” However, as far as making a world foundation that is separate from the US foundation, Matonis, and the Foundation as a whole, are actually quite sympathetic to the idea. Matonis writes:

It’s been voted on, it just hasn’t been announced yet. What I will say is that the contracts that the local affiliates sign will be with an international entity which is non-US, it will be European, and the US will end up being a chapter by the second quarter of 2014. That’s the path.

Gross, however, points out one large problem with the Foundation’s approach: transparency. “They are setting up a new organization registered in the UK,” Gross says, “They haven’t discussed this with anyone in the UK organization, they just ended up doing it in their own.” Here too, even in the Foundation’s process of internationalizing itself, the attitude that Gross sees as a kind of arrogance seeps through. Gross further points out that the new Foundation’s directors will be exactly the same as the current Foundation’s directors, although Matonis points out that this will only be during a transition phase, and later there will be a clause preventing members of the US Bitcoin Foundation from also serving on the board of the world organization. “You can’t just do this in one day,” Matonis explains, “it takes months to organize it.”

From all of these examples, one common trend seeps through: a strong culture within the Bitcoin Foundation’s ranks of doing things unilaterally, and then telling other organizations what the plan is going to be. As Matonis would have us believe, this is just the Bitcoin Foundation taking leadership; if any other national organization or consortium of national organizations wants to step forward and put together the global organizational infrastructure, they had, and still have, the opportunity to do so. The alternative viewpoint, however, is that the Bitcoin Foundation has a lot to learn from Anthony Di Iorio’s style of leadership in Canada: exercising leadership when necessary, but putting out plenty of advance warnings, requests for comment and explicitly, rather than implicitly, giving anyone a chance to participate.

Ultimately, the members of both the Bitcoin Foundation and the national chapters are doing this for us, the Bitcoin community as a whole, and as a result each and every one of us has the opportunity to speak out and influence how the process of creating a fair system of global Bitcoin organization will take place. If you feel that your wishes arenot being satisfied, feel free to speak out and make an argument as to what you think is lacking. At the same time, however, Bitcoin foundations are not governments; it is perfectly reasonable to have multiple organizations serving the same region, and if you are truly unhappy about the direction your local Bitcoin organizations are taking, you are always free to start your own; Bitcoin developer Amir Taaki’s unSYSTEM is perhaps the best example. Everyone is free to cooperate, or go at it alone, as little or as much as they want. Even if we do not cooperate, however, we all still have the same objective: building a great currency.

Time to have fun solving some puzzles!

This post was released for Issue 12 of Bitcoin Magazine as the first one of a series of  articles about puzzles and games. I hope you enjoy reading them as much as I enjoy writing them.

 

The ceiling of my daughter’s bedroom is full of small star-shaped phosphorescent stickers. One night in 2009 she was a bit sick, so I sat next to her and held her hand until she finally fell asleep. Then I raised my head and I looked at that ceiling full of stickers for a while. A new logic puzzle was taking shape.

This puzzle evolved into my second published game (Hexellation, 2009). Hexellation uses a hexhex board (a hexagon made of hexagons), but for practical purposes we’ll use square grids here, so you can easily play with paper and pencil. In Hexellation, two players try to create a constellation of stars called ‘model’ without creating a forbidden constellation called ‘avoid’.

 In this issue’s puzzle, we’ll focus on the ‘forbidden something’ mechanism only. I’ve always been fascinated by games with constraint mechanisms, where you try to achieve your goals while dealing with prohibitions. Does it sound familiar to you? Life itself.

 Don’t miss the next issues of Bitcoin Magazine, as I will talk about how an automated game-generating programme also used this type of mechanism in 2007, when it created the first game ever invented by a computer.

 THE PUZZLE

 We’ll start by drawing two square grids of the same size next to each other (10 squares per side, for example, although you can use any size). The left one will be called ‘avoid’ and the right one will be the ‘sky map’. Now we’ll place a few stars (3, for example) on the ‘avoid’ grid, randomly. This arrangement of stars is the forbidden constellation.

Figure 1: a forbidden constellation

 The goal of the puzzle is to place as many stars as possible on the sky map in such way that the forbidden constellation is not present on it, even by rotation. A constellation symmetrical to the forbidden one is allowed, as long as it is not also identical by rotation.

 For example, the red constellations in figure 2 are illegal, as they are the same as the forbidden one (some of them are rotated). On the other hand, the green constellation is legal, as it is not the same as the forbidden one, no matter how you rotate it.

Figure 2: examples of legal and illegal arrangements of stars

 A sky map that does not contain the forbidden constellation will be called a ‘proper sky map’. The sky map in figure 2 contains the forbidden constellation three times (indicated in red), so it is not a proper sky map. Remember that the configuration indicated in green is correct.

 The proper sky map that contains the maximum number of stars possible for a given forbidden constellation will be its ‘solution’ (there can be several different solutions for a given forbidden constellation). The number of stars of a solution varies depending on the configuration and number of stars of the forbidden constellation.

 Figures 3 and 4 show examples of solutions for trivial cases of forbidden constellations. The solution for the forbidden constellation in figure 3 has the maximum number of stars possible (99 stars).

Figure 3: a trivial constellation and its solution

 By simply re-arranging the four stars into a 2×2 square (figure 4) we significantly reduce the number of stars of its solution to 75. Notice that none of the 25 remaining free spaces can be filled with a star, as it will complete a forbidden constellation and the sky map will not be a solution.

Figure 4: a 2×2 constellation and its solution

 STRATEGY TIP

 Don’t read this tip if you wish to discover the strategies by yourself!

 An initial procedure to properly fill the sky map might be the following:

 a) Start with an empty sky map.

b) Create a constellation on the sky map identical to the forbidden constellation.

c) Remove one of the stars from this newly created constellation. Let’s call it ‘stamp constellation’.

d) Replicate the stamp constellation as many times as possible on the sky map while avoiding creating the forbidden constellation.

e) Legally fill as many remaining spaces as possible.

Figure 5: a procedure to fill the sky map (steps ‘a’ to ‘d’)

 And now, are you ready for the challenges?

 THE CHALLENGES

 Time to solve some puzzles! The following challenges are sorted by difficulty level, ranging from ‘immediate’ to ‘almost impossible’.

 Challenge 1: Can you find the smallest forbidden constellation for this proper sky map (fig. 6)? This one is easier than it seems and there are many possible answers.

Figure 6: the Bitcoin sky map

 Challenge 2: Can you find a solution for this forbidden constellation (fig. 7)?

Figure 7: the Bitcoinstellation

 Challenge 3: Can you find a solution for this forbidden constellation (fig. 8)?

Figure 8: the brainburner

Challenge 4: Can you find a 4-star forbidden constellation so that its solution contains the lowest number of stars possible?

 Challenge 5: Can you generalize this result for any grid and constellation size?

 Challenge 6: Can you solve challenges 4 and 5 for a hexhex grid?

 Please post your answers in my forum and I will reward the best post with a copy of one of my games! I’m looking forward to discussing your findings. Thank you for reading!

 

Update: Let’s define ‘smallest constellation’ as the constellation with the minimum number of stars.

 

Bitcoin is taking off around the world. Specifically, there is much potential for growth in Southeast Asia, in particular in a nation with the second largest population in the world: India.

I had the privilege of speaking with Sunny Ray who is active in the Bitcoin community in Bangalore, India, Nilam Doctor, CEO of Real Bitcoins, and Harsh Patel, proactive member of the Bitcoin Foundation Education Committee who is located in Mumbai. The Bitcoin community in India is continuing to expand.

Sunny Ray is currently involved in the unocoin project and serves as an integration partner with US-based Bitcoin payment processor, BitPay. There are over 150 members of the Bitcoin Meetup group in Bangalore alone. India has a climate ripe for the growth and embrace of Bitcoin. India is a top importer of gold and one in seven people in the world live in India. Bangalore in particular is an IT hub in India and many seeking decentralization see potential in the Bitcoin space in the IT community in India.

Sunny Ray

Bitcoin Magazine had an opportunity to interview Sunny Ray:

http://www.youtube.com/watch?v=WE0epfI76g4

In addition to Sunny Ray, I had the privilege of communicating with Nilam Doctor, another leader in the Indian Bitcoin ecosystem, on his involvement in the Bitcoin space in India. Nilam shared of his activity in Ahmedabad of hosting Bitcoin meetups since January of this year. Nilam has taken his involvement in the Bitcoin space a step further by working to establish a Bitcoin exchange in India by December of this year.

Nilam Doctor 

I learned from Harsh Patel of the potential for Bitcoin in India. According to Harsh, there are various security communities in India such as ISRA, Null, Clubhack, Team Matrix and the Cyber Security Alliance are interested in knowing and exploring possibilities about Bitcoin. Some members of India’s  security community have extended a helping hand for developing Bitcoin in India. Harsh is also working on a structure for standardization of virtual currencies in order to bring trust into the system. To date, India’s banking system has a standard / banking regulation in place for payment card and banking related activities, yet does not have an equivalent standard / regulation in place for virtual currencies.

Harsh Patel 

As Bitcoin takes off in India, which nation is next? To date, Bitcoin is expanding rapidly in China, Argentina, Iran, Germany, and Canada to name a few nations. In terms of broad base adoption, India is a promising nation for Bitcoin growth as the nation holds technological hubs such as Bangalore and Mumbai. Bitcoin Magazine is thankful for the work of the Bitcoin community in India and encourages other nations to follow suit.

Although it has faded somewhat from the press in recent months, Israel remains one of the major hubs of the Bitcoin community worldwide. The country may only have a population of 8 million, but its technological and financial center, Tel Aviv, is home to three Bitcoin-accepting restaurants and a rapidly growing number of startups, and is arguably the birthplace of a Bitcoin technology that has seen a considerable amount of attention in the past few weeks: colored coins. The theoretical background behind the idea was developed with the help of Meni Rosenfeld, an Israeli mathematician who has also been a main organizer of the Israeli Bitcoin community for the last two and a half years. The furthest developed implementation of the project today, Webcoinx, was written mostly by Ukrainian developer Alex Mizrahi, but was funded by eToro, a popular “social investing” network whose main offices are also located in Tel Aviv.

Israel first publicly burst onto the Bitcoin scene in January 2013, when Ron Gross, another organizer of the local Bitcoin meetup group, made a post on the Bitcointalk forums entitled “Bitcoin is booming in Israel”. Gross wrote:

There’s been a nice Israeli group of Bitcoiners for some time, growing over the last ~ 1.5 years. So far our Meetup has reached about 100 people, with about 15-20 active members. Then, on last Thursday, something happened. Bitcoin was covered on the front page of a major “popular economics” paper, and then later that day a major TV channel (Channel 10) did a late-night 7 minute story about Bitcoin (featuring, among others, Meir Shitrit, a former minister of finance). Suddenly, we’ve had a boom in Bitcoin interest. Our meetup now contains 145 people (40% increase in 3 days!). Our local forum bitcoin.org.il has seen an influx of new users, as well as our Facebook page. People want to invest, learn, evangelize … it’s quite awesome!

Two weeks later, Gross posted that the latest Israeli Bitcoin meetup had over a hundred people attending – nearly ten times the amount that it had only two months previously. But the Israeli Bitcoin community’s luck did not stop there. Two months after that, the Israeli Bitcoin meetup in March had over 160 people, and although attention has reduced somewhat since the peak the Israeli Bitcoin community remains one of the most cohesive, and one of the most entrepreneurial, out there; the Israeli Bitcoin community is responsible for colored coins, the instant altcoin exchange Coinpair, the peer-to-peer Bitspend alternative Proxycoins, and many others. Now, the latest development in Israel is the emergence of the Israeli Bitcoin Association, a national Bitcoin group similar in spirit to the Bitcoin Alliance of Canada.

In this multipart interview, Meni Rosenfeld and Ron Gross will talk about developments in the Israeli Bitcoin community, their own efforts in organizing community events and meetups, their other Bitcoin-related projects and the vision that they have for the Israeli Bitcoin Association.

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Vitalik Buterin: First of all, could you introduce yourselves? Who were you before Bitcoin came along, and how did you first get into Bitcoin?

Meni Rosenfeld: I’m a mathematician, I studied a master’s degree in mathematics, and then I worked for about 2 years for a company called SimilarGroup, which is a startup developing solutions for finding websites and measuring web traffic. I worked there as the head of algorithms research, and then I learned about Bitcoin from a blog post on lesswrong.com, which is a blog about rationality, and they mentioned that the Singularity Institute [now the Machine Intelligence Research Insitute] started accepting Bitcoin donations, so that’s how I first learned about it, and then of course I started looking into what it is exactly. Even while I was still employed full-time I spent a lot of time reading about Bitcoin, participating in the forums, and so on.

Then I started two projects. First I did some search about mining pool reward methods, so in March 2011 I developed the geometric method, which is the first non-pay-per-share hopping-proof method, and I moved on to develop BGM, which is better, and I wrote an analysis of Bitcoin mining pool reward methods. The other part is that I wanted to develop the situation of Bitcoin in Israel, so in April I started Bitcoil, which was Israel’s first Bitcoin exchange service, and by August of 2011 I realized that Bitcoin has a lot of potential and my business has a lot of potential, so I started to phase out my earlier job at Similar Group. I moved on to a 20% position and focused all my time on Bitcoin-related things, including research, my exchange business, and activity in the community.

Then, in the beginning of 2013, Bitcoin picked up all over the world, but especially in Israel, so I had a lot more work in the exchange business and in the community. January 2013 was also about the time that Ron joined me as a partner at Bitcoil, and of course before then were together on building the community, organizing meetups and so on. But that’s also when the problems with the banks began to manifest, so after a few months my exchange service wasn’t working anymore, so that became a slow process, but eventually I put that on the backburner. I focused some of my time on doing consultation work to a few companies, right now most notably BitsOfGold and Bitblu, and I spent also a lot of time on activities involving the community in Israel. We recently started establishing the Israeli Bitcoin Association, so we are going to direct a lot of effort into that.

Ron Gross: I’m a software engineer and system architect by profession. I’m a graduate of the Technion university [in Haifa, Israel], and I worked at a few startups, and at Google for half a year, where I learned I don’t want to work at a large company. when I found Bitcoin I was between jobs. In March 2011 I saw a posting on Slashdot of Mike Hearn and BitcoinJ. I saw it was someone from Google, so I was interested; that gave it immediate credibility, and I dug in and saw all the information out there. I immediately understood the big revolution that was going on, I started reading about it and writing on the forums and on my blog, telling everyone I know that they should buy some. Meni and I found each other through Bitcointalk at first-

MR: Actually, I think the first time I heard about Ron, I didn’t know his name was Ron at the time, was because his father was the second customer of my Bitcoin business, and he told me that he has a son who is into technology, so naturally we got together.

RG: So yeah, Meni and I started doing meetups here. The first meetup was Meni, myself and some other person, who left about ten minutes afterwards.

MR: No, he stayed for half an hour to an hour.

RG: Okay. And the first meetup was three people, the next was ten people, and we saw that these meetups kept attracting more and more people, more diverse people, more influential people, all sorts of people really. In these two years Bitcoin has consumed a lot of my time, and at the beginning of 2013 I finally made a decision to do something beyond the community work and giving presentations – I decided to join Meni as a partner to Bitcoil, which was the only Israeli exchange at the time as it was before the big explosion of popularity. I wanted to make sure Israelis have an easy way to access Bitcoin and get into the economy and out of the economy as they wish. A few weeks after we made our agreement, the volume started increasing rapidly, as did the attention by customers and by the banks, and as Meni said we couldn’t find a way to continue operating an exchange in Israel, and after a few months of that I decided that this kind of business was maybe not the right kind of business for me, as we’re too much at the mercy of the banks, and I started looking for other opportunities in the space.

I’ve been following alternative cryptocurrencies for a long time, ever since the first few currencies came up, and I diversified my own portfolio to these currencies whenever I saw an interesting one. There are tons of new currencies; most of them are junk, but a few of them are really innovative. So I have been doing this diversification on my own and I believe that for everyone in Bitcoin today it is better as an investment route to diversify some of their portfolio to these currencies, and so I decided to build a product that simplifies this for the people. And recently a few months ago I started lowering the time I spend in my day job more and more, and maybe one or two months ago I quit, so now I’m fully dedicated to founding Bitblu along with my partner Yuval Bergman, and as Meni said, both of us and a few other people have been founding the Israeli Bitcoin Association and trying to establish a dialogue with the regulators and the banks. One last thing about myself is that I’m also deeply involved with the Mastercoin project; I’m in the board of directors, and I’ve been following the project and supporting it for sometime.

Building Community

VB: Can we talk more about the meetups?

MR: The first one was in August 2011, right after the first conference in New York. It was three people, and then we had one every two months. Until maybe October 2012, it was ten to twenty people each time, and in 2013 it started getting bigger. In January, there were about 120 people, and in March it was 160 people. But then because there were so many people it also took a lot of effort to organize it properly, and we didn’t have so much time because we were occupied with other things, so there was a big pause in the meetups. Finally we figured out that the best thing is to reduce their scope so there are more meetups with smaller capacities. In March we had four lectures and two mini-lectures so there was a lot to do. But now, in each meetup we have one lecture, and we are not setting up too many expectations; we are just saying that there will be a lecture at this time.

We do it now in the offices of Google; they have a whole floor that is dedicated to having people come and give lectures. Google also gives some refreshments, which is nice, and it’s pretty easy to organize. Before that there was also an issue with trying to find the right place for the meetup each time, but now we don’t worry about it. We just go to Google and that’s it, so we can do such a thing every two weeks. Every time we find a lecturer and a topic, and to these meetups between forty and eighty people come, so given the fact that it’s much more frequent it’s still a big group, and in the future in a few months we will a organize a conference here in Israel for the local community, and some time after that we hope to host a global Bitcoin conference in Israel.

VB: What kinds of topics are the lectures usually on?

RG: We have several. We have all kinds of levels of difficulty and familiarity with Bitcoin; the latest one was an introduction to security. Half was basic computer security, and a little bit was about Bitcoin, how to use a wallet and stuff like that. Our technical lecture is going to be about how the blockchain works, that’s the next one, we’re also planning a lecture of about borderless society and what the society will look like when everyone uses Bitcoin.

VB: Are there many connections between Bitcoin and the local math and cryptography community?

MR: Of the ties that are now between Bitcoin and the local academia, the most well-known is Adi Shamir, he is the S of RSA), a famous cryptographer who has been interested in Bitcoin for a while, and recently he and Dorit Ron wrote a paper analyzing the Bitcoin transaction graph. In addition we have Eli ben Sasson, who is a professor from the Technion, and he has done some very interesting research about secure computational integrity and privacy, and he also has some very interesting ideas about how to apply this to Bitcoin. In addition we have Aviv Zohar, who is working with Microsoft Research, and he and a few others wrote a paper a year or two ago called “Bitcoin and Red Balloons“, where they propose a system to incentivize nodes to propagate transactions, and so they have a system where each node that propagates a transaction gets a cut of the transaction fees collected.

VB: What are the biggest reasons why people here are interested in Bitcoin?

RG: There are many really, it’s hard to say which is bigger. I think that maybe the easiest to understand is financial incentive. They hear about it, they see a price chart, they extrapolate, they know where it’s going to be in ten years (or they think they know). Of course, there are those that do the long-term investing, and there are those that buy and sell to make a short-term profit,but in general the financial incentive is there. It’s an interesting market to play at. There are of course the mathematicians and the researchers that come for the complexity of the protocol; there are people interested an an alternative to banks; they know that the current financial system is not stable, and people read about things happening in the United States, in Cyprus, and all around the world, and they’re afraid to keep their money in the banks to some degree.

MR: Israel is known as a very entrepreneurial country, so people are interested in innovations and trying new things. So once they get past the initial barrier of skepticism about Bitcoin, they are very receptive to this innovation. There are also some other quirks about the Israeli mentality which may make them more receptive to Bitcoin. For example, Israelis really don’t want to be suckers or for people to screw them over, so if they feel that they are suckers because of the way the financial industry and the banks treat them, then they will want an alternative.

RG: I would rephrase that as: Israelis don’t like being told what to do. And with Bitcoin you don’t have to ask anyone to do what you want to do, so it’s very appealing.

Bitcoin Business

Vitalik Buterin: What about Bitcoin businesses in Israel?

Ron Gross: I think the first wave was just exchanges. Bitcoil was the first Bitcoin company in Israel, and in the past two or three months we had ten exchanges in Israel. Of course, most of them didn’t work out, but this was the first wave.

Meni Rosenfeld: The first one, Bitcoil, appeared in April 2011 and the next one was about 1.5 years later in October 2012. There was something called Bitcoin Israel, which is run by a mysterious guy in Jerusalem who doesn’t interact much with the community but is doing some good work, and then in 2013 things started to pick up and there were many more. So now we have BitsOfGold and BitGo, the somewhat smaller Bitcoinexchange, and many other wannabes. There is also a local market exchange, Bit2c.

RG>: So this was maybe the first wave of companies. There are a few other businesses. I think there are companies in Israel that are trying to build ASICs. There is my startup, Bitblu; we’re doing diversification into altcoins and mining bonds in one platform. There is a startup that is not really a Bitcoin startup per se, called AppCoin, run by a big Bitcoin fanatic who went to the early Bitcoin meetups when he had time. In his words, Bitcoin is the answer for decentralized currencies, AppCoin is the answer for centralized currencies. They argue that there are still use cases where it’s better to have centralized currency – community coins, local coins, and the like, and they currently have a trial with a few of these community coins, and they’re building a platform for people to set up these coins very easily. There is also CoinPair, Proxycoins.

MR: Maybe we can take a bit of credit for Lamassu. Of course, they are in New Hampshire now, but originally they were from here. Other than that, there is Buy the Way.

RG: Buy the Way is trying to create a sort of social wallet for Bitcoin. Right now there isn’t really a good wallet for Bitcoin. Each wallet has its own limitations and difficulties. They are trying to create a wallet that is easy to use in social contexts – either a friend shopping for another friend or other similar use cases.

MR: there is another thing which isn’t exactly a startup, but it is a Bitcoin initiative which has a lot of support in Israel, which is colored coins. So many of the people who first started to work on it were in Israel, and it gets a lot of support from an Israeli company called eToro, which also itself has some involvement with Bitcoin. It’s a large social investment network, run by Yoni Assia who is a big Bitcoin enthusiast, so they are pushing Bitcoin in general and specifically colored coins, so right now the main developer is Alex Mizrahi from Ukraine, but they also do a lot of support and promotional work, there are some nice promotional videos that they put up, and there is a website, coloredcoins.org, for information.

RG: One more thing that I want to specify is that one of the founding members of the Bitcoin Association is Eden Shochat, who is a senior VC partner who just founded a new VC fund, called Aleph, and while Aleph has not explicitly said that they are or are not looking for Bitcoin investments, Eden is really interested in the subject and is contributing his time and connections to help us.

VB: Is the Israeli Bitcoin community mostly in Tel Aviv or elsewhere as well?

MR: There are people involved in Bitcoin all over the country. Right now, most of the activity happens in Tel Aviv because it’s a big city and it’s pretty central, and most people can get to Tel Aviv. But there are people all over the country, most notably Haifa and Jerusalem, so we also want to do a meetup in Haifa and a meetup in Jerusalem, so people in the north and people in Jerusalem can also come. There are a few Bitcoin users in Jerusalem, and they come to Tel Aviv, but we want to do something exclusive to them.

RG: I’m originally from the Haifa area, and I’ve been wanting to do a Bitcoin meetup there for a year and a half. I spoke there once at a gathering, they invited me to speak there, but it wasn’t a proper Bitcoin meetup. I just haven’t had time.

MR: I’m also originally from Haifa.

VB: What about Bitcoin restaurants?

MR: There are two bars; there is one place that was the first Bitcoin business to accept Bitcoin in Israel, called the Bar Kayma, which is a bar and vegan restaurant. They are also not an ordinary business, but a cooperative owned collectively by each member. There is another bar, October Bar, nearby, and Galabi – Anat’s Place, a restaurant.

RG: And recently just last week I visited a chain of vegan restaurants called Buddha Burgers and I was just asking the owners if they know about Bitcoin. They replied that, yes, they know about it, and lots of people have asked them to accept it. They want to do it; they just need to prioritize among all the different activities that they have, but it’s on their roadmap.

MR: Another interesting thing, there is a chain of food delivery places and they are working on integrating Bitcoin payments. Some of the details are still confidential, but they have a few hundred merchants working with them, so when they decide to launch it will be significant.

VB: To wrap up, what do you see in the near future of the Israeli Bitcoin community?

MR: So far the plan is to get the Israeli Bitcoin Association much more established formally. Right now we have been working on how to define the structure and the way accounting is done, so we want to finish that. Then we can continue to work on our two main agendas. One is the main dialogue with the authorities and the banks to try to find a solution so that the people in Israel who want to do something about Bitcoin, whether they want to buy bitcoins or make a startup, will be able to do that. The other thing is to continue with the education initiatives, have more meetups, lectures, conferences and so on, improve our community further with information and new users, and we are also planning on some other outreach initiatives such as radio ads, promoting Bitcoin as so on, so it will be a lot of work getting people to know about it and do something with it.

In the next part of this interview, we will talk about the upcoming pinnacle of Israeli Bitcoin community organization, the Israeli Bitcoin Association.

Yesterday, an exciting partnership was created that would enable the creation of the largest Bitcoin marketplace to date – BitDazzle. The collaboration between Cashie Commerce and Coinbase will make it possible for any small business to maintain an online marketplace, while reaching an exponentially growing population of Bitcoin users. The breakthrough means big things for the online marketplace.

 How Bitdazzle works:

BitDazzle works the same as any online marketplace. When you visit the site, the consumer will unveil a vast marketplace of digital and physical goods. Consumers search products and complete transactions within a simple to use interface. What sets BitDazzle apart from the competition is the breadth of products available within the online marketplace.  Completing any transaction takes minutes and shoppers can choose to pay via Bitcoin, through using Coinbase, or through PayPal and credit card.

You don’t have Bitcoins?

Simply sign up for an account on Coinbase directly from BitDazzle and from there you are just minutes away from completing your transaction!

BitDazzle has created an equally simple experience for merchants. In order to list your products you must “open a store.” A seller will complete a short form and be able to list their products for free immediately. Want to sell your products on your website? Through BitDazzle’s partnerships, every merchant can also sign up through Cashie Commerce and create an online shopping cart to post on their personal website, Facebook, and mobile device.

BitDazzle has a vast amount of benefits for merchants and consumers around the world. The partnership with Coinbase and Cashie Commerce enables merchants to sell anything, whether it is a physical or digital good. Through your Cashie account you can manage multiple stores from anywhere in the world. Most importantly, we provide the tools to help you refine and develop your business and increase your sales.

A Breakthrough for Bitcoin

The recent unveiling of BitDazzle, along with the partnership with key industry leaders will increase worldwide adoption of Bitcoin. Brian Armstrong, CEO of Coinbase, stated;

“There’s no denying that the breadth of products available for purchase using Bitcoin has been geared toward an early-adopting customer. We’re excited our two companies are working together to expand the pool of merchants that transact with Bitcoin. BitDazzle signifies a shift in the landscape wherein Bitcoin goes mainstream.”

BitDazzle will launch with more than 100,000 products available for purchase using your hard-earned Bitcoins. Additionally, the company will be partnering with non-profits, making it possible for the philanthropically inclined to donate using Bitcoin to causes such as Children With Hair Loss.

BitDazzle is a giant leap forward in the Bitcoin community. The coming months will show us just how much of an impact it will make.

In the first part of this series, we discussed the Bitcoin Alliance of Canada, a Bitcoin association focused on the needs of Canadian users that has seen rapid growth since it was originally founded in April this year. The Bitcoin Alliance of Canada’s main distinguishing feature is its highly democratic organizational structure; unlike most other national organizations, the board of directors was chosen by a selection committee that anyone in Canada had the opportunity to participate in. In the first part of this series, we talked about what the Alliance is, how it was formed and what distinguishes it from other Bitcoin organizations. Here, Anthony Di Iorio shares his thoughts on how and why he founded the Bitcoin Alliance of Canada, and what the future of both the Alliance and the Canadian Bitcoin community as a whole might bring.

Vitalik Buterin: Talk about who you were before Bitcoin.

Anthony Di Iorio: My schooling was in marketing and business, but I’ve always had a passion for Computers and technology I worked in my family business, which was a sliding door manufacturing company, until it was sold in the mid-2000s. In 2007, I got into green technology; I started a geothermal drilling company, and I did that for a couple of years; it was successful, it did well. It involved drilling holes hundreds of feet deep into the earth to heat and cool buildings using the Earth’s temperature. I got out of the operations and pushed the drilling off to another company, that continued doing the drilling work, allowing me to free up my time. At this time, I also had some rental properties, but due to what is in my opinion the imminent collapse of the housing market in Canada, I sold the properties. Looking for investments, I first heard about Bitcoin in the middle of last year and soon fell down the rabbit hole. It has enveloped me ever since. A month after that, I started the Toronto Bitcoin community meetup group.

VB: So what happened next?

ADI: At that time Butterfly Labs was announcing their miners, and I made a decision of whether or not I would get involved in mining, but I decided to invest into Bitcoin instead. I didn’t like Butterfly Labs as a company; that involved their attitude, customer support and how they were treating their customers, and I decided that it was just not a company I wanted to work with. I follow mining a little bit, but it’s not something that I really got involved in; there was just so much other stuff going on, it’s hard to get involved with everything. I invested a sizable amount into Bitcoin when it was at $10, I started the meetup group, then created SatoshiCircle (which we’ll discuss in the 3rd part of this article), then I founded the Bitcoin Alliance of Canada. From then on everything that I’ve done has been Bitcoin-related full time. Now, after selling SatoshiCircle a few months back I’m fully committed to the Alliance and building Bitcoin communities.

VB: Could you explain how and why you created the Bitcoin Alliance of Canada?

ADI: This was all during the media frenzy in April, so seeing the interviews that were going on on national TV in Canada I really felt that there was a lack of proper representation of Bitcoin, a lack of good quality people to talk to media and promote Bitcoin, and that’s where the concept for the Bitcoin Alliance of Canada started. And from there, our goals expanded.

My concept for the Alliance was a nonprofit organization of Bitcoin enthusiasts, volunteers that were interested in coming together to represent Bitcoin in Canada. In April I put out a press release making a general call for anyone that wanted to get involved. Over the next two to three months I communicated with hundreds of people across Canada. After a few more press releases and a last call for involvement, it was time to put together the board of directors. Through input from the community, it was decided that two groups would be commissioned: one group of board applicants, and another group to serve as an independent board election committee. Of the thirteen applicants, seven board members were ultimately elected by the fifteen-member election committee. Having applied myself, I became a member of the board.

The structure of the Alliance is key. It’s a bottom-up approach that I feel is the best model to approach community building. It’s a longer approach that’s cautious, as you’re not just announcing your plans fully formed and dictating everything to the community, but I believe it’s one that everyone can be happy with at the end.

VB: What’s the Alliance’s status on its negotiations with the Bitcoin Foundation?

ADI: Because we’re so well on our way to developing this national organization, with directors, committees, legal counsel and accountants already onboard, we were asked by the Foundation to take part in their international chapter/affiliate program as a test model. I spoke with Jon Matonis and had a lengthy talk about what his vision was for the Foundation. I laid out our background and our thoughts for the Alliance. In the end out board decided that, although our board would like to work with the Foundation, we need to continue to push forward independently for the time being. We believe the proposal from the Foundation is not developed sufficiently at this point, and would hold us back for a period that we’re not willing to commit to.

VB: What point is the Bitcoin Alliance of Canada at right now?

ADI: We have a seven-member elected board, and nine committees each run by a board member. We have an official legal counsel and two accountants. All of us are working pro bono in a volunteer effort. I’ve been elected Executive Director by the board, and I’m committing myself on a full-time basis to this role. I work with many leaders on a day-to-day basis; currently we are adding advisors and expertise to our committees, developing our membership structure and building towards our official public launch next month. We’re also at a point where we’re encouraging other national leaders to contact us for assistance or to just share our resources and help any national group get off the ground. If this sounds interesting to you, feel free to contact us.

[Di Iorio makes himself available by email at adiiorio@bitcoinalliance.ca]

VB: How do you feel about the current and future state of Bitcoin business in Canada?

ADI: There is definitely a growth of Bitcoin businesses in Canada. We’re seeing meetup events specifically focusing on Bitcoin businesses, entrepreneurs and merchant services. We have CaVirtex, the largest exchange in Canada,developing their own BitPay-esque merchant services. They’ve hired salaried employees to go signing up merchants, so that’s a big step. One of our board members is involved in CaVirtex, and he is running the merchant committee in the Alliance as well. The Alliance is working with CaVirtex, and we intend to reach out to all Bitcoin businesses, listen to them, and see how we can assist them in developing the Bitcoin ecosystem.

It’s important to get brick-and-mortar businesses onboard with Bitcoin; this will be a focus of the Alliance. I believe you want to target people that are technically inclined and want to be leaders in their industry; those are the types of people that are going to be the most receptive to Bitcoin, I think. What we need to let business owners know is this: there is a huge press opportunity for you to get involved, it’s free to set up, and you can pay lower fees compared to traditional credit card and debit card purchases, so there will be an opportunity to pass along savings to customers. You don’t need to be a speculator in Bitcoin; you can transfer your Bitcoin revenues to dollars in your bank account as frequently as you would like. There is very little reason not to accept Bitcoin if you are a merchant or business owner today. Heck, my lawyer accepts Bitcoin, and my accountant accepts Bitcoin, so there are people out there.

Hey, we’re still very early. We, me, you, the people at the conference are building this foundation of grassroots enthusiasts. How long will it be before large corporations and banks are getting involved? From the circus of things, it looks like banks are trying to shut things down. My long-term view is the opposite of that. As old-school as many banks are, it’s only going to take a couple forward-thinking institutions to realize that Bitcoin is the future and get onboard. I believe the mining space will be a target, as will the exchanges. It will be an arms race in the next few years as banks from around the world start trying to control the means of production in the mining space, and the means of transaction, which are exchanges. We in the grassroots level must do our best to develop communities, develop collaboration, and develop cooperation. We have to efficiently develop local, national and international cooperation, yet ensure that along the way you’re still promoting independence and decentralization. It’s these groups that will educate the public and counteract potential corporate takeover. That being said, I’m very optimistic of the future of Bitcoin, and even more optimistic of the future of cryptocurrency.

VB: Canada has often been praised as a particularly Bitcoin-friendly jurisdiction, with the Canadian anti-money-laundering agency FINTRAC telling Bitcoin exchanges that they do not need licenses. What do you think is the regulatory future of Bitcoin?

ADI: I think we are considered lenient right now, but I think that it’s going to eventually be controlled by what the banks want. And I think being in Canada we will need to listen a lot to what’s going on in the US, as we have a tendency to follow our southern neighbors. I think the Canadian government and regulatory bodies are taking a “sit back and wait” approach right now in terms of regulation, but I don’t see that lasting very long. I don’t want people to get over-optimistic about what’s going on in Canada at this point; Stu Hoegner, our legal counsel, has the same kind of thinking, which he relayed at the London conference. That being said, many people think Canada is a great place to start a Bitcoin business right now. We’ve had talk with American companies that are thinking of starting operations over here; in my opinion the US isn’t looking very welcoming to Bitcoin, which is unfortunate. However, countries that are welcoming any type of businesses in emerging technologies are going to be reaping the rewards in the end.

See also: part 1 and part 3 of this series.

Baidu Jiasule (“Baidu Accelerated”), a Cloudflare-like service offering a website firewall, protection against distributed denial of service attacks and other similar features, has started accepting bitcoins as payment. The Bitcoin payment option is currently manual, with the main site telling its users to contact a phone number if they need to pay with Bitcoin, but this is nevertheless the first instance of a major Chinese site accepting payments in Bitcoin. The news is particularly significant because of the connection to Baidu, a site which is often seen as a Chinese equivalent to Google, offering, among dozens of other less prominent services, a search engine, an encyclopedia and a large collection of music and movies. Baidu Jiasule is only one of the services that Baidu offers, and was only acquired by the company in August, so the reality is somewhat less game-changing than if Baidu as a whole has announced that it was integrating Bitcoin into all of its products, but this is nevertheless significant; Jiasule is a formal subsidiary of Baidu, so it is very improbable that the decision to accept Bitcoin had been made completely unilaterally by the Jiasule team without some kind of approval from its parent company.

Over the past few months, the Chinese Bitcoin economy has been growing very rapidly. China made its first sudden appearance on the Bitcoin stage in April, when the country became the first to overtake the United States in the number of Bitcoin-Qt software downloads; the country maintains second place on that particular chart to this day. At the same time, the One Foundation, the largest independent charity in China, started accepting Bitcoin donations, and received $30000 in BTC within two days from a combination of a large single donation by leading Chinese Bitcoin exchange BTCChina and many independent contributions. Soon after that, Bitcoin was featured in a half-hour broadcast on Chinese state television, where it was treated in a surprisingly positive light. The Chinese government itself has made absolutely no comments on the legal status of Bitcoin or its regulatory intentions. Attention on Bitcoin in China dwindled somewhat after this initial hype, but the community remained.

Now, three months after those original events, signs of Bitcoin’s growth in China are evident. There are now no less than ten Chinese Bitcoin exchanges listed on BTCKan.com, a Chinese equivalent of Bitcoincharts, and there are likely even more that are simply too small to be listed. The most prominent one, BTCChina, has almost as much trade volume as MtGox or Bitstamp, with over 20000 BTC sold in the 24 hours before the time of this writing. Of the other Bitcoin exchanges, the leaders include 796 (9300 BTC), OKCoin (7200 BTC) and BTCTrade (5300 BTC). The largest one in volume is BTC100, with over 35000 BTC traded in the past 24 hours – more than MtGox or BitStamp.

However, these figures do need to be understood in context. The five largest exchanges listed above all either have zero fees or some kind of rebate program, where a large portion of trading fees are returned to customers via some kind of reward point mechanism. BTCChina, OKCoin and BTCTrade have zero fees; BTC100, on the other hand, has a 0.3% fee, but also has a system of “bonus points”, where every 16 BTC traded on the exchange entitles the user to receive one “bonus point”, which is functionally similar to a stock except without formal ownership or voting rights. Similar to Bitcoin’s exponentially decreasing currency issuing model, the number of bonus points awarded will go down over time, leveling off at at a maximum of one million. The one million bonus points together entitle their holders to 30% of BTC100’s revenues, and the bonus points themselves can also be traded at no fee on the exchange.

Currently, each bonus point goes for about 0.0244 BTC, giving BTC100 a total market capitalization of 0.0244 * 1000000 / 0.3 = 81300 BTC, or $11.8 million USD. If one sells all of one’s bonus points immediately upon receiving them, this amounts to a rebate of 0.15%, bringing BTC100’s de-facto fee to a low 0.15%. The third highest-volume exchange, 796, has a similar program. Such low fees are ideal for high volumes of speculation and day-trading, so the actual level of interest in Bitcoin in China is somewhat less than these artificially inflated figures imply – although China is certainly nevertheless a force to be reckoned with.

Why Bitcoin?

Why do so many Chinese people care about Bitcoin? First of all, in some metaphorical sense, virtual currency is in Chinese internet users’ blood. Tencent QQ, a Chinese company which can perhaps be most closely identified with the American Yahoo (or at least as Yahoo was in its heyday in the early 2000s), released a virtual currency called Q Coin in 2007; Q Coin became extremely popular in all sort of online applications including social media and e-commerce, but was eventually neutered by the Chinese government. As far as its user experience goes, Bitcoin, being a digital currency, is very similar to Q Coin, so Bitcoin comes naturally to Chinese users in a way that it simply does not to many people in Europe or North America.

But as far as actual uses are concerned, the culture in China is rather different from that in Europe or the United States. The most obvious proof of this is the difference in the two countries’ reactions to Silk Road. When the Silk Road went down at the beginning of this month, the Bitcoin price on nearly all English-language exchanges went down fast. MtGox sank from $140 to a low of $110, Bitstamp from $127 to $85 and BTC-E from $123 to $75. BTCChina, on the other hand, hardly budged, sinking from $770 to $680. “Most Chinese Bitcoiners believe that Silk Road going down is a good sign in the long run,” Chinese Bitcoin user Red Li explains. Drugs are unpopular in Asia in general; cannabis, cocaine and ecstasy show universally low usage in east and southeast Asia compared to the Americas and Europe, although amphetamines and opiates are more ambiguous, and all drugs with the obvious exception of alcohol are much more frowned upon by both governments, with many countries having a death penalty for serious or even moderate cases of drug trafficking on the books, and society in general. That is not to say that Bitcoin is all about drugs in Europe and the United States; in fact, it actually shows that Bitcoin has strong merits without any connection to illegal substances, or the idealistic motivations behind anonymous crypto-markets, whatsoever, and it is precisely the other applications of Bitcoin that the Chinese Bitcoin community is focused on.

Rather than ideological motivations, the main driver for Bitcoin use in China is much more mundane: the search for profit. A large portion of Bitcoin mining hardware development takes place in China, and a number of major ASIC companies, including ASICMiner, Avalon reseller Asicme, TMR and BTCGarden are located there. Additionally, Red writes, “Chinese people may treat [Bitcoin] as an speculation tool.” Red himself originally got into Bitcoin for this reason, although his role in the Bitcoin community has now grown beyond just that. “But when I dug into the whole cryptocurrency thing,” Red writes, “[I saw it was] a brilliant idea and probably the most innovative invention. Then I realized that to protect and preserve the value of BTC applications must be developed. Right now, what I am doing is spreading the knowledge about BTC so that peoplecan accept it. Merchants will not take the risk unless their customers ask for it. That’s basically how I changed my mind; speculator into promoter?”

The path that Red has followed in many ways mirrors that of the Chinese Bitcoin community as a whole; over the past few months, a disparate group of internet users interested in profiting from the speculative potential that Bitcoin and mining have to offer have started to put together the trappings of a genuine Bitcoin community, with regular meetups in a particular coffee shop in Beijing (as well as events in other cities), community news websites and forums. The first merchant accepting Bitcoin was the online store IWannaBuy, which accepted Bitcoin since April, and getting more and especially more mainstream Chinese merchants to start accepting Bitcoin is a major community priority. With that in mind, Baidu Jiasule may be the Chinese community’s first major success.

What can Bitcoin do in China aside from serving as a medium of speculation? The possibilities are plentiful; “e-commerce, crowdfunding, getting rid of bankers,” Red Li writes, to name a few. Charity is currently not particularly popular in China, but this may change in the future; environmentalism, for a long timea luxury of the west, is making massive inroads on all levels of society as people get wealthier, so the same thing may happen to charity as well. If that happens, Bitcoin may be an excellent tool for charities to get funding, if the success of Sean’s Outpost is any indication. And even if Bitcoin’s main role will be as an object of speculation, there is nothing wrong with that; the Chinese government currently has the sixth largest gold reserves in the world, so if Bitcoin becomes a replacement to gold for this function the potential upside for Bitcoin is massive. The Asian Bitcoin community as a whole, including China, Singapore and perhaps one can even include Australia, is expected to make its first major public appearance at the Bitcoinvention, a conference in the Philippines in February 2014. Until then, the Chinese Bitcoin story may yet have a long way to unfold in the coming months.

Canada has been relatively quiet for most of Bitcoin’s history. The United States has been onboard the Bitcoin train almost from day one, with over half the core development team from the country, and in 2011 and 2012 Europe too started to pick up steam. We saw Bitcoin Central become the first exchange to secure an agreement with a licensed payment services provider in France, bitcoin.de announcing a very similar deal in Germany, conferences in London and Amsterdam, and Bitcoin interest is even growing in China. Meanwhile, Canada only had its first Bitcoin meetup groups outside of a small pocket of interest in Vancouver from late last year, and even today the Bitcoin restaurant fever has only hit the western part of the country with businesses in Vancouver and Edmonton.

Beneath the surface, however, Bitcoin in Canada has grown rapidly over the past twelve months. The Toronto Bitcoin meetup has gone from being nonexistent to having over twenty people show up every time, a year after the first Bitcoin meetup in Montreal the city now has its own permanent Bitcoin Embassy, and other Bitcoin communities are springing up in cities from sea to sea. In fact, Bitcoin Alliance of Canada founder Anthony Di Iorio believes, the level of organization of the Bitcoin community in Canada may be more advanced than in any other country aside from the United States itself. At the conference in Amsterdam, I had a chance to sit down with Anthony Di Iorio, the founder of the Toronto Bitcoin meetup group and the recently announced Executive Director of the Bitcoin Alliance of Canada, and talk with him about the developments that have been going on with regard to formal Bitcoin organizational development both in Canada and abroad.

But what is the Bitcoin Alliance of Canada? As Di Iorio describes it, “the Alliance is a non-profit national organization dedicated to raising awareness and adoption of bitcoin in Canada, to promoting Canadian participation in international bitcoin efforts and furthering study and research in bitcoin and other virtual currencies” – in short, a sort of miniaturized Bitcoin Foundation focused on the specific needs of Canadian Bitcoin users. The organization first started in April 2013, when Di Iorio came up with the idea for the Alliance and put out press releases inviting anyone from around the country to join. The results were impressive. “Over the next two to three months,” Di Iorio writes, “I had hundreds of people contact me from across Canada, I put out a couple more press releases to let people know what’s going on, I put out one final press release as a last call, and then I sent out a group email letting those who responded know that we’re going to start the process now to select the board of directors.”

Democracy in Canada

What is unique about the Bitcoin Alliance of Canada, and the reason why Di Iorio is so confident in the organization’s merits, is this: it is the only large-scale Bitcoin organization so far whose board of directors was democratically elected right from the start. Di Iorio invited anyone from the country to apply as a board member or join the selection panel (one could not be part of both), and gave ample opportunity for replies with multiple press releases over a three-month period. Di Iorio himself applied for the position of board member just like anyone else. No other country has done this; even in the Bitcoin Foundation itself, the original members selected themselves in a top-down manner, and only recently did the first actual election took place, bringing in Elizabeth Ploshay as a new individual member and Meyer Micky Malka as a business member representing the Silicon Valley venture capital firm Ribbit Capital. Even then, however, the two new members were both from the United States, and Di Iorio believes that this is essentially the result of a feedback loop. Because the original board of directors was from the United States, the group positioned itself to be more attractive to American Bitcoin users, which in turn led to American board members being elected. “In my opinion,” Di Iorio summarizes, “they were structurally flawed from the start, and in turn this skewed the membership very early on”.

The basic structure of the Alliance is as follows. The Board of Directors contains seven directors, including Di Iorio himself, all of whom, at this point, were chosen by the selection panel in June. The number seven was chosen arbitrarily, and is flexible; the organization’s charter allows for five to nine directors at any time. Currently, five provinces are represented in the board: Ontario, Nova Scotia, Quebec, Manitoba and Alberta. There are also nine committees, each one charged with a different aspect of the organization: membership and fundraising, accounting and audit policy, legal and regulatory matters, organizational bylaws, media relations, the website, merchant and commercial relations, conventions and technical matters. Each committee is led by a board member, with some board members leading two committees to make up for the fact that there are more committees than there are board members. The organization also has a legal counsel, Stuart Hoegner, a gaming, tax and virtual currencies attorney practicing in Toronto who has spoken about Bitcoin regulatory matters at a number of conferences. Within each committee, the committee leader is tasked with identifying the specific purpose and strategy of the committee, and seeking out advisors and other volunteers to participate in the committee with them. The board of directors meet once a month, with Di Iorio himself coordinating efforts between committee leaders and committee leaders presenting reports on a monthly basis.

The coordination between Di Iorio and the committee leaders between the board meetings is crucial, Di Iorio explains. At the end of every board meeting, the board members decide who they will be in communication with and what their goals are for the next meeting. Between the meetings, the committee leaders go off to do their own work, but Di Iorio nevertheless maintains constant contact with each and every one of them. “We have a combined commitment of 80-90 hours per week,” Di Iorio states, “[We are] physically meeting, [we have] communication on Skype, we are meeting in Google Hangouts all the time, frequently … it’s so much easier to talk to people directly and get their agreement and get consent for what’s going on with the board.” Originally, the Alliance simply relied on a forum for communication between members, but the system quickly proved inadequate for managing an organization of any size; now, Di Iorio finds that through constant personal interaction they are “able to get much more done than over a forum system where we relied on people responding days apart.”

Aside with the structural flaws of the Bitcoin Foundation, there are also other concerns about how the Bitcoin Foundation is handling itself, particularly with regard to its effort to become a more international organization. Some in the Foundation see its efforts at trying to get organizations in other countries to sign on as national chapters as a genuine attempt at diversification, but the opinion in other parts of the world is different; in fact, what many Bitcoin users see is what is essentially an American organization expanding out into the world much like a megacorporation, or even a neo-colonial empire. During the conference in Amsterdam, a group of prominent national Bitcoin leaders discussed the issue in depth, and all agreed on what they saw was an inescapable conclusion: that the Bitcoin Foundation is a hopelessly American-dominated organization that is inherently structurally flawed, and any serious effort to change that reality must start from the outside.

Anthony Di Iorio is very conscious of both of these concerns. “Internationally,” he says, “one of our goals was to give a blueprint for other countries to start up an organization independently, saying ‘look at what we’ve done, if you like the way we’ve done it, take our model, and go at it. The people I’ve spoken to here in Europe hadn’t considered the whole option of separating voting and board of directors, and I think that’s key, because the main thing I learned from the foundation was that you can’t just dictate who are are off the bat; you have to get some type of group involvement, some type of callout, and I hope that people in Europe and in other regions take that back and consider it, because with what what I’ve seen with some of them they want to duplicate what the Foundation has done but in Europe, whereas I think you need a global system of representation, and not just a European one.” Ultimately, Di Iorio envisions, a charter for Bitcoin organization should be developed, similar to how Green Party organizations around the world are organized under the Global Greens. “A charter,” Di Iorio writes, “a very loose-fitting international charter that any organization can agree with.” Within Canada itself, Di Iorio points out, there are burgeoning Bitcoin movements in Vancouver and Montreal – ones that could even be considered larger than that in Toronto. “As we’re building up the Alliance,” Di Iorio says, “we’ve got to take into consideration other organizations that are starting up or other people that want to get involved. You can’t dictate, you have to leave room for other strong organizations, and you have to work together.”

What’s Around the Corner

The next step for the Bitcoin Alliance of Canada will be the organization’s official public launch next month. During the launch, Di Iorio intends to unveil the organization’s new website, based on the NationBuilder platform popular among political campaigns and community organizations in North America and abroad. Second, and more importantly, the launch will be the time when the Bitcoin Alliance of Canada formally announces its membership structure. Details are still very much open to discussion, but the general consensus is around a tiered membership system, with a free level of membership open to everyone and a paid tier with special privileges such as access to an exclusive forum, voting rights and conference discounts. The free tier too will have its perks, including likely some discount to conferences and an internal forum, although they will not be as impressive as those provided to paying members. “Our goal is to get numbers,” Di Iorio explains. “When we are dealing with government regulators or banks we want to be able to represent a large number of people that are involved with digital currencies. We also want people to feel that they can get involved without breaking the bank.”

All throughout the organization’s development, transparency has been, and will continue to be, key. The Bitcoin Foundation was announced to the Bitcoin community fully formed, with the full structure already in place. The Bitcoin Alliance of Canada, on the other hand, has taken great care to make every step as open and accessible to public input as possible; here, Di Iorio is literally announcing that the Bitcoin Alliance of Canada is going to be announcing its membership structure. This is all with good reason; by putting out many press releases and explaining what the progress of the Alliance is at every step, Di Iorio hopes that he can avoid the mistakes that he sees in some other Bitcoin organizations and create an organization that all Canadian Bitcoin users can feel is truly theirs.

From there, the organization’s medium-term aims are simple; get more people participating. “We are volunteer Bitcoin enthusiasts that want to see this succeed,’ Di Iorio explains. “Whether you are a graphic designer or web developer, we are looking for all types of people. We could have ten people in each committee. We have an accountant who is good with non-profits, but we could also have an accountant who is good at something else.” Aside from building up the committees and filling in the various advisory roles, Di Iorio also has a number of specific interests. A particular focus is charities; Bitcoin charities, he believes, are under-represented in Canada given the potential benefit that the charity sector can receive from Bitcoin. “I have a keen interest in charity strategy,” Di Iorio says, “the best way to advance Bitcoin is to get charities onboard.” Aside from that, Di Iorio would also like to get into closer contact with the various Bitcoin meetup groups around the country, continue to maintain personal contact with organizational Bitcoin leaders, and help ensure that all of Canada is represented in the Alliance. In any of these areas, Di Iorio is always glad to receive help; anyone interested in participating should feel free to email Di Iorio himself at adiiorio@bitcoinalliance.ca.

In terms of the Bitcoin community in Canada as a whole, there are a number of interesting developments in store. There are now an increasing number of Canadian Bitcoin businesses out there; Coinkite, a company coming out with a Bitcoin debit card, merchant terminal and online wallet, is based in Canada, as are the Bitcoin meta-exchange bex.io, the more traditional Bitcoin exchange and now merchant processor CaVirtex and the “Bitcoin gift card” seller Cointap. The Canadian Bitcoin community also has its own increasingly popular forum, coinforum.ca. One group that has received a substantial amount of media attention has purchased five Robocoin Bitcoin ATMs and intends to place them in five cities across Canada; the first will soon appear in a coffee shop in Vancouver, followed by another in Toronto.

Another city that particularly stands out in the Canadian Bitcoin scene is Montreal. The city was the first in the world to announce a Bitcoin embassy, a 1400-square-meter space that will be used as a central hub for Bitcoin activity in the city. People curious about Bitcoin and merchants interested in accepting it will be able to go there and find help, and Bitcoin developers are already using the space as a workplace. There are plans to create similar embassies in other areas.

In Toronto itself, merchant adoption has been slow. Although the local Bitcoin community is certainly growing, with roughly 20-30 people attending every twice-monthly meetup and a record of 60, there are still no grocery stores or restaurants accepting Bitcoin in the city. However, that does not at all mean that the progress is not there. CoWorkingSpace, a large 1400-square-metre workspace where anyone can rent a desk, cubicle or office and work and interact with people from different companies during breaks, has been accepting Bitcoin for six months. There are also many individuals who accept Bitcoin in Toronto, including accountants, lawyers, an army surplus sellers, and plenty of online retailers accept Bitcoin as well; they may not have publicly accessible storefronts that Bitcoin users can point to on a map, but they are part of the Bitcoin community nonetheless.

And even brick and mortar stores and restaurants will soon come as well. CaVirtex, the leading Canadian Bitcoin exchange, has recently unveiled its own BitPay-style merchant services platform and the company has now also hired salespeople with the sole objective of signing up merchants to accept Bitcoin. With a growing startup culture in Toronto and the nearby town of Waterloo, both known for having the two best university computer-science programs in Canada, and the surprisingly strong communities in Montreal and Vancouver, Canada may be well on the path to being a Germany-scale Bitcoin hotspot in its own right.

See also: part 2 and part 3 of this series.

On Saturday, October 6, Cathy Reisenwitz spoke on why a free society needs free money. Cathy serves as a D.C.-based writer and political commentator, working at Reason Magazine. She is Editor in Chief of Sex and the State, is a Young Voices Associate and writes regularly for Doublethink magazine and Thoughts on Liberty. Her writing has appeared in the Washington Examiner, the Daily Caller, the AFF Free the Future blog, the Individualist Feminist, and Penelope Trunk’s Brazen Careerist. One of her passions is investigating the role of Bitcoin social evolution. Cathy’s talk follows.

Cathy Reisenwitz: “Why a Free Society Needs a Free Money”

Saturday, October 6- Atlanta, GA

It may seem weird to begin a talk at a Bitcoin conference with a review of the scientific method. But I feel like if there were any audience outside the sciences who would at least tolerate that, I think it would be this one.

And the reason I think that is that everyone here, and everyone who plays with Bitcoin is a scientist, and we’re all participating in a great experiment.

We all know what an experiment is. We form a hypothesis and test it. But, simple as it is, the experiment is the best way to attempt to verify what we think we know about the world.

And the world includes currencies.

It may seem weird to say it, but I believe it would be impossible to overstate the importance of the invention of money to prosperity. By making trade easier, currency fosters the innovation necessary to create wealth.

So it’s a pretty important thing to understand. And to learn about currencies, we have to formulate theories and test them.

There are two ways to run experiments with currencies.

First, governments can, and do, experiment with monetary policy. When it comes down to it, the leaders of the Weinmar Republic were just running an experiment.

We’ve seen the consequences of this kind of experimentation. At the worst end you have Germany, Chile and Zimbabwe. Not far from that you have the troubles with the Euro, from riots in Greece to the money grab in Cyprus which prompted the latest Bitcoin boom. Then you have what we’re seeing in America, which is the long, slow erosion of wealth and savings through a steady stream of monetary inflation.

Not only does inflation slowly eat away at individual wealth, but it also disincentivizes savings. And without savings, there’s nothing to invest. So then without real savings, investment requires more quantitative easing, which begets more inflation, and the cycle continues.

On the other hand, individuals can experiment with new currencies themselves. In this case, fewer experimenters lessens the fallout of a hypothesis not supported by the evidence. In addition, instead of creating victims like government experiments, everyone participating in these experiments is a volunteer.

This, in essence, is Bitcoin. And this is why we’re all here.

Like good scientists, you came to Bitcoin with questions. Each one of you got here by first asking a question or two about currency. Each person wanted to know something slightly different, and for different reasons. Can an online currency offer anonymity but still be trustworthy? Can a free-market currency keep or increase its value? Can I trust an algorithm to limit inflation? Will an online currency lower transaction costs? Will it allow retailers to avoid paying credit card and debit card fees? Will wildly fluctuating value make an online currency unusable? Then many of you read up on the problem you wanted to solve in order to decide whether and how to use Bitcoin to try to answer these questions.

Then, you used Bitcoin to experiment. You saw what happened. And you wrote about the results. You Tweeted about them. You made MOOC courses about them. You created conferences, all to share with the world all the incredibly valuable information you were learning about currency.

And yet, even though these experiments were completely voluntary. Even though they yielded incredibly useful knowledge. Even though you’ve been incredibly generous in your sharing of that knowledge. Some people have tried to keep you from experimenting.

One Bitcoin user created an exchange which completely solved the problem of violence in the drug trade. He created the eBay of narcotics, and in doing so he replaced broken kneecaps with bad user reviews. Instead of armed robbery, he made sure the Bitcoins weren’t released until the goods arrived. Now his invention has been forcefully seized, all his customers have been dumped back on the streets, and in the process they’ve more Bitcoins than ever before.

Before that, they’ve seized the assets of your exchanges. They’ve intimidated your non-profits with threatening letters. They’ve threatened to tax you. And they’re looking into ways to regulate you.

Governments try to control currencies. With all that power, shouldn’t they seek to learn as much about them as possible? Why would anyone attempt to kneecap thousands of unpaid, volunteer experimenters, who are constantly sharing with the world what we’re learning about how money works? It’s very odd.

It’s almost as if they’re more interested in making sure they control the experiment than in learning as much as they can.

Which is unfortunate. Because when used right, trustworthy, flexible currencies facilitate investment, innovation and, ultimately, prosperity. And when misused, they bring ruin, stagnation and poverty. Figuring out how to use money is incredibly important. Much too important for us to let petty politics, turf wars and prohibition stop progress.

Earlier, I called you all scientists. And like all scientists, you need your materials, your variables and your constants in order to experiment. But that’s not enough. You also need the space and freedom to experiment. That’s what’s threatened by taxation, regulation and intimidation.

My purpose here is to first emphasize the importance of what you’re doing with Bitcoin. I truly believe you are early pioneers who are ultimately making the world a richer place.

But then I also want to motivate you to join me in fighting for the freedom to continue doing it.

Because it’s truly up to us, to the people who understand what this knowledge can do for the world, to fight for the freedom to find it. Please, join me in the fight to keep Bitcoin free and legal.

Thank you.

This past weekend, several hundred individuals gathered in Atlanta, Georgia for the first annual Crypto-Currency Conference. Attendees spanned from various states in the US and even nations around the world. Some of the highlights of this conference were a Friday evening reception at BitPay Inc’s Atlanta office, a keynote address by Jeffrey Tucker, Executive Editor of Laissez Faire Books, and time for attendees to network and share projects and ideas.

I had the privilege of attending the conference and found that perhaps the most impactful time was the networking opportunity for members of the Bitcoin community and those interested in learning more. In between the various speakers, dialogue included projects in the works, and discussion of decentralized solutions to the various centralized problems our society faces today. Bitcoin Magazine had a table and sold copies of current and past issues.

Jeffrey Tucker opened the conference with a discussion on Bitcoin as, “A New Currency for the Digital Age.” Tucker shared of his first encounter with the Bitcoin currency and how he no longer is skeptical but supportive of the potential of a digital, decentralized cryptocurrency. As the conference pulled in a larger Libertarian constituency, the discussion was taken beyond Bitcoin to address the needs of free societies for decentralization. Michael Goldstein, co-founder of the Mises Circle, addressed how Bitcoin is a technology sparking a movement beyond just money. Cathy Reisenwitz, DC-based writer and political commentator, based her discussion on “Why a free society needs free money.” Daniel Krawisz appealed to Libertarians and made a case for the need for Libertarians to understand Cryptography. To address doubts students of the Austrian School of Economics may have of Bitcoin, Peter Surda emphasized that Bitcoin is sound money and carries just as much or more validity than gold. Tuur Demeester, author of MacroTrends, spoke on Bitcoin and the end of collectivism.

 From a business standpoint, Adam B. Levine, Editor in Chief of Let’s Talk Bitcoin, addressed, “Doing Business with a Rising-Value Currency,” and moderated a panel with Tony Gallippi and Stephen Pair of BitPay and also Charlie Schrem of BitInstant. Stephen Pair highlighted how Bitcoin is not the first crypto-currency but perhaps now the strongest crypto-currency. Dan Larimer, creator of BitShares and Keyhotee, shared of his company’s model for decentralized solutions to centralized problems. BitShares serves as a peer to peer exchange and trading platform. Keyhotee serves as a privacy platform and a secure window for Distributed Autonomous Corporations.

The evening concluded with an update from Austin and Beccy Craig from “Life on Bitcoin.” Austin and Beccy began married life with the challenge of living solely on Bitcoin for 90 days. Austin and Beccy provided a recap of some of the challenges yet also benefits of using solely Bitcoin and shared of plans to travel around the world and back on Bitcoin for their final month of the challenge. The conference was an overall success and Bitcoin Magazine was privileged to not only serve as a sponsor but meet with subscribers and get some additional magazines into the hands of readers! Those interested in watching conference presentations are welcome to view presentations through Let’s Talk Bitcoin’s Video Conference Pass.

 

Bitcoin Magazine is pleased to add Vanessa Krohn to our team as Operations Manager.

Vanessa has experience in project management, and she is excited to do more work involving Bitcoin. She will take over the responsibility of handling Customer Support and Advertising.  We hope to expand her role in the near future to have her contribute more to the magazine and our content!  Here is a brief introduction by Vanessa:

“I am thrilled to join a group of passionate and unique individuals that work together to  facilitate the growth of the Bitcoin community.  I look forward to utilizing my previous project management experience, employing my excellent organizational skills, and making a positive contribution.”  

Vanessa will bring a new perspective to the table.  Bitcoin Magazine looks forward to her insight and adding her to our growing team.

For any Customer Support inquiries including order status, please email help@bitcoinmagazine.com

For any Advertising inquiries, please email advertising@bitcoinmagazine.com

The Silk Road, the largest black market site on the Tor network, has been shut down by the United States’ Federal Bureau of Investigation, and its alleged owner, Ross William Ulbrecht, arrested in San Francisco and charged with narcotics trafficking conspiracy, computer hacking conspiracy and money laundering conspiracy. With the closure of the site, the FBI has also made the largest seizure of bitcoins, or indeed Bitcoin-related funds, to date: 26000 BTC, or $3.6 million.

Ross Ulbricht appears to have a public LinkedIn profile, where he describes himself as an “investment adviser and entrepreneur” who “love[s] learning and using theoretical constructs to better understand the world around me” and now wishes to “use economic theory as a means to abolish the use of coercion and agression amongst mankind.” “Just as slavery has been abolished most everywhere,” he writes, “I believe violence, coercion and all forms of force by one person over another can come to an end. The most widespread and systemic use of force is amongst institutions and governments, so this is my current point of effort. The best way to change a government is to change the minds of the governed, however. To that end, I am creating an economic simulation to give people a first-hand experience of what it would be like to live in a world without the systemic use of force.”

Unfortunately for Ulbricht, it seems like it is systemic force that is giving people a first-hand experience of what it is like to live in a world without him. However, the online drug community is unlikely to fall apart, in much the same way that the filesharing community only grew stronger once Napster disappeared. Black Market Reloaded, located at http://5onwnspjvuk7cwvk.onion (link works using the Tor browser only) is currently the main alternative, with Sheep Market at http://sheep5u64fi457aw.onion coming up as a close second. The loss of Silk Road will likely give rise to many more sites springing up in its wake, especially with the open source BitWasp project providing operators with a codebase to start from. Perhaps we may even see a decentralized alternative, which will survive without any central bottleneck that could be taken down. But the biggest problem in the short term will be trust. Over the past two and a half years, there have been many reputations formed on the site and recorded on Silk Road’s database, and much of this information is now gone. On the positive side, however, Silk Road has always supported sellers and buyers getting into contact with each other over email, and most reputable sellers have GPG public keys, meaning that they can still send messages that others can verify came from them, and thus maintain their reputations as the drug community moves to other sides.

Cryptic Consequences

For crypto-economy enthusiasts, there are two main questions. First, how did Ulbricht get caught? In a Forbes article on the subject, Alex Konrad writes: “The full complaint linked to above is worth a read, but it appears that agents found Ulbricht after Canadian border authorities routinely checked a package intended for his San Francisco home and discovered nine fake identification cards within, which Ulbricht allegedly was seeking to obtain to rent more servers to power Silk Road as it massively expanded.” From here, we can see two large mistakes. First, Dread Pirate Roberts did far too much himself. The number one rule of staying hidden is, well, being hidden. Purchasing a large number of servers with fake ID is exactly the wrong the thing to do. The correct solution would have been to do only the sensitive wallet and private information handling in-house and outsource as much as possible to third parties. Second, Dread Pirate Roberts actually stayed inside the United States, the single most hostile jurisdiction with regard to drug policy, the whole time.

But there is also another piece of evidence mentioned in the complaint. In early 2011, a forum user “altoid” made posts on shroomery.org and bitcointalk.org attempting to generate interest in the site; “Has anyone seen Silk Road yet?”, one post reads, “It’s kind of like an anonymous amazon.com. I don’t think they have heroin on there, but they are selling other stuff…” Later on, altoid on Bitcointalk made a post on the forum asking for an “IT pro in the Bitcoin community” to hire in connection with “a venture backed Bitcoin startup company”, asking interested users to reply to “rossulbricht at gmail dot com”. This pattern is a common one seen in cryptography: systems like public key cryptography, Tor and Bitcoin are proven time and time again to be robust, and even the criminal complaint points out that Tor makes it “practically impossible” to physically locate users or servers and mentions Silk Road’s internal Bitcoin “tumbler” used to further anonymize users; rather, it is always through some non-technical mistake that the information gets leaked. Being a crypto-entrepreneur is a full-time job; it is simply too risky to run any kind of substantial anonymous operation by night and be an ordinary businessman by day.

Second, are the users themselves safe? The answer here is, it depends. Most professional sellers use GPG public key encryption, so those buyers who know how to use GPG can send their private shipping data to sellers such that any intermediaries only see it in an encrypted format. Those who have not figured out how to use GPG, however, may be in trouble. In theory, Silk Road deletes the info as soon as possible. However, it is entirely possible that the major drug sites currently left standing, Black Market Reloaded and Sheep Market, has already been compromised by law enforcement, which is monitoring and recording any shipping information that buyers put in. Thus, what this case shows clearly is just how valuable easy-to-use client side encryption software can be; if the Tor browser had included some kind of GPG utility by default, this issue would be much less consequential (although full safety is impossible since law enforcement can always create their own fake seller accounts to harvest data even without compromising the site, and various kinds of man-in-the-middle attacks are possible if users are not careful about which key they encrypt with). Ultimately, the only truly secure Silk Road will likely come in the form of some kind of plugin to Bitmessage.

Not Such A Perfect Martyr

Unfortunately, those who see Dread Pirate Roberts as a martyr for the cause of personal freedoms with respect to psychoactive substances will be sorely disappointed. According to the complaint, Ulbrecht is not just a drug marketplace operator; he was also responsible for murder, or at least attempted murder, by proxy. The complaint begins:

Beginning on March 13, 2013, a Silk Road vendor known as “FriendlyChemist” began sending threats to DPR through Silk Road’s private message system. In these messages, FriendlyChemist states that he had a long list of real names and addresses of Silk ROad vendors and customers that he had obtained from hacking into the computer of another, larger Silk Road vendor. FriendlyChemist threatened to publish the information on the internet unless DPR gave him $500,000, which FriendlyChemist indicated he needed to pay off his narcotics suppliers.

Over the next few days, FriendlyChemist leaked enough of the information to convince DPR that he was serious. On March 27, he wrote to Silk Road member redandwhite:

In my eyes, FriendlyChemist is a liability and I wouldn’t mind if he was executed … I’m not sure how much you already know about the guy, but I have the following info and am waiting on his address.

The victim was a resident of White Rock, British Columbia, Canada, and had a wife and three children. On March 29:

I would like to put a bounty on his head if it isn’t too much trouble for you. What would be an adequate amount to motivate you to find him?

A payment of 1670 BTC (~$150,000) was soon sent and soon after that redandwhite updated: “Your problem has been taken care of. Rest assured he won’t be blackmailing anyone ever again. Ever.” It appears that redandwhite sent a picture to confirm the kill, which DPR received, confirmed and deleted. However, Canadian law enforcement does not have evidence of any Canadian resident with the victim’s name, or of any death in White Rock around that time; we may need to wait a while longer before that particular mystery gets resolved.

However, there is also a second complaint, this time from the state of Maryland, that DPR also paid for another hit, this time for a crime much smaller than intending to release thousands of names and addresses to the public and law enforcement for potential arrest. The complaint reads:

> DPR communicated with the undercover cop via the Internet, and told the UC that the Employee had been arrested by law enforcement [earlier this employee had been the victim of an undercover sting operation] and that the Employee had stolen funds from other Silk Road users. DPR asked the undercover cop to arrange for the employee to be beaten and forced to return the money, stating specifically: “I’d like him beat up, then forced to return the bitcoins he stole back, like sit him down at his computer and make him do it.”

But then things got worse:

> Can you change the order to execute rather than torture? … [the Employee] was on the inside for a while, and now that he’s arrested I’m afraid he’ll give up info … [I have] never killed a man before, but it is the right move in this case.

After some negotiation before the “hit”, the undercover cop created and sent DPR several staged photos of the victim being “tortured” and “killed”. DPR’s words after the kill included:

> [I’m] a little disturbed, but I’m OK. I’m new to this kind of thing is all … I don’t think I’ve done the wrong thing … I’m sure I’ll call on you again at some point, though I hope I won’t have to.
> I’m pissed I had to kill him, but what’s done is done … I just can’t believe he was so stupid … I wish more people had some integrity

Looking Forward

So what will the future be? In the near and mid-term future, we can certainly expect to see others opening up drug sites, taking Silk Road’s demise as an opportunity. Research into infrastructure like decentralized webs of trust is likely to increase; just like the successor to Napster was the decentralized BitTorrent, the true successor to Silk Road will likely need to be decentralized as well. Will it happen? The tools are out there. BitMessage exists, Namecoin, so all the ingredients for a web of trust are in place. The next level will be to set up a decentralized marketplace. That is simply a matter of creating a simple application-specific message protocol on top of BitMessage and then creating a graphical user interface for it. The web of trust, necessary to combat fraud, will also need to become a decentralized protocol. If someone wants to implement it all, they can.

As for Bitcoin itself, however, there will be another big question: will Bitcoin survive the loss of Silk Road? There are many who claim that the practical value of Bitcoin is essentially entirely that of buying drugs with it; if Silk Road goes down, and Bitcoin prospers, that will be the ultimate definitive proof that that is false. Indeed, the loss of Silk Road may even make Bitcoin more palatable to mainstream businesses and accelerate adoption, as the arrest may placate law enforcement agencies around the world and make them believe that Bitcoin’s anonymity is not as strong as they may have previously believed. Bitcoin’s public relations department is succeeding at sending the right message to law enforcement already; the complaint did not make any significant attempt to criticize Bitcoin and even specifically said: “Bitcoins are not illegal in and of themselves and have known legitimate uses”.

Furthermore, with the recent collapse of MtGox’s market share, the Bitcoin economy has lost one of its major centralized points of failure, and now that Silk Road too is gone it is difficult to see if Bitcoin has any truly centralized points left. Nearly every service now has replacements that are comparable to it in size – in the exchange market, MtGox and BitStamp, in the payment processor market BitPay, Coinbase and BIPS, and in the crypto-drug market Black Market Reloaded and Sheep Market, so once the shock of the loss of Silk Road passes the economy will actually be less vulnerable to individual shocks going forward.

It has long been said that crypto-anonymity is only something that functions well at small scales; the larger one gets, the harder it becomes to untraceably mix one’s bitcoins, the larger one’s real-world trace becomes, and the larger the incentive for law enforcement and blackmailers alike to look through the evidence and search for weaknesses. Today, it was fake IDs and an email address. Tomorrow, it may be one’s writing style. Later on, it might be a correllation between one’s home electricity and internet bandwidth usage and one’s forum login records. But then again, as the state of the current financial system reminds us all too well, maybe the impossibility of staying private and getting too big, and the traceability that Bitcoin offers at such scales as compared to centralized systems, is actually generally a good thing.

It is almost six months ago that Bitcoin Central, the main Bitcoin exchange in France, shut down after losing tens of thousands of dollars to an online attack. The attacker managed to get in by breaking into the exchange’s virtual private server, allowing them to access its online “hot wallet” and withdraw all of the funds. Fortunately, the bulk of the exchange’s BTC funds were stored in offline “cold storage” so Bitcoin Central was able to absorb the loss and fully reimburse its customers, but the platform’s developers nevertheless saw it fit to take down the site to prevent any further losses while they figured out exactly what went wrong. What happened over the next six months was a complete redesign; the website was rebuilt from the ground up, the trading engine was split up into multiple components, and tight security and redundancy mechanisms were added on all levels. The site’s operators had originally intended to bring the site back online in the middle of the summer; in reality, however, June and July came and went, and not a word came from Bitcoin Central; indeed, some even began to suspect that the site was gone for good. But now, after nearly five and a half months of downtime, Bitcoin Central is back online.

The first sign that Bitcoin Central has changed appears as soon as the site is loaded; the site now features a radically redesigned web interface that is both simpler and much more visually appealing than the old version, and includes a detailed statistics page, latest trade data and support for English and French. The charts are not yet too interesting, as volume on the site is still low, but once people start depositing to the exchange and trading in full force that is likely to change. But what is more interesting is the extent to which the exchange has changed on the backend. CTO David François writes:

The complete stack has been redesigned from the ground up to vastly improve performance, security, flexibility and ease of maintenance:
* The architecture has been split into independent software components that talk to each other, which ensures a much better fault-tolerance, horizontal scalability, independent auditing and monitoring.
* Our security infrastructure and procedures are now designed in such a way that the compromise of one or several components has no impact on the integrity of our data and accounting; this is achieved through a mix of software evolutions and tight operational procedures.

“Fundamentally”, Pierre Noizat summarizes, “there are no private keys on the servers anymore”. From a security perspective, taking the private keys away from the public-facing servers is likely the single most important improvement that was made; by keeping the part of the system that handles private keys and signs transactions as simple and isolated as possible, the architecture minimizes the risk that attackers will find some flaw that allows them to extract the private keys and steal the exchange’s online funds. When the site was taken down in April, it sufficed to simply get into the public-facing server to get this information. Now, one must get into the public-facing server, retrieve the IP address of the key-handling server, and then hack into that server as well. Still theoretically possible, but with far more parts that need to fail at the same time for any kind of attack to succeed.

The database of which users hold much many bitcoins in their accounts is another important issue; when Bitcoinica was hacked for the second time in May 2012, the main difficulty in reimbursing customers, a difficulty which still remains largely unresolved, is that the attacker managed to not only steal about a tenth of the already financially struggling site’s funds, but also deleted both the live copy of the account database and the backup. In the new Bitcoin Central, “the accounting database is secured in multiple ways.” Bitcoin Central is hesitant to share further details about exactly how everything is secured; “as much as we do not believe in ‘security by obscurity’ for algorithms,” Noizat writes, “we do believe that knowledge of the server architecture can help a would be intruder.”

Almost A Bank Account

Bitcoin Central first became famous in December 2012 when the exchange announced an agreement with the payment services provider Aqoba to convert the fiat currency portion of its users’ exchange accounts into what would essentially be bank accounts. Each account would have its own international bank account number (IBAN), allowing anyone to wire money to it just like any other bank account, and Bitcoin Central had plans to come out with a debit card that could spend from the account. The only difference is, as Noizat describes it, that “that the funds are not ‘deposits’; they cannot be used by the Payment Institution to issue credit.” The Aqoba move was hailed by many as a massive step forward in banking and regulatory integration, especially since Bitcoin Central employees had had extensive discussions with regulators while they were working out the details of their agreement. Unfortunately, it never came to pass. Months of delays came and went, and at the end of April the whole effort was abruptly cut short when Bitcoin Central shut down. Two and a half months later, bitcoin.de in Germany made a very similar deal with Fidor Bank, the implementation of which is still in its later stages today.

But Bitcoin Central has not given up, and is only coming back stronger. Noizat writes: “We have clinched a deal with a new Payment Institution partner, namely Lemon Way. Our systems are now fully integrated to speed up the funding and withdrawals operations to the point where I believe we will offer the shortest possible turn around time (one or two days at most) to buyers and sellers of bitcoins. Each customer of bitcoin-central now has a full-fledged, regulated payment account with our licensed partner, as soon as the customer account is verified.” This is significant; there have been talks for many months from Bitcoin Central, Fidor and others about having a direct partnership with some kind of banking partner, but this is the first time that anyone has actually carried the integration through to completion. As unlikely as it seemed when Bitcoin Central shut down and bitcoin.de charged ahead with its announcement with Fidor, it appears now like Bitcoin Central is the first one to integrate directly with the banking system after all.

On the other hand, Bitcoin Central’s payment accounts are much more limited in scope than the original vision that the company had with Aqoba. The accounts with Lemon Way have no IBAN, and although Bitcoin Central does plan to make it possible to fund the accounts with bank card transactions, even that functionality is not expected to come out until early 2014. Furthermore, because payment services providers, unlike banks, are not authorized to use deposited funds to issue credit, anyone wishing to get an interest rate on their deposits should best wait for the finished integration between Fidor and bitcoin.de.

So that is the benefit of having a regulated payment account? In essence, safety. With the way exchanges currently work, depositors are essentially creditors to the exchange; the exchange has, in the short term, full control over depositors’ funds, and if the exchange starts taking these funds for its own use depositors need to go through the legal system to get any recourse. Sometimes, it is not even the exchange’s fault, as either regulatory difficulties or banks’ unwillingness to work with Bitcoin exchanges leads to long delays for customers trying to recover their deposits. Both of these concerns are very real. In Germany, regulators began an investigation into Bitcoin24 earlier this year, concerned that the exchange was stealing users’ deposited funds; the current situation is still unclear, although many people report having received their funds back. As for externally caused problems, earlier this year when Bitfloor shut down due to banking problems, it took months for its founder Roman Shtylman to find a bank that would allow him to redistribute deposited funds to his customers. With regulated payment accounts, at least these problems can be avoided; there will be a clean separation between exchange funds and customer funds, and even if the exchange goes down the payment services provider will be able to handle withdrawals.

Bitcoin in France and Abroad

Bitcoin’s popularity in France, where Bitcoin Central is based, continues to lag behind its popularity in countries like Germany, the Netherlands and the UK. Pierre Noizat writes: “France and more generally, southern European countries seem to lag behing Northern European countries and behind countries where English is a dominant language. I believe the main reason is that most of the bitcoin literature is in English. That is a side effect of the free software, open source nature of bitcoin; things go fast and not enough resources are devoted to producing localized educational material. Translations of software are a good thing and can be crowdsourced but development and technical discussions still take place in English.” This argument is certainly a valid one; looking at various countries in the world by the percentage of English speakers and the Google Trends search volume for Bitcoin does indeed reveal a strong correlation:

Percentage of English speakers	Bitcoin search volume

With regard to those countries where the dominant language does not even use the same alphabet, the correlation is somewhat artificial; Russian Bitcoin users, for example, might be searching for “Биткойн” and not “Bitcoin”. Furthermore, much of the correllation is caused by the fact that Bitcoin and English are both more popular in countries with advanced economies. However, even looking only at countries of similar wealth where the Latin alphabet dominates, there are substantial similarities between the two graphs; the strength of the Netherlands, the Scandinavian countries, Israel (where the alphabet effect is mitigated since very many people speak English), Canada, the US and Australia, and the weakness of France, is apparent in both charts.

Bitcoin Central’s Pierre Noizat has written a number of educational materials explaining Bitcoin in French, including the book “Bitcoin: Monnaie Libre”, available in hardcover on Lulu and Amazon. In time, hopefully more Bitcoin materials in French and other languages will become available.

For now, though, Bitcoin Central is offering its services beyond just France. “Thanks to our partnership with a licensed Payment Institution,” Noizat writes, “we are legally authorized to serve all residents of the 30 states in the European Economic Area. Because of the SEPA wire transfer mecanism it does not make any difference whether we serve a customer in Denmark or in France: the account funding and withdrawal operations take one or two days at most.” Thus, Bitcoin Central should best be thought of as a European exchange, next to Bitstamp and bitcoin.de, and not a platform specific to France; anyone in the European Union (except Croatia), Switzerland and even Iceland can benefit. For other parts of the world, Bitcoin Central is offering its trading engine under a licensing agreement; Noizat reports that they have already initiated discussions with a USD exchange, “but there are opportunities with many other currencies.”