Menufy – latest food delivery provider to start accepting bitcoin.

The site provides online ordering for restaurants across the US. Menufy has integrated with Coinbase. Users can now pay for delivery or takeout orders using Bitcoin.

The site boasts close to 400 locations across the US and is constantly adding new locations.

Menufy offers an online presence for websites and a platform to increase their takeout and delivery business. For users, Menufy boasts an unparalleled user experience.

The team at Menufy ranges from restaurant management to software engineering and interactive marketing.

As Menufy is always looking to increase the number of restaurants on offer and geographical reach, interested food service businesses are encouraged to make contact with the team at Menufy. They have experience in the complex nature of the restaurant business and offer visibility for restaurants on the Internet.

For the basic services, there is no cost outside of a 2.5% + $.30 credit card processing fee. With Bitcoin, obviously this is not a concern. Orders paid in cash are processed free of charge.

Customers are directly charged a $1.25 convenience fee. Merchants can absorb this fee if they wish to offer free online ordering to their customers. In this case $1.25 is subtracted from the credit card order total, before making the deposit into the merchant bank account.

With Bitcoin merchants have an exciting new option for payment to work with. This option can reduce their costs of working even further. As merchants become used to this payment system, no doubt they will be passing on savings to customers for Bitcoin payments.

Once a merchant restaurant goes live with their website, delivery and takeout orders are fully automated and simple.

Rise of the Altcoin Wars

The Past, Present and Future of Altcoins

By Mark Rees

The following article illiterates how survival of the fittest and game theory will likely halt bad altcoins from tricking people out of honest money.

History:

From the “Sacred text of Bitcoin” – Book of Mark, Chapter 1 verse 1

In the beginning,  a block of data called “Genesis” entered a world. At that very moment of singularity,  an alternative universe was born. This silent and strange new universe contained only empty slots for data, organized for information to one day occupy them coming from all points on Earth. Like stars in the night, they would be viewable by all but understood by few. Its creator, Satoshi, saw that it was good and gave unto it the name “bitcoin”. The new dimension he discovered would not be understood to most of the world for years to come; although in time its name would become legendary. A handful of brave pioneers we will call “Satoshinites”, gathered around to study it. They were not held bound by the limited earthly knowledge of men, and they peeked into this new wondrous gateway and saw… the future.

[2]

As time passed, more knowledgeable men found themselves drawn to this new and fantastic portal of discovery. An ever increasing population were drawn unto it. Slowly they began to understand the possibilities that might result from this discovery.  Meanwhile, many willfully ignorant people remained tied to their limited earthly understanding of the world. The unbelievers began to mock in disbelief; to these people we assign the name “Krugmanites” . They were those who were convinced by the great and terrible leader Krugman that “bitcoin is evil”. And he  led into darkness  many unbelievers who then began murmuring against the enlightened “Satoshinites”.

[3]

And it came to pass that much value began to be reaped from the seeds sown by Satoshi’s discovery and many clever Satoshinites created other parallel creations in bitcoin’s image. They called these things “altcoins” and became masters of their own parallel universes with only slight changes to the laws which governed bitcoin.  The elders of the Satoshinites did not approve of these new creations and considered them abominations and cast them out.

[4]

Fortunes would soon follow the earliest Satoshinites who put forth effort into the new discoveries locked inside bitcoin. Soon others learned of the fortunes  and the human flaws of envy and greed did descend and took root in the imaginations of some of Satoshinites. Eventually,  some clever but flawed Satoshinites did surface and did trick and steal – doing great harm to believers. Many loud Krugmanites declared to their own followers that all Satoshinites were false prophets and to look away.

[5]

As time passed, some false prophets did arise from some of the bad altcoins. The law of all things of this world applied itself to altcoins. When a thing becomes valuable, they also become the object of lust, envy, and greed for humans. Some of the  Satoshinites that were the newest in the tribe were swayed into believing the false teachings of some non moral altcoin masters. Some Satoshinites gave money to clever men who told beautiful lies that tickled their ears. Those dubious men claimed greatness of their own bad altcoins which hid under façade of witty names and interesting back stories invented to create passion in the hearts of Soatoshinites.

[6]

Seeing deceiving  altcoin creators fleecing the innocent, the hero Charlie road into town. So great was his leadership that he gave the world a gift he called “litecoin” And we will refer to this gift as “Charlie’s Angel”. His followers became a splinter group which had descended from the Satoshinites, and to these people we will assign the tribal name “Scrypt” . Most Satoshinites remained with the bigger “SHA” tribe for the safety of network effect.  And there was peace and cooperation between leaders of the two tribes.  And it came to pass that many more altcoins from both tribes multiplied and replenished the earth. But not all were good.

End of “Sacred text of Bitcoin”

Present day:

Fast forward a few years and the early adopters of the new technology now watch any new announcements for altcoins with suspicion. By now many altcoins have come and gone leaving tears and disappointment in their wake being now recognized as “scams” or “pump and dump schemes”. These actions have left deep scars with the some newly curious population believing they will benefit by the chance of bitcoin magic lightning striking twice.  Some still naively listen to to whispers of secret “new and improved” altcoin promises from bandits preying on them. When they are later dumped, by tricksters with no interests in digital currencies the reputation of ALL digital currencies are lowered in public opinion. The larger audience does not have the sophistication and background to recognize the differences between legitimate and honest technology progression, and get-rich-quick schemes conducted by trading bandits with no ties to the technology.

New onto the scene are supposedly well-meaning vigilante crypto squads that have created websites to warn consumers and the less-knowledgeable about the existence of what they view as “scam-coins”. Several coins were called out, with one example being “Phoenixcoin”. They claim that operators of this coin used a controversial method of boot-strapping a currency called “pre-mining” and used allegedly unfair distributions to make a quick profit for themselves before running off with proceeds when the coin hit the market and they drove the price up. The early investors were harshly punished for their enthusiasm owning a near worthless coin as the creators soon abandoned the coin and any development or contact with investors\coin owners. All people in the digital currency community bear the punishment of a tarnished reputation left in its wake.

These vigilante groups that have been trying to keep lists of suspect coins, but have likely found the work to be unmanageable as new coins are created so quickly they are now counted by the hundreds. The pace of new coin creation is now beyond the ability to practically track, analyze and warn consumers. One site now counts crypto currencies tracked to be 555 varieties. Some think the real count of digital currency variants are now in the thousands.

Some people are saying that the digital currency market is going through an altcoin fatigue. Some say we might have reached the saturation point for new marketable altcoins. Battle lines are appearing and factions seem to be organizing between proponents of various smaller swarms of new coins. The network power of Bitcoin should safely keep it out of the fray of any tampering. But smaller coins have smaller networks still trying to get established. These are vulnerable and can be subjected to 51% attacks. This attack involves using a concentration of computers that have enough combined hashing power that can overwhelm the smaller currency. Once the attackers have control of the altcoin’s block-chain they can rewrite the coin’s history and make double spending possible. This would cause a breakdown in faith of the coin and possibly destroy it.  A 51% attack has already happened for a few coins in the past. (See Feathercoin).

When there were only a few dozen alternative coins competing for attention, the longtime supporters of bitcoin rightly worried that there would be confusion due to lofty promises made by the new promoters of the fancy-sounding coins. With Silk Road and other various unscrupulous bad-actors being the de-facto public face of the technology, bad press using scandalous headlines were bound to be propagated. The creators of the “scam coins” are considered by many to be bad actors on par with dishonest exchanges and money launderers.

The barriers to entry for making your own alt coin are low. Because the computer code is open-source even programmers with little knowledge can tweak a few settings and call it their own, but have just enough knowledge to be dangerous. Most of these “crap-coin”creators are likely to put more time and effort just thinking of fancy currency name than to do any actual code changes or safety measures. The con artist creator simply needs to create a website, and give it some kind of  compelling back-story using ageless con-game tricks of the trade. Coin names and background stories were created to bestow trust, or play on a person’s sense of nationality, or fear of government and secrecy. To see some of these tricks in action, you only need view the world of unregulated penny stocks made recently famous again in the movie “The Wolf of Wall Street”. The ‘mark’ (in con-artist terms) blindly put their money into these exciting sounding currencies and hope for the same riches sought 150 years ago by the would-be miners during the  California gold rush.

More talk of altcoin wars has begun. On bitcoin related forums there have been several “call to arms” with groups attempting to organize resistance or attacks against those altcoins they’ve perceived as “bad” for the community. For example, one of the latest skirmishes is entitled “Shades of Altcoin War”. Although it might at first glance sound racist, it has nothing to do with race. The title of three coins in struggle according the bitcointalk.org post, are Blackcoin, Darkcoin, and Whitecoin.

The new weapons of choice in this new kind of war include “mass-spamming” and FUD (Fear, uncertainty, doubt). Each side recruits armies of supporters they’ve convinced to assist their cause. These groups of ad-hoc response teams are sometimes referred to as “useful idiots”. The loosely organized “geeks” may not even realize themselves that they’ve been selected to repeat the misinformation they believe to be true. The conduits of the attacks commonly use altcoin forums and Twitter. They attack the reputation and motives of the various altcoins in question and attempt to create a fear that will make holders of those coins panic-sell which could destroy the price and possibly the viability of the coin itself.

A new coin called Battlecoin was created to specifically target other altcoins. By purchasing this coin, you are allowed to “vote” on which of the smaller alternative currencies you want “attacked”. Their goal is to use huge pools of computing power to overtake and swamp the smaller selected currency with something like a 51% attack. They intend to be altcoin mercenaries. In the natural evolution we find in nature, and predictions using game theory, these strategies and outcomes might be expected at some point. Without making judgment statements, the predators will evolve. The big fish will eat smaller fish. At some point, you can probably predict that governments will get involved once the money becomes big enough that oligarchies become possible.

For the current day, many opponents to digital currencies gleefully point out that bitcoin cannot possibly survive in the long term because “something better might come along”. This is possible, but we can now easily demonstrate that the currency itself is only one small component of the entire picture that makes a digital currency. There is no other coin or technology coming close to the computer resources devoted to protecting the network. The thick protective shell protecting the block-chain is measured in computer hashing power. Using the popular yardstick of the top 500 supercomputers combined; Bitcoin is now about 2,500 times that number and continuing to climb.

Technologies and efforts like “Battlecoin” can pick off the small fledgling currencies that might have a chance at becoming valuable. New serious innovators are now looking at the shelter found inside the bitcoin network. It remains to be seen what new more complex variations of Scrypt may bring. And we may see many altcoins turn to merged mining for combined protection. But this all just proves the critics wrong that “Anybody can make a competing coin”. So dominant is this power of protection offered by bitcoin, that new development of “side-chains” are being designed to work with it rather than finding some way to compete against it.

Future of altcoins:

The alternative currency world seems to be teaming with life. A new service called “CoinGen” will now make you your own altcoin. At coingen.io you can answer a few drop down boxes, give them an icon / logo for your own personal coin and *poof*, in thirty minutes they spin you out your own executable generic “copy-coin”. They allow you to choose which of our two tribes to join (Sha or Scrypt). There are questions by some in the community if this is valuable, or even reliable, but it does exist. The service lists itself as “beta” and charges around .2 bitcoins ($100) at the time of this writing. They inform you that although they create the software, it comes with no support, and it’s up to you to actually build the network and start the genesis block for your new currency. (Watch for a follow-up article about this).

As Satoshi could attest, it’s one thing to come up with your own currency but without a network and protocol to keep it alive, it only exists in a vacuum and is unusable. The currency itself was only half the battle. If you want to do it like Satoshi, you’ve got to invent a new protocol, network, miner, and get lots and lots of help testing and tweaking. Good luck with that.

Mini-Satoshi, you are not.

Now that creating your own altcoin is becoming relatively trivial, what does this mean? Just because you can, does that mean you should? Consider a world where there are hundreds of thousands or millions of altcoins. How would that affect the viability of “scamcoins”? Stepping back and looking at all of the currencies together – it might all become “noise”. It could be like the world of publishing before the internet. First you only had a few powerful voices that dictated what information they wanted us to hear. Then online publishing, blogs and Facebook came into existence and spread that power equally. To make your voice heard these days you have to offer something valuable and unique. You have to be good. Information itself has become … noise.

If these altcoin currencies follow the same path that the internet provided, there might not be anything stopping them from being created endlessly. If this is the case and we can expect millions to come … they might also become noise. Perhaps only a few might become spectacular and will rise above the rest like Facebook and Twitter. But they will do so on their own merit and it might take extraordinary effort to attain. With the development and release of Ethereum waiting in the wings, the foundation of what will become possible may shift in likely unexpected ways.

Perhaps one day soon, creating your own altcoin will be a required subject in college IT courses. The skills learned may be invaluable for the future marketplaces. In our lifetime, Satoshi might be respected and celebrated alongside Einstein or Newton at our universities. Future businesses we haven’t even thought of yet might look for block-chain skills on a resume. Perhaps some year after that, junior high school students will build altcoins as a science fair project. Perhaps in some decade, the technology could become so widely known and used that children will no longer play with blocks, but instead play with their block-chains.

This isn’t to say that altcoins are useless. To the contrary, some unique and innovating concepts are found in these creations. Evolution tends to happen in most things in nature as we’ve discovered. What might become of many of these technologies is anyone’s guess. The best ones will likely find their own niche where they will thrive because of their differences. It’s as if we’ve just now opened the door to a new dimension we did not know existed. This previously unknown and wondrous new world may contain unimaginable creations still awaiting our discovery. The altcoin wars might result in a necessary clearing that creates a pathway that leads to those discoveries.

Author note: There is no such thing as the “Sacred Text of Bitcoin”. It only exists in my imagination.

 

There is a new wallet that has surfaced recently that allows users to send Bitcoin and many other digital currencies by using a web address. This new service, bitcoinwallet.com, gives users the ability to personalize their payment address in a manner similar to a Tumblr or hosted web address. The Bitcoin Wallet platform makes sending and receiving payment as easy as exchanging names. For example, if John Smith used this platform, he could share the address “johnsmith.bitcoinwallet.com.” This would allow John to send and receive payments to anyone who uses the service.

Bitcoin Wallet was started by Alex Charfen, entrepreneur and CEO of Charfen Institute. Recently, Charfen released an article which showed his staunch support of Bitcoin. By using examples from current and past technology and innovation to reinforce his points, his writing is one of the strongest endorsements of Bitcoin thus far. His investment in Bitcoin and its technology led to the creation of this new wallet service. Charfen states in the article, “Bitcoinwallet.com is our contribution to this passionate community and through the technology and ease of use we have created, our submission to the community at large that we may solidify our approval and inclusion.”

Bitcoinwallet.com supports Bitcoin, Litecoin, Dogecoin, Quark, Megacoin and Peercoin. When you create an account, an official address is assigned to you, giving users the ability to send Bitcoin to your official address. Users can also list other addresses for Bitcoin and supported cryptocurrencies as external addresses, meaning that when a user visits your profile they will see all your addresses, and they can send payment in the currency of their choice.

According to the site, users can also receive free Bitcoin for signing up for an account or referring a friend. Furthermore, there are daily, weekly and monthly giveaways that all users are eligible for.

What about security?

In regards to the security of funds, Bitcoinwallet.com uses two-factor authentication for every user who signs up. The wallet service also states that a majority of funds will be stored in cold storage wallets, which are not accessible via any system, with only 6% stored in hot wallets according to the company’s news page. They maintain systems with SHA-2 SLL and AES user data encryption. For users worried if they are sending funds to the correct address, each profile states the sign-up email that was used when the profile was created. For example, users who want to send funds to the Red Cross will be able to see if they are sending to an official company (redcross.com) email address.

Users are able to send other users coins for free, with a minimum user-to-user transaction size of one satoshi (.00000001BTC). Bitcoinwallet.com charges .0008BTC to cover cost of service and miner fees for blockchain deposits and withdrawals the minimum transaction amount is .001BTC. To clarify, Bitcoinwallet.com is not an exchange. Instead, it is a means for user-to-user transactions without fees or confirmation delays.

The company is also planning to release a crowdfunding feature to allow users to create and manage crowdsourced funds, and will also be releasing support for other languages after the initial beta period.

 

Check out this new wallet here.

The two big pieces of Bitcoin are the currency and the network. The Bitcoin network enables electronic payments, not such a big deal really, there are lots of payment systems. However the Bitcoin network lets you transfer money (bitcoins) in an incredibly efficient manner, and one which is not dependent on any central control or central point of failure.  Each financial transaction is cheap, really really cheap.

One logical extension of this efficient, inexpensive financial transaction network is the ability to create extremely small transactions. It is reasonable and feasible to create electronic payments that are worth less than a penny. This is actually a BIG DEAL! It means, for example that a WiFi network could be created that lets you connect and stay online for a few minutes and you just pay for that miniscule amount of time. To top it off when using the Bitcoin infrastructure you don’t even have to identify yourself to the network other than verifying you have the means to pay.

In a wonderful video “Bitcoin Fireside chat with Marc Andreessen and Balaji Srinivasan“,  the two VCs discuss micropayments (and a lot of other stuff) a bit and point out classic use cases. First bitcoin could have solved the email spam problem by charging a tiny amount to send an email which would quickly bankrupt the spammers and have no effect on normal users. Secondly, using bitcoin micropayments to allow for payment of a penny or a few cents to read articles on websites (like this one!), enables reasonable compensation of authors without depending totally on the advertising model. The efficiency of the Bitcoin payment network allows such transactions whereas the overhead of other payment systems make such payments prohibitive.

Without getting into the gory details let’s just think more precisely about what all this micropayment stuff really means. If I travel to a local coffee shop and want to get on to their WiFi hotspot I must explicitly state, somewhere/somehow, that I am willing to pay for the service. The service provider, the coffee shop, must be willing to take my money. This means that we have to setup some type of contract between me, the consumer of a service, and the coffee shop, the vendor of a service. It must be possible to specify this contract within the context of the Bitcoin protocol, and in fact it is possible! As pointed out in the micropayments section of https://en.bitcoin.it/wiki/Contracts a “micropayment protocol” can be specified on top of the lower level Bitcoin protocol to accomplish this task.

The concepts of micropayments and details as specified in the bitcoin.it wiki acknowledge:

“ Many of the ideas underlying Bitcoin contracts were first described by Nick Szabó in his seminal paper, Formalizing and Securing Relationships on Public Networks. These pages (the bitcoin.it wiki) were written by Mike Hearn. Contact him if you have an idea for a new type of contract. You can watch a video of a talk on contracts that was presented at the Bitcoin 2012 conference in London.”

Also as described in the micropayments protocol section of the wiki, we want the contract to have certain characteristics. The contract should be between untrusted parties and automatic. I’ve never been to the particular coffee shop and they don’t know who I am, our lack of trust should not be an impediment to accomplishing our transaction. The transaction should be automatic, making it seamless from a usability point of view, as the last thing I want to do is futz with my phone and specify a bunch of payment options when all I really want is to look up the weather and check my twitter account. The micropayment protocol allows these contract characteristics to be realized. Personally I can’t wait till this type of thing gets out to the real world!

To summarize Bitcoin micropayments is a truly enabling technology that lets us accomplish financial transactions that we can not accomplish with existing systems. The efficiency and programmability of the Bitcoin network enable new applications. These applications such as automated subscriptions to network services (walking into a WiFi hotspot); payment to authors for single articles or paragraphs; highly efficient tip jars for artists and  content producers of all types are finally practical and pragmatic.

So when is this all going to become a reality? Not too quick, however code to enable micropayments is being actively developed by core bitcoin developers (see Jeff Garzik’s https://github.com/jgarzik/mcp for the more technically adventurous).

Bitcoin just keeps getting  more and more interesting

When it comes to mining, most people tend to focus on the hardware: how fast it is and how long until it becomes obsolete. As mining operations get larger and difficulty increases with ever faster hash rates, the ability to manage your operation becomes a more difficult task. Small adjustments to hardware or the ability to quickly switch pools can make a huge difference in profitability. Enter CoinMyne, the creators of the popular CGRemote and CGWatcher mining monitoring software.

CoinMyne is a Los Angeles-based software company founded by CEO Mark Price and COO Scott McCarthy. In January they hired Justin Milone, the original creator of CGRemote and CGWatcher, as their VP of Software Development. Currently CoinMyne software has over 100,000 users and covers a large percentage of the mining community.

CoinMyne’s software gives miners the flexibility to monitor and manage their operations remotely. The CGWatcher application provides monitoring and scheduling features to watch for and automatically correct problems to minimize downtime. It provides tools to simplify miner configuration, making it easier for beginners and advanced users alike to manage the growing collections of pools, coins, and config files. CGRemote provides similar functionality, but allows you to remotely manage multiple miners in one place regardless of where the miners are located. It can eliminate the need for remote desktop software by offering a remote file explorer, text editor, and task manager, among other features. Currently the development team at CoinMyne is moving CGRemote to the cloud, where all of these powerful features will be available from any web browser or mobile phone.

With ever-increasing hashing power and new ASICs being introduced all the time, it is important that all miners – from the hobbyist to the large-scale enterprise – utilize such software to keep a competitive edge.

Mark states, “We are currently working with hardware manufactures, hosting facilities, contract mining providers, and pool operators to provide mining software solutions to a larger audience. Our cloud-based platform will allow for greater flexibility and offer powerful capabilities for operations both large and small.”

Mark envisions a scenario where CoinMyne’s software is both bundled with mining hardware and offered by pool operators, giving these companies a competitive advantage and offering their customers powerful features. Their software is already being used by hosted mining facilities and cloud-based mining rental providers to allow users secure remote access to their machines. This extra incentive can help encourage a customer to choose a particular hardware solution, mining pool, or hosting company, and in turn can justify higher fees or costs paid by end users.

The scale of CoinMyne’s current customer base allows them to offer valuable analytic data to partner companies and their users. This data can greatly help hardware manufacturers map out efficiencies with hardware, tracking uptime and downtime, overheating, hashing rate, and more.

“Our large user base provides a great sample size for mining in general. With the ability to look at all of these miners and collect hardware information, performance statistics, and configurations, then present this data to the community saying “This is the configuration that should work best for your particular hardware… and we know this because we’ve compared it to thousands of others and found that this produced the best hash rate or utility rate for the devices you have.” This is one of the many projects we’re working on in order to be a positive influence in the mining community”, Mark added.

CoinMyne’s software can also be set to take advantage of coin price volatility and switch to the most profitable coin automatically. This is already helping miners get the highest return on their investment, and even allows the user to define their own formula for determining profitability. CGWatcher and CGRemote give users the versatility to run CGMiner, BFGMiner, SGMiner, VertMiner, or any other CGMiner fork, allowing users to continue using the miner that works best for them. CGRemote, the newer of the two programs, works with miners on any operating system, while CGWatcher is currently only available for Windows. Providing all of their software to all platforms and operating systems is a priority and is already something they’re spending a lot of time working on. For CoinMyne it is not just about making mining more profitable, but making it easier and more accessible.

To try CoinMyne’s software visit www.coinmyne.com where CGWatcher can be downloaded for FREE. You can also purchase CGRemote there (still in beta) for $25, which also gets you the software for free once it’s released, using Bitcoin, Litecoin, Dogecoin, or PayPal.

For enterprise solutions or other questions contact Scott McCarthy.
sales@coinmyne.com

Austral-Asia Bitcoin Expo

The Asia-Pacific is about to be served up a slice of crypto heaven.

Enthusiasts in Europe and the Americas can take their pick of exciting events. For those on the other side of the world, well, it’s slim pickings. This July CryptoCon aims to bridge the gap.

Broadly the event will focus on Cryptocurrency as ‘The Internet of Money’. This means developments on higher-level blockchain technologies will also be showcased.

The dialogue in the space is moving rapidly, so the event will give fair weight to both Bitcoin and the next chapter of blockchain technologies.

The events will be held:

• Sydney: July 24th – 25th at the Park Royal Hotel, Darling Harbour.
• Singapore: July 28th – 29th at the Rendezvous Hotel.

The Speakers:

CryptoCon, in association with Bitcoin Australia, will bring together entrepreneurs, investors, developers and enthusiasts from both sides of the equator. Some of the speakers include:

• Roger Ver: Blockchain.info
• Emmanuel Abiodun: CloudHashing
• Jon Matonis: The Bitcoin Foundation
• James Cox: Ripple Singapore
• Charles Hoskinson: Ethereum
• Vitalik Buterin: Ethereum
• Simon Dixon: Bank To The Future
• Elizabeth Ploshay: Bitcoin Magazine & Bitcoin Foundation.
• Anson Zeall: Coinpip
• Jason Williams: BitPOS and Bitcoin Australia
• Jeremy Kandah: BitAngels
• Frank Schuil: Safello
• Jonathan Levin: Coinometrics
• Anthony Lewis: itBit

Many more have confirmed. Full speakers lists are here.

Events Format:

With Bitcoin ATM’s opening up across the region, Bitcoin IPO’s on the Australian Stock Exchange and a flurry of startup activity regionally, Bitcoin is on a direct path to the mainstream.

This event will look at the opportunities stemming from Bitcoin and its core innovation, the blockchain.

This technology opens up a world of possibilities and a wealth of opportunity. It represents the birth of a new Internet.

The present activity is SE Asia and Australia is dynamic. CryptoCon will showcase the most inspiring parts of this regional space.

Wisconsinites love their beer, and several craft breweries call Madison home. Among them is MobCraft, a brewing concern quickly earning a reputation not only for stunning original beers, but also for a truly distinctive business model.

For starters, MobCraft’s brews are crowdsourced. The team monitors the “social popularity of each beer recipe through different channels of social media. The resulting data is merged into a social popularity tracker that will determine the most popular beer recipes each month.” After listening to what customers want in real-time, they set their brewing expertise in motion, crafting a beverage that’s as delicious as it is original.

And now, to take things to a whole other level, MobCraft has started accepting bitcoin. As of April 25, patrons can pay using bitcoin in MobCraft’s Madison taproom. The brewery has partnered with BitPay for its integration needs. An online bitcoin payment option for shipped orders is in the works and will be released in the near future.

I spoke recently with MobCraft co-founder Henry Schwartz about beer and bitcoin.

JSD: How did you get into beer brewing?

HS: I got started out when I was in college. One of my friends and his twin brother were pretty avid home brewers. We took some classes together and that kind of led down the road of starting to do some home brewing together. In college I studied entrepreneurship and my partner studied microbiology. After graduation, he spent some time in the professional brewing world. After that, we decided we should start up a company—MobCraft. We opened in May 2013.

JSD: How did you come to the decision to crowdsource?

HS: We wanted to open up a brewery and do something different. We remembered learning about companies like Quirky that allowed a crowd to dictate what products were produced. So we set out to marry the worlds of craft beer and crowdsourcing.

JSD: How does the crowdsourcing process work?

HS: Anybody can submit an idea for a beer to our website. It can be as complicated as an entire home brew recipe or as simple as a few ingredients. From there, we create a complete recipe and seek governmental approval. Once it’s approved, it goes to our website and into our voting pool. For the first 21 days of each month, the recipes battle against each other based on crowd vote. At the end of the month, the one with the most votes is selected as the winner. Then we brew it, package it, and distribute it.

JSD: Are there any brewing or business “philosophies” you abide by?

HS: We’re in this for the love of brewing, just like the majority of our fans who are beer lovers and home brewers. We’re really apt to share our recipes with people so they can try brewing them at home. We promote experimentation and enjoy putting the beer lover in control of what’s actually being produced. That’s our philosophy. We’re not tied to any specific style other than just being unique.

JSD: How did you learn about bitcoin?

HS: I was reading about bitcoin online a lot. It struck me as really cool, but I was taking a passive approach, just seeing how things played out. Then a former classmate from UW-Whitewater approached me about accepting it.

JSD: Would you say that bitcoin fits in with your business model?

HS: Yeah, I think it fits in really well with what we’re doing and what we plan to do, especially with crowdsourcing. Right off the bat, we’re accepting bitcoin in our taproom on a local scale. We’re in the process of creating a new website which will hopefully go live on May 1. Then we hope to incorporate bitcoin in the future to other sales via our new website.

In the end, MobCraft’s business model can be summed up as follows:

Through the use of a website, social media, and email marketing, the founders have created a lean business aimed at creating “custom craft beers” with a brewing methodology incorporating crowdsourcing. Meaning that the customers submit beer ideas, Andrew crafts recipes, and the Mob of users vote on the recipes that they want to see brewed. The beer can then be ordered and shipped to 36 states or picked up from the brewery taproom at 4539 Helgesen Drive, Madison, WI 53718.d

For more information, visit MobCraft’s website.

Singapore-based Payment Solutions Provider CoinPip has teamed up with 37Coins to  bring an SMS wallet to the region.

CoinPip is excited to offer the opportunity for consumers to pay in bitcoin from absolutely any mobile device with SMS functionality.

The company has gained attention with their BOOST events, promoting Bitcoin throughout the region in an intimate setting with a hands-on and educational approach. They saw a real need to rapidly integrate this service for their users on Apple devices or with dumb phones.

Co-founder of CoinPip, Anson Zeall, is planning to expand to Hong Kong and Indonesia in the coming weeks, eventually introducing the wallet throughout South East Asia, in areas where 3G connections are still very limited.

Anson informs us that:

“The mobile market in South East Asia is extremely massive but the usage of smartphones is still lagging. So QR code scanning is not that useful. Thus the collaboration with 37coins is going to make payments more convenient for everyone else.”

After trying out the system myself, I must say that 37coins has managed to create a unique and user friendly SMS experience. By messaging “hi” to the nearest SMS gateway listed, the user receives a welcome text message from a local gateway and is ready to go. It is this gateway model that makes the 37Coins approach unique.

Instead of seeking permission from local telecom providers, the 37Coins system operates through ‘gateways’. These are local people in each country running a special program on any Android device. Anyone can run a gateway. By running the gateway an individual operator will receive a fraction of any transaction going through their service.

In this way the 37Coins model mimics the Bitcoin network itself. By embracing decentralisation it is essentially impossible to shut down. It can also benefit from the exponential network growth that comes with the economic incentives built directly into the network. Individual operators are free to join and leave at will. All they need is an android device.

CTO of 37Coins, Johann Barbie notes that:

“The 37coins gateway system is distributed, and modeled after Bitcoin itself. A person that deploys a gateway gets a tiny % of the transaction which turns it into an entrepreneurial opportunity.”

CoinPip showed incredible forethought with this integration. The company has, at the same time, recently introduced its first release of an online API for merchants that want to accept bitcoin online and uploaded the CoinPip Merchant POS app to the Google Play store.

They will be launching all of this at the BOOST:Bitcoin event on 7th May.

CoinPip is a startup with a vision to make bitcoin and other cryptocurrencies as safe and easy-to-use as any other form of money. Starting in the Asian market, it intends to take the CoinPip system to the world marketplace, distributing SMS, Card and Mobile wallets and its merchant services, one business and customer at a time.

Bitcoin may be coming to a gas station near you thanks to Andy Schroder’s Bitcoin Fluid Dispenser II. For commodities like oil and gas, this innovation could help streamline the end of the supply chain and in turn, increase the usability of cryptocurrencies. So far, there are a few companies at the forefront of Bitcoin technology in the oil and gas industry. Recently, Texas based oil and gas data company Oilfield Intel LLC announced in March that it would accept Bitcoin, becoming the first provider in the industry to do so. The Cosmic Market in Greeley, Colorado announced in December that it would be accepting bitcoin at its retail gas station and convenience store manually at their cashier. However, the most exciting developments in the industry concerning Bitcoin are the inventions like Andy Schroder’s that change the interaction when we as consumers obtain commodities that we use everyday, like gasoline. Bitcoin provides an alternative to the status quo in this industry, which if it could be used in the entire supply chain without the need for currency exchanges, could help reduce some of the challenges and tension involved with global fuel trade by removing the reliance on the “petro dollar.”

Andy Schroder is heavily involved in many projects that explore solar energy and power cycles, in addition to heat transfer research. He has used his engineering experience and passion for Bitcoin to create The Bitcoin Fluid Dispenser II, which allows customers to pay for gas from a self operating machine using Bitcoin. The device itself looks identical to a modern fuel pump only with slight modifications, most notably, a large screen that allows users to view the cost of the fuel, scan a Bitcoin payment address, and keep track of how much has been pumped. Much like pre-paying in cash at your neighborhood gas station, users pre-pay at the pump with their Bitcoin wallet and receive change automatically for any unused credit when they are done pumping. Simply scan the QR code on the pump and send mBTC (millibits) from your mobile device. Once the pump receives the payment you can begin fueling.

You can already buy gas with gift cards purchased with Bitcoin, but buying gift cards or prepaid debit cards with Bitcoin means retailers are still relying on a credit card system, instead of using Bitcoin to do what it is made to do: eliminate fraud, provide faster payments, eliminate the need to store cash from the point of sale, and decrease per transaction cost. Schroder’s innovation allows both retailers and consumers to take advantage of all the benefits of bitcoin, while still maintaining the conveniences of a credit card based sale.

Schroder believes in the importance of trading consumable commodities with Bitcoin, and thinks that it may help reduce volatility and increase adoption. “Some economists share the belief that a continually inflating currency is needed to encourage trade and maintain an active economy, because in an inflationary monetary system if you don’t use your store of value, you lose it, which promotes spending,” Schroder stated. “However, within the cryptocurrency Austrian economics communities, many have grown frustrated with continually inflating monetary systems because it is considered a form of theft from the people by the central bankers.” Instead, Schroder believes that if commodities that are needed to sustain our everyday lives and businesses can be purchased directly with bitcoin, that the market can thrive with a deflationary currency like Bitcoin.

Making a fuel purchase directly with Bitcoin means that you never have to leave the pump, pre-pay with cash, or share important credit card and personal information. Bitcoin could enable the global trade of consumable commodities like oil and gas without having to rely on currency exchanges or an inflationary monetary system. Hopefully the oil and gas industry will embrace bitcoin and can close this loop. If they do, maybe other industries will follow suit, further propelling bitcoin into mainstream use and making it something much more than just a speculative asset.

You can hate globalization or love it. But you cannot deny that, today, we are living in the most interconnected global society the world has ever known. For the first time in human history, almost everyone in the world has reasonable access to near-instant communication with the rest of the planet.

Pondering the consequences of this situation fascinates me.

It is hard for many people to imagine a borderless, united world, but I cannot help but come to this conclusion when looking at current trends. While some people may consider it unlikely based on our species’ historical penchant for war, there are signs that we may be well on our way to a more enlightened society.

Scholar Steven Pinker has used empirical evidence to make a convincing case that violence has been on the decline for thousands of years. Based on his research, we may be living in the most harmonious era of human existence, driven by the influence of humanity’s “peaceable motives” that reward cooperation. Biological studies have also confirmed a motivation for altruistic behavior by individuals within a species because it will maximize their own “evolutionary fitness”.

These findings parallel the musings of futurists who believe we are moving towards a global civilization. The physicist Michio Kaku writes that, today:

“We see the beginning of a planetary language (English), a planetary communication system (the Internet), a planetary economy (the forging of the European Union), and even the beginnings of a planetary culture (via mass media, TV, rock music, and Hollywood films).”

And today, with Bitcoin, we are seeing the early days of the first planetary currency.

Where’s The Motivation?

It is nice to talk about utopian global societies, but is there enough evidence that humanity is capable of such cooperation? After all, less than 75 years ago the world was in the midst of a catastrophic global war. What has changed to allow for this sort of peace? And even if we have become more peaceful, what will keep us from reverting to our old habits of violence?

The answer lies with the Internet.

Yes, the same internet that most of the time seems like it is dedicated to pictures of cats side-by-side with some of the most hateful and offensive comments you can imagine, might very well be the key to uniting the human race.

This is because, for all of its faults, the Internet helps us to perceive each other as equals.

While there is a biological incentive for human beings across all cultures to cooperate based on our genetic similarities, for much of history we were blind to this opportunity. Before the industrial revolution, the majority of humans spent their entire lives on roughly the same part of Earth, with far off lands seeming as separated from them as Mars is to us.

Globalization, the expansion of trade and communication started by the industrial revolution which has since grown exponentially, has allowed humanity to view each other from a better perspective. As we realized that the people on the other side of the ocean weren’t all that different from us, we empathized with them. This is important because, as studies have shown, our ability to empathize with someone increases our willingness to co-operate with them.

Fast forward to present day, and relatively cheap worldwide access to the internet (a product of two centuries of globalization) has allowed humans to learn more about each other than ever before. An education in history and anthropology that was once only available to those who were rich enough to pay for it is now available to anyone with unrestricted access to the web. This free flow of information is essential to furthering what Pinker calls “the peacemaker of cosmopolitanism”.

The Importance Of Bitcoin

Another peacemaker that Pinker identifies is commerce.

“As technological progress allows the exchange of goods and ideas over longer distances and among larger groups of trading partners, other people become more valuable alive than dead. They switch from being targets of demonization and dehumanization to potential partners in reciprocal altruism. For example, though the relationship today between America and China is far from warm, we are unlikely to declare war on them or vice versa. Morality aside, they make too much of our stuff, and we owe them too much money.”

Unfortunately, while this positive-sum view of trade has long been held by economists, most politicians do their best to hold back free trade.

You could point to documents such as the North American Free Trade Agreement as an exception, but NAFTA is 1,700 pages long. That is not a free trade agreement. A free trade agreement shouldn’t take more than a page. It should say “anyone is allowed to buy and sell things with anyone else without any red tape”. That is the opposite of what you get with today’s “free trade” agreements.

Instead, this is what you get when politicians (and in turn the contributors to politicians’ campaigns) are in charge of free trade: a convoluted agreement like NAFTA that is specifically designed to only open up trade for people that are in the know and have enough time and money to navigate the bloated document. By its very nature, NAFTA is anti-free trade.

Bitcoin solves this problem where politicians fail. Just like globalization and the Internet tore down the walls of ignorance that kept humanity from learning about itself, Bitcoin will dispel the arbitrary borders and regulations holding back world commerce. Governments can manage trade when it goes through banks and involves their own fiat. However they have as much reign over cryptocurrencies as they do over the laws of mathematics.

Obviously this will not be a smooth process. China is trying to strangle the business of local Bitcoin exchanges due to their fear of unrestricted capital flows and the United States has chosen to hamper crypto transactions with archaic tax laws. And this is just the beginning for Bitcoin. The Internet has been around for substantially longer and is still facing dangerous attacks to its mission of democratic access to information. Cryptocurrencies can expect no less. No government wants to see their power taken away.

The beauty of Bitcoin, however, is that instead of that power being transferred to another centralized organization, it will instead be distributed to anyone with the ability to download a wallet. Monetary information, like almost any other form of information in the 21st century, will be freed from its entrapment inside a hierarchical power structure.

It will not happen overnight. As we have learned, it takes time for humans to learn what is best for them and entrenched ideologies of hatred and misunderstanding are still alive across all levels of our culture. But with tools like the Internet and cryptocurrencies at our disposal, humanity can begin to learn more about itself than ever before and trade with unprecedented autonomy.

Hopefully this will help continue our progress towards a peaceable, planetary society.

This interview first appeared at Bitcoin Not Bombs.

Michael Malice’s book Dear Reader: The Unauthorized Autobiography of Kim Jong Il is a darkly humorous peek into the mind of one of the most brutal dictators in recent history. Weaving North Korean propaganda into a new literary genre–the unauthorized autobiography–Malice has created a work that forces you to laugh when you shouldn’t and climaxes numerous times with fantastical stories of Jong Il’s heroism alongside his murderous sociopathy. The phrase “laughing to keep from crying” rings ominously true while reading it.

Malice, also a celebrity ghostwriter of seven books, sat down with me to discuss his research, propaganda, black markets, and Bitcoin. You can purchase Dear Reader at kimjongilbook.com. He even takes bitcoin!

It was a fascinating discussion and he even alludes to a surprise for fans of bitcoin and Bitcoin Not Bombs. Check it out in the video below.

Six months ago Ethereum was an ambitious white paper committed to a thorough re-imagining of the ‘Bitcoin 2.0’ space. With a sincere desire to mould the blockchain in his own image Vitalik Buterin, our resident tech. wizz, penned the concept.

Since inception the project has benefited from some key strategic partnerships and an unparalleled press onslaught. Ethereum has successfully inspired technologists itching to take blockchains to the next level. Enter Dr. Gavin Wood.

Open-source projects live and die by the developer talent they attract. Upon first meeting Gavin two things struck me: his animated enthusiasm for fractals and his casual indifference to Bitcoin.

Gavin is not a ‘Bitcoiner’ as you’d expect to meet at a conference. This is a capable mind fully committed to the greater promise he sees in Ethereum specifically. Game on.

As CTO of the Ethereum project Gavin has recently authored two key papers. The first is Ethereum’s ‘Yellow Paper’, representing an outline of the project’s newest iteration.

Most recently he published ‘Ðaps: What Web 3.0 Looks Like’. Here we are introduced to the Internet as a “zero-trust interaction system” made possible by a decentralised and encrypted information publication system, a pseudonymous low-level messaging system and a consensus engine. A seamless user experience makes it all palatable.

Gavin has a clear vision for Ethereum, blockchain based technologies and their interplay in the evolution of the Internet.

Gavin, how do blockchains fit into your overall vision of Web 3.0? How important are they in this vision?

While the Internet provides us with a great way to communicate with individuals the world over, it is difficult to enter into an agreement with them; typically, we must trust either them directly (in the case of an e-commerce site, for example) or a third-party that vouches for them. Both are susceptible to the sorts of abuse that blockchain-based technology can mitigate or remove entirely.

Explain some other key technologies underpinning Web 3.0?

The other two key technologies we’ll need to see for Web 3.0 to be realised pertain to the delivery of so-called “static” data and to the transmission of dynamic information.

The first relates to the parts of a web site (or web application) that don’t change. This might be the information describing layout and styling together with any content that tends not to change often such as images and text.

The delivery mechanism for this would be a p2p system similar to BitTorrent or Freenet, but including additional measures to guarantee some level of anonymity and allow incentivisation of participation.

The second relates to the publication and discovery of information that tends to change often or is otherwise time-sensitive. This might be information relating to the current status of an individual or some other component of the website. An example here would be the items on an e-commerce site.

By splitting the two from each other, we are able to optimise the experience of users. For example, it should be possible to interact with an e-commerce at full-speed even with a slow Internet connection; the speed of the Internet should affect only the dynamic information – that which is likely to change from minute-to-minute.

Static information, such as the general layout, text, images and logic should be “cached”, or pre-downloaded and thus pages should “load” instantaneously, even if some of the information they contain is a little old.

Won’t there be governmental resistance to a web of pseudonyms, untraceable and encrypted connections? How much success can monolithic centres of power have in resisting this evolution?

Government resistance may be overplayed here. It is not clear that all elements of governments wish to remove all privacy from everybody.

Indeed the judiciary routinely protect such rights and many executive branches refuse to condone dragnet surveillance.

Furthermore with sufficient resources, any organisation, governmental or otherwise, can and will compromise an individual’s privacy if there is a perceived need.

The purpose of Web 3.0 is not to absolutely remove the ability of a government to do its job in this regard – there are instances when a government may legitimately require the ability to infringe a citizen’s privacy. However, the resources required for infringement should be proportional to the number of individuals whose privacy is infringed.

The breakdown of this relation is one of the key reasons we find ourselves in the current situation; security services were able to avoid being accountable since, due to the technological ease of dragnet surveillance, the cost to infringe an additional individual’s privacy is negligible.

One of the two purposes of Web 3.0 is to restore this economic balance and through re-engineering the Internet to make the cost of infringement of each individual’s privacy economically substantial. The other purpose is to reduce the necessity of sharing information with third parties by bolstering the infrastructure for peer-to-peer communications.

So, will there be any role for centralised, trusted parties at all in web 3.0? If so, where, what will they do and what will they look like?

Yes; there will be many such entities, just as there is in the Real World. Many aspects of useful applications require oracles, or third parties that provide information that cannot otherwise be known or agreed upon.

This might include up-to-date pricing information of commodities, weather information and so forth. Such authorities may also provide us with information pertaining to entities or individuals within the system that we could discover manually, but that is prohibitive in terms of time and/or expertise.

In general, it is impractical to eliminate the need for trust, per se, from the world. The best we can do at this point is to reduce it, spread it, isolate it and be absolutely certain about who it is that we must trust, why, and about what we trust them.

How do you envisage Ethereum’s role in web 3.0?

The Ethereum protocol will provide the basis for trustless interaction, and thus will form one of the three pillars of communication. We hope to support, or perhaps even lead, the development of the other two pillars with the ultimate aim of providing the first Web 3.0-capable browser.

How do contracts in Ethereum deal with enforcement issues in the “real” (physical) world?

The enforcement of the external ramifications of Ethereum contracts is an interesting topic and still an area of research. We envisage that such enforcement will happen in one of three schemes: either through the payment to an “enforcement” individual or organisation, through integration into an existing legal system or through physical objects being connected directly to Ethereum.

The first makes sense in situations in which bailiffs or debt-collectors would already be used. A contract could, e.g., automatically pay such an individual to lead proceedings to remove a no-longer-paying tenant from a household.

The second is a longer-term possibility and we may yet find jurisdictions that would be willing to enforce a blockchain-based contract’s ramifications. Certain Central-America-based governments are already considering such proposals.

The third is likely the best short-term solution. Smart property, or physical objects made to respond directly to Ethereum provide a great way for contracts to control real-world objects. An example would be an Internet and Ethereum-enabled door-lock with a barcode reader. A contract could accept payment in order to allow the individual’s private key (provided through a barcode) to unlock it.

What are the specific development challenges being faced at the moment in Ethereum?

Organisation of scarce and disparate developers, of course, makes the job more difficult than it needs to be. With tools such as Git (Hub), our lives are made somewhat easier.

I anticipate the job of development will become easier still following the Ether swap when we have the resources to hire and co-locate developers and purchase infrastructure equipment to make, e.g. network debugging, more straightforward.

In actual fact, the greatest issue to date has been the building the project over multiple platforms. Windows, in particular, provides an unnecessarily laborious environment for developers of cross-platform software stacks.

What areas of development are proceeding better than expected in Ethereum?

The development of the client’s interface has been streamlined somewhat by the use of the Qt programming toolkit. By leveraging its Webkit (HTML browser) and “QtQuick” features for quickly building interfaces we have been able to deliver certain functionality far faster than we would otherwise expect. The debugging mechanisms have also proceeded far faster than expected.

What are some key changes that form the latest iteration of the Ethereum project ?

The latest iteration, codenamed PoC-5 and still in development, provides a number of changes to the protocol, making it cleaner and more robust. It adds a contract debugger allowing contract developers to analyse the execution of their contracts, seeing where and why they go wrong.

The most visible change, however, is the addition of an HTML/Javascript based engine and Ethereum bindings. This forms the basis of the technology of the final Ethereum client, allowing ÐApp developers to tie together contracts with HTML/Javascript based front-ends.

There you have it, an ambitious plan to provide the world its first ‘Web 3.0’ capable browser. This is a profoundly new internet experience, underpinned by a series of advanced components and focused on advanced decentralised agreement at distance. While it is an ambitious task, a conversation with Gavin leaves you feeling confident in the Internet’s future.

Bitcoin Battalion

Back in December we reported that the United States Air Force has quietly been working on a Bitcoin payment gateway otherwise known as a “snack machine” (yes you read that correctly). We also discussed that “currency is like another class of supply, a commodity required to execute the battle.”

Recently, United States sanctions against the Kremlin for annexing Ukraine resulted in MasterCard and Visa suspending certain types of transactions in Russia (apparently due to the OFAC 50% rule). OFAC or Office of Foreign Assets Control under the Department of U.S. Treasury maintains a list of different sanctions programs that it administers here.

It has been reported that Visa did resume services with some Russian banks. I found an old SEC filing that may (or may not) shed some light how Visa is able to continue its relationship with certain banks under sanction:

“…OFAC restricts financial dealings with Cuba, Iran, Myanmar and Sudan, as well as financial dealings with certain parties, such as identified money laundering fronts for terrorists or narcotics traffickers. While we prohibit financial institutions that are domiciled in those countries or are restricted parties from being Visa members, many Visa International members are non-U.S. financial institutions, and thus are not subject to OFAC restrictions. Accordingly, our payments system may be used for transactions in or involving countries or parties subject to OFAC-administered sanctions…”

In any case, President Vladimir Putin now supports plans for Russia to create its own national payment system. Headlines such as “Russia Reconsiders Bitcoin?” have begun to sprout up and this week Russia will be hosting its first Bitcoin conference.

US Army War College

This should come to no surprise to those who read Juan C. Zarate’s“Conflict by Other Means: The Coming Financial Wars” (PDF) published by the US Army War College Strategic Studies Institute Quarterly Parameters in its Winter 2013-14 Issue. Mr. Zarate has been called “a chief architect of modern financial warfare” and is a Senior Adviser for the Transnational Threats Project and Homeland Security and Counterterrorism Program,  CSIS Senior National Security Consultant and Analyst for CBS News. Mr. Zarate also authored the memoir “Treasury’s War: The Unleashing of a New Era of Financial Warfare” published by PublicAffairs.

In “Conflict by Other Means: The Coming Financial Wars”, Zarate writes that:

“Countries such as Russia and China will continue to challenge the dominance of the US-led international system and the dollar itself. If such attacks succeed, they could weaken the ability of the United States to affect or move private sector decision making in line with national security interests, regardless of what other governments do.”

and further:

“The domain of financial warfare will no longer remain the sole province of American power. A wide array of state and nonstate actors may step up to wield economic power and influence in the twenty-first century.”

He discusses “Challenges to U.S. Financial Power” such as nontraditional currencies, Local Exchange Trading Systems (LETS), Community Exchange System (CES), bartering (e.g. ITEX) and of course Bitcoin:

“{Bad} actors have new digital tools {such as} bitcoin (BTC) …a digital currency …{which}… uses cryptography rather than central authorities to issue and transfer money. The result is that transactions are cheap, accounts cannot be frozen (unless users keep bitcoins in a separate third-party online wallet service), and there are no prerequisites or arbitrary limits for use…”

The Navy

“Radical connectivity is blurring national lines and facilitating the transfer of virtual currency between otherwise disparate non-state actors.”

On March 19th (as amended April 10th), interested vendors began bidding on a Broad Agency Announcement (BAA) project for the Technical Support Working Group (TSSWG) Combating Terrorism Technical Support Office (CTTSO) for the Navy Engineering Logistics Office of the Department of the Navy.

Federal Business Opportunities (FBO) posting of Solicitation Number N41756-14-Q-3272 includes the keyword “bitcoin.” The BAA Includes “R3861: Counter Threat Finance” and “R3830 Methods and Means to Systematically Discern and Display ‘Precursors of Instability’ In The Dark Web.” These were introduced on January 30th in the unclassified PowerPoint presentation and corresponding  “Advance Planning Briefing for Industry” (PDF) as part of a “Irregular Warfare and Evolving Threats Mission” which includes “operational assessment, concept development, and independent validation of unique prototype capabilities to identify, confront, and defeat evolving threats.”

Some may find it unusual that the Navy was one of the original developers of the Dark Web. However, “Tor was originally designed, implemented, and deployed as a third-generation onion routing project of the United States Naval Research Laboratory…for protecting government communications…” and provided funding from 2006 through 2010.  Though I don’t find this any more unusual than the Internet itself starting out as a project from the (Defense) Advanced Research Projects Agency called ARPANET (see “DARPA and the Internet Revolution” [PDF]).

The Dark Web has been part of Bitcoin’s “zeitgeist” since Adrien Chen of Gawker published his infamous piece on Silk Road on June 1st, 2011 “The Underground Website Where You Can Buy Any Drug Imaginable.” It would take another two years before Adam B. Levine of Let’s Talk Bitcoin and I would uncover that the Drug Enforcement Agency appeared to have infiltrated the Silk Road marketplace.   

Early in Bitcoin’s history it was possible to send bitcoin via IP address (e.g. 172.16.254.1) rather than public bitcoin address (e.g. 1BTCorgHwCg6u2YSAWKgS17qUad6kHmtQW).  In November 2009 Satoshi reposted a request from a user to make Bitcoin anonymous and Satoshi discussed privacy and TOR in this regards:

“When you send to a bitcoin address, you don’t connect to the recipient. You send the transaction to the network the same way you relay transactions. There’s no distinction between a transaction you originated and one you received from another node that you’re relaying in a broadcast. With a very small network though, someone might still figure it out by process of elimination. It’ll be better when the network is larger.

If you send by IP, the recipient sees you because you connect to their IP. You could use TOR to mask that.

You could use TOR if you don’t want anyone to know you’re even using Bitcoin.

Bitcoin is still very new and has not been independently analysed. If you’re serious about privacy, TOR is an advisable precaution.”

Privacy is discussed in the original Bitcoin whitepaper (section 10) which mentions how Bitcoin keeps public keys “anonymous.” Satoshi likely used TOR when he announced Bitcoin, published the whitepaper and maintained his status as a Bitcoin developer because his identity is unknown which proves that someone who is skillful  a genius probably could stay anonymous within Bitcoin.

Bitcoin doesn’t have a gatekeeper. Fundamentally no one needs to ask permission to use Bitcoin or run a Bitcoin client making most financial blockades or sanctions at their core ineffectual. If and how Bitcoin will be used in “battle” is a dystopian future that remains to be seen. As the Navy notice observes, “Radical connectivity is blurring national lines and facilitating the transfer of virtual currency between otherwise disparate non-state actors.”

Following are R3830 and R3861 their entirety:

BAA for CTTSO/TSWG Support

Solicitation Number: N41756-14-Q-3272

Agency: Department of the Navy

Office: Navy Engineering Logistics Office

Location: TSWG

 R3861 COUNTER THREAT FINANCE

This requirement is for innovative materiel and non-materiel solutions to develop and/or enhance new concepts and constructs for understanding the role of virtual currencies in threat finance. The world’s population grew by more than a billion people between 2010 and 2013, and by 2020, the number of Internet users is expected to double. Radical connectivity is blurring national lines and facilitating the transfer of virtual currency between otherwise disparate non-state actors. The introduction of virtual currency will likely shape threat finance by increasing the opaqueness, transactional velocity, and overall efficiencies of terrorist attacks. This requirement will explore the unique and required skills necessary to understand and react to the rapidly evolving architecture of threat finance networks within a radically connected hybrid warfare context and will develop solutions to combat vulnerabilities posed by virtual currencies.

 The proposed solutions should consider, but are not limited to, the following:

• Identify relevant case studies from the last 20 years and explore how various funding instruments supported the flow of funds in support of threat finance networks. Determine the extent to which the nature, trajectory, velocity, and decision making supporting funds flows change with the introduction of virtual currencies into the systems.

• Determine the types of “red flags” that have emerged during the introduction of virtual currencies. Determine how these warning signs are being incorporated into future efforts to track ongoing funds flows supporting threat finance based business models. Determine how virtual currencies might alter threat finance models and whether it is possible to predict changes in its architecture.

• Determine how this information might be used to model and test the flow of funds using virtual currency for use both in predicting future attacks and in developing and deploying disruptive strategies to prevent them.

• Determine what capabilities can be used to implement effective countermeasures to identify and mitigate terrorist threats supported by new payment systems and how these capabilities can be enhanced or developed.

• Develop beta test protocols for testing virtual currency risks under a range of scenarios.

 R3830 METHODS AND MEANS TO SYSTEMATICALLY DISCERN AND DISPLAY “PRECURSORS OF INSTABILITY” IN THE DARK WEB

U.S. national security organizations and commands lack the ability to discern, understand, monitor, and where possible, make mitigation decisions against adverse phenomena in the Dark Web, a region of the Internet where activities such as trafficking in drugs, weapons, humans, and chemical, biological, nuclear, and radiological technologies in support of disruptive, nefarious actions goes undetected. Current methods and means for discerning instability inordinately emphasize detection well after disparate phenomena have catalyzed into crisis, therefore forcing policymakers and commanders to react rather than allowing for predictive and proactive measures.

The objective of this requirement is the development of an automated capability to intuitively visualize geographic and functional areas of latent and/or emergent instability in the Dark Web. For the purposes of this requirement, the Dark Web includes sites that are not indexed by major search engines and which are accessed by using anonymizing software (e.g., onion domains). Discerning, then monitoring latent instability manifest in

Dark Web precursors would enable the development of more nuanced, contextually appropriate and proactive theater-strategic policy reflected in: 1) more efficient and effective strategic communications and military information support operations (MISO), 2) enhanced military-to-military engagements, and 3) with an emphasis on UNCLASSIFIED, “share-able” information/knowledge, the creation of “shared understanding” amongst partners and allies leading to combined mitigation actions.

 Lastly, and most critically, the emphasis on identifying precursors to allow detection well left of crisis on a timeline where 1) commander’s mitigation options are more numerous, 2) the risks of execution are relatively low, 3) coordinated interagency collaboration and action has the greatest probability of success, and 4) access to Dark Web information is relatively high (acknowledging that the Dark Web, by definition, is already obscured by security and technical systems and protocols).

Proposed Specifications and Key Performance

Parameters:

 Automated capabilities/specifications:

• Ability to crawl a prepopulated list of Dark Web sites and gather information.

• Ability to discover new sites in the Dark Web as they materialize (some level of latency is permissible, but this must be specified).

• Ability to automatically group/categorize observed potential threats/activities for analysis/visualization by geographic and/or functional area.

• Ability to visualize trends over time with respect to the groupings/categories referenced in the previous bullet in terms of their (1) frequency/commonness and (2) threat intensity in a fashion that is intuitively usable/interpretable by a military commander (i.e., an intelligent non-specialist).

 Manual capabilities/specifications:

• Ability to manually adjust/tweak sites crawled for information.

• Ability to manually adjust/tweak categorization algorithms.

• Ability to search crawled information for specific strings.

• Ability to output data (to include metadata resulting from in-program analysis—e.g., category names and measures of frequency/commonness and threat intensity) in file formats amenable to analysis in other tools (e.g., PNNL’s IN-SPIRE for thematic extraction, R for statistical analysis)

Bitcoin Bomber Center Image Courtesy of Bitcoin not Bombs

Dogecoin has become a very popular cryptocurrency since it was introduced in December 2013. Since then, this currency based on the popular internet meme has been widely used as a “tipping” system for dogecoin Reddit users, while also acting as a successful medium for crowdfunding campaigns. The internet meme features funny, nonsensical and misspelled captions overlayed atop images of a Shiba Inu dog. For those unfamiliar, these captions include, “so very wow,” “such coin,” “very moon,” some of which are hard to understand for those outside the growing community.

Developed and created by Billy Markus, with an aim to create a “fun” cryptocurrency that could reach a broader demographic than Bitcoin, Dogecoin has achieved sizeable growth in the short six months since its introduction. Although it is not likely for the value to surpass Bitcoin, the trading volume of the cryptocurrency surpassed that of Bitcoin and all other cryptocurrencies combined in January 2014. Since that time, the community has been actively working to crowdfund athletes, including the Jamaican bobsled team, Sochi athlete Shiva Keshavan, and more recently, a NASCAR driver.

Less than a month ago, passionate fans of Dogecoin made history yet again. Shortly after the community supporting the meme-based cryptocurrency sponsored the Jamaican bobsled team in Sochi, Shiba Inus everywhere are yelping with spastic joy at the opportunity to sponsor another sport. This time around Dogecoin has raised over $55,000 to sponsor NASCAR driver Josh Wise.

At the time, Josh Wise was without a sponsor for the upcoming Aaron’s 499 at Talladega Superspeedway in May. What the Dogecoin community did was nothing short of incredible. They banded together, took to Reddit and further showed us the power of cryptocurrency. To sponsor the NASCAR racer, members of Reddit donated 67.8 million Dogecoin just days after the crowdfunding campaign began, making this the first cryptocurrency themed racecar to be driven in a NASCAR event.

Moments after the announcement, Wise tweeted, “Just a week ago this was only an idea and now it’s a reality. So thankful for all the fans, Reddit community and Dogecoin for doing this.” Wise also participated in an AMA on Reddit and when asked how he felt about the knowing he was sponsored by a $55,000 crowdsourcing effort, he concisely stated, “Mind blown! Thankful.” Furthermore, when asked what the NASCAR community thought of the sponsorship, Wise summed it up in three words: “Confused, surprised, curious.”

The final design of the car was decided via the “paintjob contest” that took place on subreddit. The winning user designed three separate livery options: gold, silver and black. Soon after, the black scheme was chosen through a user poll held on Doge 4 Nascar, which received 58 percent of user votes.

The upcoming race on May 4th will further prove what cryptocurrencies like Dogecoin make possible. For Shiba Inus around the world, the focus on crowdsourcing, sponsorship and charity will continue to excite the community and drive its popularity. If you want to see history in the making, tune in to the race, which will definitely be “so very wow,” “so NASCAR” and consist of “much speed.”

How can you put your Bitcoin to good use? In so many ways!

One opportunity that you have to consider today is donating to the BitGive Foundation’s Water Project Campaign. The Water Project recently began accepting Bitcoin and focuses on delivering clean water to Sub Saharan Africa. As a 501(c)(3) organization, the Water Project seeks to build a foundation in communities in need of a sustainable water supply. You can be apart of this project. Most of us simply take our running faucets and clean water for granted, but many do not have access to clean drinking water.

I agree with the Water Project that, “clean water saves lives.” Donating even 5 USD in BTC can and will truly make a difference. Here is an even greater incentive for you: BitPay is pledging to match 1 BTC for funds raised.

BitPay issued the following press release:

BitPay Pledges 1 BTC Match to BitGive’s “The Water Project” Campaign

April 22, 2014 – Atlanta, GA – BitPay, the world leader in business solutions for the Bitcoin digital currency, today has pledged to match 1 BTC in donations from the Bitcoin community for BitGive Foundation’s campaign for The Water Project. BitGive is non-profit foundation leveraging the power of the Bitcoin community to improve public health and the environment worldwide.  Please help raise 1 BTC by donating here to trigger BitPay’s match.

The Water Project, Inc. is a 501(c)(3) non-profit organization unlocking human potential by providing sustainable water projects to communities in Sub-Saharan Africa who suffer needlessly from a lack of access to clean water and proper sanitation. The Water Project recently began accepting Bitcoin, and their President released this “Welcome Cryptos” message.

“We are excited to launch this first project with BitPay and get the support of the Bitcoin community,” said Connie Gallippi, Executive Director. “And their donations will directly improve the lives of those in the Sub-Saharan Africa.”

This campaign, led by the BitGive Foundation, would fund an entire water project for a community in Sub-Saharan Africa.  When the funding goal is met, the location, pictures and updates will be posted to the Bitcoin-funded water project.  See examples of current and past water projects.

This is one of many charitable efforts by BitPay, a long-standing leader in the Bitcoin community.  BitPay also provides their services at no cost to non-profit organizations, and they are ongoing supporters of Sean’s Outpost, BitGive, and many other organizations.  Please visit and learn more about BitPay.

More on The Water Project and the BitGive Foundation’s campaign can be found here .

About BitPay

BitPay is the leading Payment Service Provider (PSP) specializing in e-commerce, brick-and-mortar and B2B solutions for virtual currencies. Visit bitpay.com. 

About BitGive Foundation

BitGive is a non-profit foundation [IRS 501(c)(3) status pending] leveraging the power of the Bitcoin community to improve public health and the environment worldwide. Visit: bitgivefoundation.org.

Contact

Jan Jahosky

407-331-4699

jan@bitpay.com

The Endorsements

Billionaire entrepreneur Sir Richard Branson, whose Virgin Galactic airlines was the first to accept bitcoins for space flight, recently described bitcoin as “the pioneer of a global currency” in an interview in the April issue of Delta’s SKY Magazine. Branson clearly believes in bitcoin. Not only is he accepting it, but he’s invested in it as well. But his comments indicate that he does not believe bitcoin will be the ultimate winner in the cryptocurrency wars.

“It may not be the perfect global currency of the future yet, but it’s the pioneer of a global currency,” Branson said.

He joins other tech giants in his assessment. “The Foundation is involved in digital money but unlike Bitcoin it would not be anonymous digital money,” Bill Gates said in February. “In Kenya M-PESA is being used for almost half of all transactions.”

Gates, Branson, and Jack Dorsey, co-founder of Twitter and CEO of Square all believe any successful online payments system will need more transparency than bitcoin currently offers.

So what “transparency” does M-PESA offer that bitcoin doesn’t?

Well, first, all customers must provide M-PESA an original identification document in order to open an account. Retailers who accept M-PESA are trained and required to check customers’ ID cards every time they make a purchase and each purchase requires a three-factor authentication involving ID, the SIM card, and a PIN.

Like bitcoin, every single transaction in M-PESA is recorded and can be monitored by Safaricom, along with the location of the device used in the transaction. Safaricom runs what it calls bank-grade anti-money laundering checks, and sends regular reports to the Central Bank of Kenya.

Between the value of customer data and how much easier it makes anti-money laundering reporting, it’s clear why Gates, Branson, and Dorsey might be interested in such transparency. However, there is a tension between transparency and security. One of the reasons bitcoin transactions are by-default more secure than credit card purchases is that its transactions involve transmissions of personal data.

In addition, while bitcoin transactions are by-default only semi-anonymous, some bitcoin users appreciate the privacy of the fully anonymous transactions bitcoin makes possible.

Like Friendster and Myspace, bitcoin is probably not the be-all and end-all of decentralized, peer-to-peer online currencies. But it’s impossible to know what exactly the Facebook of cryptocurrency will look like. Only time will tell if transparency is something customers will value as much as entrepreneurs.

If you seek artisan made goods, Central Texas is the place to be. Some attribute it to the magical waters flowing from springs into the river, some attribute it to the weather, others to the people. No matter the reason, one cannot deny that Central Texas is home to a thriving entrepreneurial/artisan movement – a movement that now accepts bitcoin!

One such artisan is Bitcoin enthusiast and singer/songwriter, Sarah Stollak, owner of World on a String Jewelry. I met Sarah at one of my husband’s activist related court dates. She was sitting beside me crocheting jewelry with writing pens because her crochet needles were confiscated at the security checkpoint at the courthouse.

This radical woman is not afraid to be herself or stand up for what she believes. As an activist with the Peaceful Streets Project, a grassroots police accountability group in Central Texas, Sarah has participated in reigning in police brutality in Austin, Texas, a problem so prevalent in the area that several officers have become notorious through internet memes portraying their aggression against the Austin populace.

The outward expression of her passion for everything beautiful has resulted in years of creative outpouring through music and art. When Sarah takes the stage, you can not help but be brought to your feet. Her fiddle dances along with her, creating an irresistible urge to get up and join in the fun. Sarah has become a farmer’s market icon, playing at venues peppered throughout Central Texas and across the country. These days she includes a Bitcoin QR code for accepting crypto-tips while on stage.

I caught up with Sarah to talk about the genesis of her business and why she started accepting Bitcoin. I asked her to tell the story of her business from idea to fruition; here is what she had to say:
“My mom taught me how to knit in 1993 and I’ve been creating ever since. When I moved to Austin in 2004, I started an artisan booth at local markets, street fairs, and special events. Vending was supposed to be temporary while I found a real job, but almost a decade later here I am, still a full time creative entrepreneur.”

It was actually our family who introduced Bitcoin into the World on a String economy. We commissioned thirteen necklaces and bracelets from Sarah for our wedding party in late 2013. When bitcoin hit $125 I was thrilled to pay her, thinking it was hitting a huge high and allowing our family to get a great bang for our bit. Lo and behold, just weeks after making payment, Sarah watched her Bitcoin hit an all time high of over $1,000 per bitcoin.

Sarah used the profit from that first bitcoin transaction to reinvest in the Bitcoin ecosystem, “I reinvested in my local community by taking out a radio ad on The Liberty Beat on 90.1 FM, and by hiring some of my favorite local musicians for a Bitcoin Shopping and Social Event.”

Real world businesses mean real world problems. Using and accepting bitcoin has not been a flawless transition for Sarah.

“There are still obstacles transacting in Bitcoin, but that’s part of what makes it fun, to be in the midst of something changing and growing so quickly.” One example of a bitcoin roadblock was sending payment to the Unconventional Oven, she was their first bitcoin user, but she “used the wrong email address to pay and after a month the funds were sent back.”

Sarah said it was the people at the Austin Bitcoin Meetup who helped her to understand and successfully figure out how to use a QR code instead of using email addresses. “In addition to technology, patience and a friendly community are always important,” said Sarah. Despite the obstacles, Sarah would still recommend accepting bitcoin to her fellow artisans if for no other reason than to “make it easy for people to give you money”.

You can support this Bitcoin Artisan by visiting www.worldonastring.us.

Read the full transcript of my interview with Sarah here: http://www.thebitmom.com/transcript-interview-with-sarah-stollak-of-world-on-a-string/

NEW YORK CITY – April 9, 2014 – Corkket.com, a native Bitcoin person-to-person e-commerce platform, is beta launching in New York City on April 12, 2014. Corkket is making local transactions simpler and safer for individual sellers by implementing a natively built-in Bitcoin or USD escrow service.

Corkket’s beta launch will happen in New York City. Corkket will be in Union Square on April 12th from 10am to 7pm to hand out QR codes that people can redeem for milliBits. The first 1,000 users to sign up with the QR code will get a free milliBit, with two randomly selected individuals receiving a full Bitcoin.

Corkket is the first local online person-to-person marketplace to fully integrate Bitcoin-escrow based payment processing. The escrow service protects users from fraud and each transaction is secured with a custom QR code to prevent chargebacks. When you buy an item, your money is sent to Corkket’s escrow account and a QR code is sent to
your email. After the item is traded for the QR code, the seller scans the QR code to complete the transaction and get paid. There’s no need for buyers or sellers to personally carry cash or credit cards; the entire transaction happens within Corkket.

Corkket’s intuitive user interface optimizes for local searches. The items physically closest to your location are displayed first. This allows you to browse for what is in your building, on your block, or in your city to a high degree of accuracy. Customized personal profile pages allow local businesses to create Bitcoin-ready online storefronts with escrow services natively built in. Using responsive website methodologies, Corkket works natively with your desktop, smartphone or tablet, on iOS, Android, or Windows.

Corkket’s co-founders Tom Tang – CEO, YJ Dang – COO, and Angel Beale – CMO each have a Masters Degree from Yale, where they first met. They worked professionally as Web Developer, Architect, and Product Designer before deciding to make Corkket. They believe in making person-to-person local commerce easy, safe, and fast for everyday
people. As longtime Bitcoin enthusiasts, they knew Bitcoin is ideally suited as a payment method for privacy and security conscious users.

For more information, contact angel@corkket.com, 787-638-1400, BitMessage ID: BM-
2cUfrBkHHiETUn6tvrqSBC2W1by2WKPWSf

Sports gambling in America is big business. It is also, largely, illegal. According to the National Gambling Impact Study Commission, nearly $400 billion is wagered on sports by United States citizens during a given year, with only $3.5 billion of those bets being placed at legal books in Nevada.

With only one state offering legal sports betting, how is it that U.S. citizens are able to gamble so much on games?

While a significant portion of illegal gambling is still done in person, the internet has allowed the popularity of the pastime to soar. Widely used sites such as Bovada and 5Dimes that are based outside of U.S. jurisdiction (Canada and Costa Rica, respectively) offer gamblers a way to get in on the action without driving to the desert. But they also come with risks.

In 2011, the online gambling world was hit by one of its worst scandals to date. In an event known as “Black Friday”, the U.S. Department of Justice shut down Full Tilt Poker and PokerStars, two huge online poker sites, and seized over $500 million in player deposits. Customers had to wait a year and four months before a settlement was reached to repay their losses, with the stipulation that they had to contact the Justice Department to claim reparations.

With such a huge bust only a few years ago, sports gamblers are wary of keeping too much money online, lest history repeat itself. So far the U.S. has been lax in their enforcement of anti-sports gambling laws, but there is nothing to stop them from cracking down like they did on poker sites. Nonetheless players continue to use the services because they are widely regarded as the only option around.

Bitcoin’s Potential

Bender is a gambler. He’s also a Bitcoiner:

“I was a semi-professional online poker player during the pre-ban days, and always dabbled a bit in sportsbetting. The minute I understood bitcoin, I saw that it could, just maybe, be the answer for all of online gaming – sportsbetting, casinos, poker…”

Online gambling is nothing new in the world of Bitcoin. It is well known that at times the activity of SatoshiDice has made up over 50% of blockchain transactions. The speed and anonymity Bitcoin offers has made the cryptocurrency ideal for people looking to wager safely and has given sports gamblers like Bender an alternative to traditional online books.

Usually United States players have to go through a tedious process sending and receiving their money from gambling sites. Depositing money requires using Western Union or a credit card. Western Union is convenient, but requires fees unless players meet a minimum deposit. Credit cards are a cheaper option, but require you to upload a copy of your card.

Withdrawals are a bit more difficult. From a Gizmodo article on the topic:

“Each site has different hurdles to jump through. Legends’ best option seems to be getting a cashier’s check sent to you. The site offers one free cashier’s check every 30 days ($55 for additional withdrawals), so put yourself on a monthly withdrawal schedule to take advantage of the freebies. 5Dimes also sends a free check or money order every 30 days, but comes with the stipulation that you request your withdrawal on Monday between 9:00 am Eastern and 1:00 pm Eastern. Mark it in your calendar.”

So…there’s room for improvement. This is where Bitcoin shines as a gambling option. As Bender explains:

“The speed of bitcoin transactions makes using bitcoin sportsbooks a much safer option to me than traditional sportsbooks. I can deposit, wager, withdraw, and have my money back in my immediate control.”

This is made possible by the blockchain. Since the network handles transactions at such low cost, Bitbook operators are saved the headache of managing players’ cash.

James, a representative for the Bitbook NitrogenSports.eu, told Bitcoin Magazine:

“Traditional payment methods are expensive for operators…(t)he operator costs are usually a % of the amount + a flat fee per transaction. By comparison, Bitcoin transactions might cost an operator a flat 10 cents.”

These advantages have Bitbook operations like Nitrogen thinking optimistically: “Once someone experiences the benefits of Bitcoin: Instant and unlimited low-cost (free) transfers, anonymity and personal control of your coins; it would be hard to move back to a traditional book that offers none of these things.”

The Need For Stability

Despite these strengths, there’s a problem holding back Bitcoin from being widely used for online sports gambling.

“The main, possibly fatal, drawback is price instability” Bender explains, “if you figure you have a 10% edge on a wager, and you make that bet, you could win the bet and still lose money if the market falls more than 10% before you cash back into dollars.”

Bender is not alone with this complaint. UmeJack is a moderator of the /r/sportsbook forum on Reddit and, while knowledgeable of Bitcoin books, does not use them. He offered his thoughts on the issue:

“…Bitcoin currently doesn’t allow for adequate bankroll management. Any long term profitable gambler will tell you that keeping careful control of how much you’re risking is key to long term success. If I place a bet for a certain amount of money, I picked that amount for a reason. The current volatility of the bitcoin market, price down 10% over the last 24 hours as I’m writing this, means that the amount I’m betting isn’t entirely under my control.”

Here we run into a problem that has plagued the technology since its inception. A currency should be a stable store of value. And Bitcoin isn’t that. Every time you bet with Bitcoin you are taking on two risks. Bitbooks like Nitrogen can try to persuade gamblers by pointing towards the long-term upward trend of the coin, but for UmeJack that isn’t enough, and in some cases could be a deterrent:

“If I was in a casino, put 100$ on blackjack, won the hand, and the dealer only paid me 90$ because the value of the dollar had fallen while my bet was in play, I’d never go back to that casino. The opposite is also true. If I put down a big bet, and the market spikes up, I might now be uncomfortable having that much money in play. Obviously this isn’t a hold up for the more casual bettors, but it does matter to me.”

There is a solution to this problem. UmeJack suggested that Bitbooks guarantee the bettor’s payout in fiat:

“If I was promised that if I bet 100$ worth of bitcoins(however many that might be when I place the bet) I would be given 100$ worth of bitcoins on a win (no matter how many bitcoins that is at the time of the payout)….I might consider using bitcoin.”

This, of course, leaves Bitbooks on the hook for the currency’s fluctuations. And as we have seen recently with Neo and Bee, this may not be a very good business strategy. Nonetheless, if a businesses is willing to take on the risk (and has the capital to stay afloat), they could be rewarded handsomely.

Taking It Slow

While volatility should keep online Bitbooks from taking over traditional sports gambling options anytime soon, sites like Nitrogen are not in a rush. They recognize that even though there has been tremendous growth in the past year, Bitcoin “represents a small portion of the overall online gaming space” and that their success is directly tied to the “stability, adoption, and growth” of the entire digital currency economy.

Still, it is paramount to recognize the importance that Bitbooks might play in the overall adoption of Bitcoin. In developed countries like the United States, it is hard to make the case that using BTC is more convenient or secure than traditional electronic payment methods. Nearly every store takes debit and credit cards and banks will gladly return your funds if they are stolen. There is almost no obvious consumer incentive.

This is not the case with sports betting in the U.S. Bitcoin offers distinct advantages for consumers. Instant, anonymous, deposits and withdrawals are immense improvements over Western Union deposits and the once-every-30-days withdrawal rules of today’s most popular online sports books.

When I asked UmeJack what he would improve about his current book he said, “The biggest thing I would look for is faster payouts. A payout from Bovada generally takes 10 business days to arrive at my home.” This is especially important to Jack because he was “one of the people who got stung by the Full Tilt poker scandal a couple years back.”

These are the types of concrete advantages that Bitcoin needs to gain a foothold in developed countries. Most bettors don’t know about their services, but as media attention and customer reviews put a spotlight on the benefits of Bitbooks, more users will begin to use them. This increases overall adoption. Which increases stability. Which increases users. Established books might even adopt BTC transactions. There are already rumors.

This is the “virtuous circle” many Bitcoiners speak of. And it might work. As long as negative media attention and instability don’t scare potential users away.

But that only matters for the long term. Right now, U.S. sports gamblers can know that they have an online betting option offering them complete control over their money.

Whether or not they ride the Bitcoin roller-coaster is their prerogative.

Written by Ivan Raszl,GM of MediaBistro, blogger at Bitcoin Owl and associate at Inside Bitcoins Conference. Originally posted at http://bitcoinowl.com/everything-starting-fall-place-bitcoin

Bitcoin is a fairly new phenomena. Nobody at this stage can be sure if it will survive its infancy. But, if we look at the major issues and opportunities surrounding this new technology the signs seem to be all aligning for an exciting two years.

Developing world joining

Bitcoin‘s adoption in the West may be considered slow considering the advantages it offers. And there is a good reason for this. Most westerners in general do not need Bitcoin. We have a fairly good banking system and we can afford the costs associated with it. We accept the yearly $100-200 bank account fee and an average of 2-5% on incoming and outgoing funds. It sounds crazy but if you add it all up an average person in the USA spends over $1,000 / year on various financial fees and this doesn’t include insurance costs. 1K USD is OK for many in the West, but it is out of question for 80% of the world because many do not make much more than that in total. The benefits of modern banking are huge. Not having to physically move cash is safer and faster which results in efficiencies that make life measurably easier. The developing world could greatly benefit from adopting Bitcoin because crypto currencies can provide most benefits that the traditional financial system can offer and more:

1. Safe and easily accessible storage of funds on the go.
2. Instantaneous and safe transfers at very low fees.
3. Unlimited number of accounts for various uses for no monthly fees.
4. Easy recovery of funds if primary device is lost or stolen.

There are however two major problems with Bitcoin that prevent it from being widespread in poor areas. It requires a fairly expensive smart phone and an internet connection. A second-hand Android smart phone that is capable of running a bitcoin wallet still costs at least $100 and the internet connection also requires fairly expensive plans. But the world in changing fast and soon these two factors limiting Bitcoin’s huge adoption will fall. Three things are happening:

First, both Google and Facebook are planning to provide global wireless internet. Google has been working on Project Loon for quite some time. The idea behind Loon is to launch a network of balloons that would beam internet down to base stations that would then provide local free wifi connection for all users in the area. Recently Google also purchased Titan Aerospace which makes solar powered unmanned aerial vehicles capable of staying in the air for years and also capable of beaming internet down to areas without affordable internet connection. These companies are doing this of course to increase their user bases, but the free internet will also provide plenty of bandwidth for the tiny transactional data that Bitcoin requires to send and receive funds. In the next 12-24 months being able to send bitcoins to the middle of nowhere will become a reality.

Second, several easy-to-hardware wallets have been built and are about to be released. One of them, Butterfly Lab‘s solar powered device BitSafe, will start shipping in a few weeks. Another is Trezor which started shipping recently. Several others are in the works by various companies. These devices are currently expensive. The BLF device will cost around $150. These are first generation devices and the underlying electronics are fairly simple – much simpler than a smart phone. The price and size of these devices will drop dramatically in the next 12-24 months. We will have $20 slim, solar powered, Bluetooth and WiFi enabled hardware wallets that allow easy receiving and spending of bitcoins fairly soon. In the near future I believe many will own and carry such devices for various purposes because they will be extremely affordable and easy to use.

Third, several dozens of startups are working on lots of different ideas to bring Bitcoin to all kinds of existing devices. There is a way to send and receive bitcoins with features phones though text messaging already. Several bitcoin cards, ATMs and POS terminals are in the works. Add-on systems to existing infrastructure are being worked on as well. Web based solutions like Blockchain.info allow people to control bitcoins without having a physical wallet. All these ideas will mature in the next 12-24 month and make Bitcoin much more accessible than today for everyone on the planet.

Developed world’s extended adoption

The consistent growth of Bitcoin adoption by those 6 billion who so far haven’t been able to take part in the crypto monetary revolution will encourage Western governments, banks and corporations to take a lead in crypto currencies to maintain their power over the world economy. Several countries already started looking into Bitcoin seriously. Canada’s government last week started an 18 month process to learn and evaluate Bitcoin and other crypto currencies (see video below). Once Canada or another developed country comes out with a comprehensive approach towards Bitcoin many other nations will adopt the same basic approach quickly. Many companies and people who are currently unsure about Bitcoin will also join the crypto economy. All these events seem to be playing out within 2 years too.

Systemic threats fixed

Currently the biggest systemic threats to the Bitcoin economy are the centralized exchanges and pools. These take away some of the advantages of Bitcoin that are supposed to be completely decentralized and doesn’t require third party trust. Almost every Bitcoin exchange has been compromised in the past. Miners complain about pools not playing fair. Bitcoin users are also uneasy about large pools that can theoretically exert too much power over the network with the so called 51% attack. But all this is changing rapidly and these transitional issues will go away to a large extent. Projects like Bitwasp and P2P Pools are bringing decentralization back to both exchanges and mining pools. These projects are still in the stages, but they will be ready within 1-2 years as well.

Bringing value beyond money

Finally, products and services built on top of Bitcoin or bitcoin’s technology that are more than money are coming soon as well. Colored Coins, MaidSafe, Ethereum, Counterparty, Mastercoin, and others are bringing online and offline businesses into the Bitcoin ecosystem that increase the value of the network tremendously by providing more efficient and cheaper solutions to a wide range of problems for people who do not care about Bitcoin itself. These projects are currently either in Beta or recently launched and in test phase. But in a year or two they will start challenging the biggest players in the industry like Dropbox or even Google. There is a huge momentum in the Bitcoin ecosystem Today. The next 2-5 years will be extremely interesting to watch. It looks like it will be as exciting and transforming as the web was when it started just 17 years ago.

This afternoon, Texans for Greg Abbott announced acceptance of Bitcoin for campaign donations. Greg Abbott is running as the Republican candidate in the Texas Gubernatorial race. Striving to be a cutting edge candidate, Abbott stated, “I’m excited to see our campaign add another tool to our cutting-edge digital outreach, which is allowing us to reach more Texans than any previous campaign in the state.” It is great to see that Abbott as well as other policymakers note the opportunities Bitcoin has to promote free market economics and ingenuity across the board.

Abbott’s campaign will certainly not be the first to embrace Bitcoin in the 2014 election cycle.

Abbott’s campaign team published the following press release:

April 17, 2014

For Immediate Release

Contact: Avdiel Huerta

(512) 477-2002

avdiel@gregabbott.com

Texans for Greg Abbott to Accept Bitcoin Contributions

AUSTIN – Texans for Greg Abbott today announced that Bitcoin will now be accepted as a form of campaign contribution through GregAbbott.com. Bitcoin, a new and decentralized digital currency, enables instant financial transactions with a new level of safety and security. Texans for Greg Abbott is one of the first major statewide campaigns to accept Bitcoin, and is excited to implement the new form of payment as an extension of the campaign’s commitment to unprecedented digital outreach.

“I’m excited to see our campaign add another tool to our cutting-edge digital outreach, which is allowing us to reach more Texans than any previous campaign in the state,” said Greg Abbott. “The spirit of Bitcoin embodies the free market principles that make Texas a leader in innovation and entrepreneurship. We welcome the Bitcoin community to join our team.”

Supporters can make secure contributions via Bitcoin through the campaign website,www.GregAbbott.com.

If you can understand the organization of ants, you can understand MaidSafe.[1]

Alone, by itself, an ant is both vulnerable and easily marginalized.  Yet when working with the rest of the colony, ants with roughly the same petite attributes can take down larger prey, clear paths and protect the mound from disasters (both natural and man-made).

I spoke with David Irvine, the CEO of MaidSafe and he used this type of analogy to describe how the decentralized attributes of MaidSafe works.  MaidSafe bills itself as a wholly decentralized internet wherein it acts as a decentralized storage platform available to anyone globally.  Over the past 8 years, the team has concocted a cauldron of algorithms which harmonize, orchestrate and control individual nodes that continuously repeat simple basic tasks – just like worker ants.

And while one or two nodes may be knocked off the network, because user data is replicated to four servers in geographically disparate locations, the redundancy and security of the network is purportedly second to none.

Consensus

MaidSafe developers accomplished this by starting with a vastly simplified data network comprised of self-validating immutable data.  If Bob takes data, such as a name, and hashes it, the resulting outputs have to equal so that they are the same thing.  What that means is it is very difficult to find an attack vector or create a virus to alter the state or disrupt the network.

Another reason the data is effectively hard to delete is because the team implemented a chained consensus approach which is secured via a cryptographic technique.  While the network can say, “I don’t know who you are, but I can identify you,” even though the computers are very stupid, MaidSafe asks them to do something simple and thus all the computers work together in unison to accomplish it.  Each individual node is asked to do simple things and if it does not do it, it is kicked out.

Rather than taking a grand AI approach, Irvine and the team did not create a huge system with millions of lines of code such as a supercomputer comprising Watson.[2]  Instead they took a different approach, taking each person’s computer and having it conduct very simple, repeatable, measurable small tasks.[3]  In a fulfillment of Heinlein’s words – specialization is for insects – Irvine observes that after 150 million years of natural selection, each ant has a different function: a cleaner ant, a forager ant, a soldier ant – all of whom change their behavior and patterns based on the goals of the colony.

In Irvine’s words, “every node is like a group of ants; while a drop of water could kill one, when all the millions of nodes come together, that is when you see scalability.  When one node tries to delete information, other neighbors can report that node to one another and removed the compromised node from the network.”

As a node joins the network, it has to be part of cryptographic keypair and thus joins to the closest nodes to their address; the rest of the nodes then listen to them.  The MaidSafe network uses a consensus based mechanism noted above, chaining the consensus together (similar to a blockchain).  As a consequence, each group of nodes watches one another, observing their deterministic behavior.  In contrast to Tor or FreeNet, each node in MaidSafe is individually different, creating an autonomous network in which each node has an address, fulfilling certain tasks, such as storing, looking, validating and screening data down this immutable chain (called a Transaction Manager).[4]

As Irvine noted, “it is probably not very smart for an ant to go up and do circles along the wall, yet if you drop dirt near its mound they immediately clean it up. [5] Similarly, prey can be taken down by working together.  MaidSafe is based on the same philosophy, that individually we are not smart enough.  In our brain, every cell by itself is silly and useless by itself, but if you combine all of the neurons and synapses, it creates something: amazing, human beings.  In our brain, there are trillions of cells performing a single action and if you damage it the system routes around it.  In fact, our team is not necessarily made of some strange cryptographic geniuses; we are relatively ordinary.  What we did do is make the logic as simple as it needs to be.  We cannot describe the behavior of all the ants or brain cells or a group of humans but we can describe one cell or one ant.”  Thus, when you join all the nodes together, the whole system is greater than the sum of its parts via teamwork.

Big Hairy Audacious Goals

Restrained by computer science, according to Irvine there were three particular problems that the team needed to solve: creating a system with strong encryption that is autonomous and nullifies human interaction.[6]

1)      How do you encrypt data in a way that no matter how it is broken the data still cannot be utilized?  The system must be designed in which you can even give the data to your worst enemy, yet they cannot use the data even if they broke all encryption.

2)      In Irvine’s words, “humans cannot resist change, evolution forces us to adopt it.  An autonomous network must resist human interference because human action is not repeatable and can be corrupted by trying to game the system.  Instead, we put our faith into math; if humans try to interfere, the rest of the network abandons that node.”

3)      Another way MaidSafe is different is through a self-authentication mechanism that lets people log into it and obtain private data without having to know an address.  One of the problems and vulnerabilities of previously designed networks is that you could not log into a distributed network because there must be an address you had to connect to.  This leads to a single point-of-failure.  With MaidSafe, there are no passwords on the system nor passwords on your computer.

To tackle the autonomous hurdle, MaidSafe takes information, chops it into smaller pieces and using a data map then takes a hash of each piece and puts it into a container.  The system then compresses the chunk with AES256 encryption, using the hash of another chunk (similar to the way Merkle hash trees are used in Bitcoin).[7]  Chunk1 hashes with the hash of Chunk2, but this is not used for encryption purposes, instead it is trying to take the data and creating randomization and in this case, Chunk1 becomes random.  The process then repeats itself with each ‘child.’  The resultant is a pre-encryption hash, which is then appended together with Chunk1.  In Irvine’s words, “It is not a one-time pad, which is the biggest snake oil scheme, rather it is a pre-encryption hash, based on how uniform random information is distributed.  We take these two hashes and XOR it with chunks of information.[8]  If a hacker intercepts it, all they can do is print out everything in hex, from 000 to FFF, and just guess.  You can’t repeat it and there is not enough paper in the world to visualize it.”

And how do you encrypt to the point where any encryption algorithm can be broken and the data will not reveal itself?  According to Irvine, it is impossible to really create true noise and because of that, ever since Caesar, every encryption system is eventually broken and therefore users cannot rely on just encrypting via AES, even though many believe “it won’t be broken” (famous last words).[9]  Thus Irvine insists it has to be held under a mechanism like this, using pseudo random data determined via hash of random input and then XORing that with the resultant data tending towards the elusive One Time Pad.

In addition to holding patents describing this (which will be held by a non-profit organization and used solely for defensive purposes), there are several academic papers discussing self-encrypting data that is highly obfuscated (according to Irvine, academics dislike calling it encryption, they call it obfuscation).[10]  That data is encrypted by itself through pre-encryption hashes, which means if Bob had the current number one single and had to store it as output chunks, in order to decrypt it Bob would have to have original information.  Thus there is real-time triplication and more to the point, the network knows it has a copy, but does not know where it is from.  As a consequence, based on industry figures, MaidSafe has the potential to recover 95% of the world’s disk spaces.  For instance, on average, a backup tape typically has 20 duplicates of a file thus if you remove all the unnecessarily redundant duplicates an enterprise can recover 95% of the disk space. And when supply chains are pooled together a new economy of scales takes place.[11]  Or in Irvine’s words, “Google has to use twice the amount of space because they don’t want to mix data together.  This encryption method could be used any of these companies, creating a client side with a very high level of encryption, at 1/20^th of the space.”

Another part of the puzzle was self-authentication: how can Alice not connect to a node, if Bob can connect to it?   MaidSafe solves this by the following process. A user puts a computer with 10 GB of free space on the network where it is cryptographically identified and a certificate is created for the computer. Thus the network knows and recognizes an ID that can store a certain amount of files – this is a valuable resource because it is a limited, scarce quantity. In turn what happens is that the network will allow you to store on other systems because you have generated a proof-of-resource (verified by the Transaction Manager) showing you have provided 10 GB of space.  Thus you can take and use the proof of having provided the storage and use the network for the same amount of space (i.e., quid pro quo) much like a token used on the Bitcoin network allows a user to access and transfer a token.

The next step, according to Irvine: “although humans receive that certificate, the system does not immediately store 10 GB of information, instead it takes pre-encryption hashes, creates a root directory of all information (all of the files you want to access in your life) whereupon it gets shrunk with a recursive compression algorithm and then that tiny information is encrypted by a password generated by you and simultaneously another random number is made up whereupon this is stored at two random locations. Thus, there are two passwords the first of which identifies the key of where it is stored and the second key encrypts the value, the root of the information value stored.” If Bob goes to any other computer connected to the internet, this password functions like a brain wallet, and is decrypted locally in memory.[12]  This creates a virtual fail-safe system in which anyone, including a hacker, can go to your blog residing on the MaidSafe network but no one can take it down or DDOS it because it does not exist, it is merely bits of information located at a mathematically unknown location.

In Irvine’s view, such functionality allows people to finally “start implementing the real web.  If you go to any computer and type in your password, the computer can be remapped as your own drive. 8.3 exabytes of information can exist on this disk. Because it is a virtual disk, it resides in memory and thus there is no sign that you have used it, whatsoever. That is how you log into your data: you don’t know where it is but that data becomes your computer.”

So in short, you use your password to decrypt data to a client and the network is not aware that the data exists and consequently there is nothing for security exploits like Heartbleed to compromise.[13]

This then leads Irvine to opine that this is “probably the first time we can use biometrics to secure data.” Yet he cautions, “because many institutions already have copies of them Bob can still steal Alice’s known scans which means that some users may not be able to utilize that functionality yet.”

Despite this limited drawback which would affect any similar system, “there are several fairly big things when you think about it. The network is most difficult to compromise because the edge cases of a network looks after itself. We are talking about cryptographically securing identities. Previously we have used some web-of-trust which does not work because of human trust or currently with Verisign which handles public keys yet its servers are centralized and vulnerable. What we have done is to take the functionality of Verisign and turn them into a mathematical program and instead of using timestamps, MaidSafe uses entropy. It binds the use of time (time is never transmitted) because it is unnatural. Instead, entropy is always changing, the network is always increasing entropy (via Brownian motion). Thus we had to remove time to get the algorithms to work properly and in fact, complexity would be increased if you introduced time.”

The team

Irvine notes that to solve these problems required thinking that was not normal and as a mechanical engineer he was never formally trained in computing which he believes provides him an advantage. Because computer engineers are early on trained to log into and get a certificate from Verisign, they will largely not deviate from the presented solution.[14] Yet if you give developers new tools to go through life “they will create magical things,” suggests Irvine.

In his words, “one of the guys in the office is previously a fireman yet is a math genius and one of the top C++ programmers globally. We may not have the best team in the world, but it is a pretty good team, happy to make mistakes, get up in front of others on white boards and know that they may be told ‘that approach has vulnerabilities.’”

The project began in February 2006 and most of the investors are close friends and family members which according to him “makes us pretty honest, to do the right thing for the right reasons.”

When people compare some of the underlying tech to Bitcoin, Irvine notes that, “back in 2006, I did a write-up of what we are doing, we used to call it cybercash or a perpetual coin which was a cryptographic currency that is distributed and cannot be audited at all yet could reach billions of transactions per second which meant providing the velocity of cash itself. And while Bitcoin solves the double-spending problem, it does so on a centralized blockchain which is like sharing the same spreadsheet, which is not brilliant in terms of scalability. If MaidSafe had existed back then, Bitcoin could have probably been a distributed network and solved the Byzantine General’s problem in a decentralized manner.[15] However, what Bitcoin has shown is that if you take an automated program [and] replace the rubbish, it works better than if humans [are] involved. And for our team, when simplifying codes we look at what code can I delete. Whereas in other organization people put a patch on top of code, this ultimately creates too many if statements. And for us, we know what we will likely delete, not by adding more if statements.” Thus one of the reasons he credits the success of his team over other competitors that have tried is that, MaidSafe developers tried not to simply add extra code or rules to fix a problem, but rather removed the underlying faulty code and replace it with something more basic.

MaidSafe is giving away all its assets including its software and consequently over the past 6 weeks its developer mailing list has grown to over 200 people asking how they can participate in the project (dubbed Project SAFE).[16]  To Irvine, “We gave it to the world, teaching folks how to program.” And as part of the upcoming Safecoin crowdfunding, the company will setup 6 international, independent development pods, each designed to compete with the MaidSafe team.[17] Or in other words, they have taken an 8 year investment, raised money and set up their own competition. But to Irvine, there is a bigger picture, “I don’t care who came up with the theory, we removed the ego from it on day 1.  We don’t keep track of who invented parts of MaidSafe. And once it is in the community, that’s the way it should be.”

This guest post by Ian Grigg is reprinted with permission from financialcryptography.com.

Before Bitcoin, there was cryptocurrency. Indeed, it has a long and deep history. If only for the lessons learned, it is worth studying, and indeed, in my ABC of Bitcoin investing, I consider not knowing anything before Satoshi’s paper as a red flag. Hence, a very fast history of what came before.

Early Days

The first known (to me) attempt at cryptocurrencies occurred in the Netherlands, in the late 1980s, which makes it around 25 years ago or 20BBTC. In the middle of the night, the petrol stations in the remoter areas were being raided for cash, and the operators were unhappy putting guards at risk there. But the petrol stations had to stay open overnight so that the trucks could refuel.

Someone had the bright idea of putting money onto the new-fangled smartcards that were then being trialed, and so electronic cash was born. Drivers of trucks were given these cards instead of cash, and the stations were now safer from robbery.

At the same time the dominant retailer, Albert Heijn, was pushing the banks to invent some way to allow shoppers to pay directly from their bank accounts, which became eventually to be known as POS or point-of-sale.

Digital Cash

Even before this, David Chaum, an American cryptographer, had been investigating what it would take to create electronic cash. His views on money and privacy led him to believe that in order to do safe commerce, we would need a token money that would emulate physical coins and paper notes: specifically, the privacy feature of being able to safely pay someone hand-to-hand, and have that transaction complete safely and privately.

As far back as 1983 or 25BBTC, David Chaum invented the blinding formula, which is an extension of the RSA algorithm still used in the web’s encryption. This enables a person to pass a number across to another person, and that number to be modified by the receiver. When the receiver deposits her coin, as Chaum called it, into the bank, it bears the original signature of the mint, but it is not the same number as that which the mint signed. Chaum’s invention allowed the coin to be modified untraceably without breaking the signature of the mint, hence the mint or bank was ‘blind’ to the transaction.

All of this interest and also the Netherlands’ historically feverish attitude to privacy probably had a lot to do with David Chaum’s decision to migrate to the Netherlands. When working in the late 1980s at CWI, a hotbed of cryptography and mathematics research in Amsterdam, he started DigiCash and proceeded to build his Internet money invention, employing amongst many others names that would later become famous: Stefan Brands, Niels Ferguson, Gary Howland, Marcel “BigMac” van der Peijl, Nick Szabo, and Bryce “Zooko” Wilcox-Ahearn.

The invention of blinded cash was extraordinary and it caused an unprecedented wave of press attention. Unfortunately, David Chaum and his company made some missteps, and fell foul of the central bank (De Nederlandsche Bank or DNB). The private compromise that they agreed to was that Digicash’s e-cash product would only be sold to banks. This accommodation then led the company on a merry dance attempting to field a viable digital cash through many banks, ending up eventually in bankruptcy in 1998. The amount of attention in the press brought very exciting deals to the table, with Microsoft, Deutsche Bank and others, but David Chaum was unable to use them to get to the next level. At one point Microsoft offered Chaum $180 million to put DigiCash on every Windows PC. But Chaum that it was not enough money, and the deal fell through, and Digicash ran out of money.

Second Wave – Web Based Money

On the coattails of Digicash there were hundreds of startups per year working on this space, including my own efforts. In the mid 1990s, the attention switched from Europe to North America for two factors: the Netscape IPO had released a huge amount of VC interest, and also Europe had brought in the first regulatory clampdown on digital cash: the 1994 EU Report on Prepaid Cards, which morphed into a reaction against DigiCash.

Yet, the first great wave of cryptocurrencies spluttered and died, and was instead overtaken by a second wave of web-based monies. First Virtual was a first brief spurt of excitement, to be almost immediately replaced by PayPal which did more or less the same thing.

The difference? PayPal allowed the money to go from person to person, whereas First Virtual had insisted that to accept money you must “be a merchant,” which was a popular restriction from banks and regulators, but people hated it. PayPal also leapt forward by proposing its system as being a hand-to-hand cash, literally: the first versions were on the Palm Pilot, which was extraordinarily popular with geeks. This geek-focus was quickly abandoned as PayPal discovered that what people — real users — really wanted was money on the web browser. Also, having found a willing userbase in the eBay community, its future was more or less guaranteed as long as it avoided the bank/regulatory minefield laid out for it.

As PayPal proved the web became the protocol of choice, even for money, so Chaum’s ideas were more or less forgotten in the wider western marketplace, although the tradition was alive in Russia with WebMoney, and there were isolated pockets of interest in the crypto communities. In contrast, several ventures started up chasing a variant of PayPal’s web-hybrid: gold on the web. The company that succeeded initially was called e-gold, an American-based operation that had its corporation in Nevis in the Caribbean.

e-gold was a fairly simple idea: you send in your physical gold or ‘junk’ silver, and they would credit e-gold to your account. Or you could buy new e-gold, by sending a wire to Florida, and they would buy and hold the physical gold. By tramping the streets and winning customers over, the founder managed to get the company into the black and up and growing by around 1999. As e-gold the currency issuer was offshore, it did not require US onshore approval, and this enabled it for a time to target the huge American market of ‘goldbugs’ and also a growing worldwide community of Internet traders who needed to do cross-border payments. With its popularity on the increase, the independent exchange market exploded into life in 2000, and its future seemed set.

The Regulatory Bust

e-gold however ran into trouble for its libertarian ideal of allowing anyone to have an account. While in theory this is a fine concept, the steady stream of ponzis, HYIPs, ‘games’ and other scams attracted the attention of the Feds. In 2005, e-gold’s Florida offices were raided and that was the end of the currency as an effective force. The Feds also proceeded to mop up any of the competitors and exchange operations they could lay their hands on, ensuring the end of the second great wave of new monies.

In retrospect, 9/11 marked a huge shift in focus. Beforehand, the USA was fairly liberal about alternative monies, seeing them as potential business, innovation for the future. After 9/11 the view switched dramatically, albeit slowly; all cryptocurrencies were assumed to be hotbeds of terrorists and drugs dealers, and therefore valid targets for total control. It’s probably fair to speculate that e-gold didn’t react so well to the shift. Meanwhile, over in Europe, they were going the other way. It had become abundantly clear that the attempt to shut down cryptocurrencies was too successful, Internet business preferred to base itself in the USA, and there had never been any evidence of the bad things they were scared of. Successive generations of the eMoney law were enacted to open up the field, but being Europeans they never really understood what a startup was, and the slightly less-high barriers remained deal killers.
Which brings us forward to 2008, and the first public posting of the Bitcoin paper by Satoshi Nakamoto.

Conclusion

What’s all this worth? The best way I can make this point is an appeal to authority:
Satoshi Nakamoto wrote, on releasing the code:

> You know, I think there were a lot more people interested in the 90’s,
> but after more than a decade of failed Trusted Third Party based systems
> (Digicash, etc), they see it as a lost cause. I hope they can make the
> distinction that this is the first time I know of that we’re trying a
> non-trust-based system.

Bitcoin is a result of history; when decisions were made, they rebounded along time and into the design. Nakamoto may have been the mother of Bitcoin, but it is a child of many fathers: David Chaum’s blinded coins and the fateful compromise with DNB, e-gold’s anonymous accounts and the post-9/11 realpolitik, the cypherpunks and their libertarian ideals, the banks and their industrial control policies, these were the whole cloth out of which Nakamoto cut the invention.

And, finally it must be stressed, most all successes and missteps we see here in the growing Bitcoin sector have been seen before. History is not just humming and rhyming, it’s singing loudly.

Peercoin was the first Bitcoin-based monetary system to use proof-of-stake as a mechanism to ensure its own integrity. However, there are some objections to Peercoin’s proof-of-stake model. This article presents those objections along with a similar system redesigned to address them.

In a simplified version of Peercoin’s proof-of-stake design, each node can use part of its balance as a stake allowing it to chain blocks. The bigger that stake, the more chances this node has of increasing the block chain. The reward for chaining blocks is 1% of the used stake as newly minted coins, annually. Conversely, making transactions requires paying a fee that destroys 0.01 coins per transaction. For example, after having chained a block using one coin of stake, Bob makes one transaction. Then, the fee of 0.01 coins he pays for making this transaction destroys the 0.01 coins he minted in reward for chaining that block.

Here are five objections to this proof-of-stake model:

1. It amplifies wealth inequality. Suppose Peercoin is the only form of money for both Bob and Alice. Bob’s income is 200 coins per month, while his expenses are 80% of his income. Alice’s income is 800 coins per month, while her expenses are 50% of her income. Assuming, for simplicity, that neither Bob nor Alice has any savings—which Alice is more likely to have—Bob and Alice will be able to reserve 40 and 400 coins as block-chaining stake, respectively. Then, Alice’s block-chaining reward will be 900% bigger than Bob’s, even though her income is only 300% bigger than his.
2. It makes the money supply unstable. Inflation becomes directly proportional to successful block-chaining rewards, yet inversely proportional to paid transaction fees. This variable inflation adds an unnecessary source of price instability to the rather inevitable ones—exchange value of merchandise and velocity of money circulation—thus unnecessarily reducing price transparency and predictability. Peercoin should have a stable money supply, as Bitcoin will have after year 2140.
3. Whenever total paid transaction fees are less than total successful block-chaining rewards, all inactive or unsuccessful block-chaining nodes will pay a fee to all successful ones through inflation. This implicit value transfer disguises the cost of participating in the system.
4. As coins increase in value, the (now 0.01 coins) transaction fee will eventually become too valuable, thus requiring Peercoin developers to lower it. However, choosing its new nominal value is an economic decision—rather than a technological one—which creates a political problem.
5. System integrity depends on extrinsic incentives: both the block-chaining reward and its offsetting transaction fee need arbitrary adjustment, which again involves an economic decision, thus creating a political problem.

Transaction Rights Instead of Money

All these five objections have one common origin: the extrinsic, pecuniary nature of block-chaining incentives—the block-chaining reward less its offsetting transaction fee. Hence, only an intrinsically non-monetary block-chaining system can address all of them. However, is that system possible?

Yes, if instead of newly minted coins—or even old ones—the reward for chaining blocks is the right to make transactions. Then, that reward no longer needs to be directly proportional to stake. For example, merely having twice the amount of money owned by Bob is not enough reason for Alice to make twice the volume of transactions made by him. Still, how to estimate the transaction volume needed by a block-chaining stake owner? Is there any objective indication of that volume?

Yes, despite only a generic one: the actual transaction volume in the system. Then, the reward for chaining a block will no longer be a monetary value, but rather the combined size of all transactions in that block as future transaction rights. However, this reward must exceed its own size for future transaction volume to grow if necessary. For example, instead of newly minting 1% of its used stake annually, a block-chaining reward—in Peercoin, a stake output—could allow its winner to make a future volume of transactions 1% greater than the combined size of all transactions in its containing block.

Here is how to implement such a nonmonetary block-chaining model:

1. The private key signing a block-chaining reward must sign every transaction.
2. Each transaction signed by the private key signing a block-chaining reward must subtract its own size from the maximum transaction volume allowed by that reward, which results in the combined size of all transactions the same private key still can sign.

This design addresses all those initial five objections:

1. It cannot amplify wealth inequality: neither its block-chaining reward nor its transaction fee constitutes a monetary value.
2. It cannot make the money supply unstable: neither its block-chaining reward creates money nor its transaction fee destroys it.
3. It cannot make all inactive or unsuccessful block-chaining nodes pay a fee to all successful ones through inflation: its money supply remains unaffected.
4. It cannot require adjusting its nominal transaction fee, which is chaining blocks, to variations in its own invariable since absent monetary value.
5. It cannot require extrinsic incentives to its block chaining, which is itself a requirement for making transactions.

Indeed, what block chaining essentially collects is not money, but rather transactions: it is transaction rights that essentially depend on chaining blocks, not money creation. So the block-chaining reward is always transaction rights, even if still indistinguishable from actual transactions. Additionally, rewarding each block with the right to make a future volume of transactions exceeding that of all transactions in this block by a limited margin has the following two advantages:

1. Monopolizing transaction rights becomes as unlikely or ephemeral as chaining consecutive blocks.
2. Unilaterally expanding transaction volume becomes as unlikely or ephemeral as monopolizing transaction rights.

Monetary Tier

However, what if a node cannot earn its needed transaction rights fast enough, if at all? For example, suppose Bob has just received his first coins and must make transactions before likely chaining the right to make them: how can he make those transactions? Fortunately, nothing requires the private keys that signed a transaction-right reward and its enabled transaction inputs to have the same owner. For example, by having enough unused, excessive transaction rights, Alice can sign Bob’s transactions with the same private keys that signed her unused, excessive reward.

Still, people deserve an additional reward for using their earned transaction rights to enable transactions from other people. So, since necessarily exchangeable for those rights, this reward no longer can be any of them: it can only be money. For example, Alice can charge Bob a fee to sign his transactions with her still transaction-capable private keys.

This transaction-right pricing adds a second, rather monetary tier to its then-underlying, otherwise non-monetary block-chaining system: a marketplace for solving transaction-right distribution imbalances. However, unlike the relation between Bitcoin miners and those paying them fees to transact, this transaction-right market is a true market. Its block chainers already have something to sell for those fees: transaction rights—the necessary product of the block-chaining process. Bitcoin miners can only charge for those rights in the future. In the present, their only sellable product except for bitcoins—and like these not priced in transaction fees—is the block-chaining business itself. Otherwise, just like their government, they can only charge for a still privately controlled public service—that of chaining blocks—despite its rather distributed centralization.

In the commercial tier of an otherwise non-monetary block-chaining system, on the contrary, those who charge to allow transactions are not necessarily, or even likely the same ones to include those transactions in a block. This relative independence of transaction rights as the sellable product of block chaining prevents their monopolization and consequent price abuse, while conversely preserving block-chaining decentralization.

Feedback Loop

However, choosing the rate by which transaction volume can increase remains an economic decision, thus creating a political problem. Are there any objective indications of the volume by which transaction rights need to increase?

Yes, although only two:

1. The proportion of paid transaction volume in each block.
2. The relative price variation of this volume since the previous block.

Using the average between those two relations to determine additional transaction rights creates a feedback loop between the two tiers of this transaction-right chaining system. For example, if a block has 4% of paid transaction volume and pays for that volume 1% less than the previous block would have done, then it can allow for transactions exceeding its contained ones by at most (4−1)÷2=1.5% in combined size. As thus, if a relative price drop of paid transaction volume in block B since the previous block exceeds the proportion of this paid volume in B, then the transaction rights earned by chaining B will be less than the combined size of its contained transactions.

Indeed, which price people pay for which volume of transaction rights is the only objective indication of their unsatisfied transaction-volume needs. Finally, the total transaction rights earned by chaining a single block must have a minimum limit: the minimum size of a single transaction—or they would have still not become transaction rights, which must enable actual transactions.

Beginning Monday, technology enthusiasts in Brazil became able to convert the Brazilian Real to Bitcoin using a Bitcoin vending machine, also known as a Bitcoin ATM. The unveiling marks the first Bitcoin ATM to be installed in Latin America, with a permanent position at a Sao Paulo bar which is already accepting Bitcoin. As the popularity of digital currency in Latin America continues, many businesses and individuals are taking advantage of the benefits that this new payment method provides.

For businesses in developing countries, Bitcoin gives businesses the ability to end costly trade restrictions that decrease profits and hinder their ability to compete in the global marketplace. Bitcoin can also cut transaction fees associated with debit and credit card transactions. In countries like those in Latin America, some financial institutions will charge businesses astronomically high transaction fees. This is because banking systems in developing countries often have to deal with devaluing or inflationary currencies, along with many other political implications. Legislation in Latin America in regards to Bitcoin has yet to become official, not unsimilar to most countries around the world.

Not only is Bitcoin allowing business owners in Latin America to grow internationally, but zero transaction fees provide savings that businesses in the region can use to increase employee pay. Although usage is not mainstream, many are extremely optimistic of the future of virtual currency and believe the Bitcoin ATM in Sao Paulo is just the beginning.

The ATM is located in the technology center of Sao Paulo, blocks away from international offices of Facebook, Google, J.P. Morgan and Goldman Sachs. Also in the area is software provider Red Hat, and some of the region’s largest investment banking and brokerage firms, BTG Pactual and XP Investimentos, respectively. The Lamassu Bitcoin ATM was the first brought to Latin America early this year. A few short months later the vending machine found its permanent home in Sao Paulo and was installed by Bitcoin brokerage, Mercado Bitcoin.

Mercado Bitcoin was founded in 2011, and began serving as a facilitator of the buying and selling of virtual currency in Brazil. Created as a Bitcoin exchange, the company also began trading Litecoin in 2013 and in 2014 and became a digital money company with a complete suite of digital money applications. Mercado Bitcoin believes that the World Cup in June and the Olympic games in 2016 will serve as large opportunities to test new payment technology like Bitcoin.

Lamassu, the company behind the Bitcoin ATM, was launched in 2013, and since has become a very popular platform to buy Bitcoin in-person. Lamassu currently has more than 100 machines around the world. Aside from acting as a Bitcoin vending machine, the company recently announced plans to become portals for Bitcoin services. Lamassu’s Latin American debut will help promote the use of virtual currency within the region.

In Latin America, the brand new Bitcoin ATM and events like last year’s Latin American Bitcoin Conference will continue to promote the use of virtual currency throughout the region. For those in Brazil looking to get their hands on Bitcoin, the permanent location of the new Bitcoin ATM in Sao Paulo, installed by Mercado Bitcoin, is the place to go.One of our readers informed us the ATM from this post wasn’t the first in Latin America. We have updated our information to reflect this. Thanks!

CNBC.com has released their digital documentary “The Bitcoin Uprising” this morning. The documentary follows cnbc.com reporter Mary Thompson into the world of bitcoin, from home-based mining operations to the deep web.  Thompson and one of her producers, Karina Frayter, decided to create this piece after realizing that a 1-minute ‘hit’ (or story) on the currency was too difficult to do.  The documentary will only be available online, as that is the “most appropriate place for it, considering the bitcoin community is completely immersed in the digital world,” Thompson explains.

Thompson’s journey through the bitcoin sphere started from a place of “pure curiosity.”  However, she quickly recognized that this new technology had many “strong voices backing it, and strong voices criticizing it.”  Bitcoin Uprising presents a well-balanced view, as compared to many other one-sided pro or anti-bitcoin pieces, by considering both the potential for – and the problems with – the technology.  “We wanted to see what was behind both sides of this,” Mary explains, “and try to get a clearer way of seeing if there was a future for the digital currency.” Kudos to Thompson and her team for presenting both sides of the (bit)coin.

The process itself to produce the show was “exhausting” compared to Thompson’s usual 1-minute long pieces. However, Thompson found solace in the bitcoin community, who she describes as “passionate about what they are doing, very, very straightforward, and willing to help [her] understand a very complicated topic.”

The documentary itself starts by showing the sheer excitement amongst bitcoin enthusiasts.  It moves through the lifestyle of a hard-core bitcoin early adopter and advocate – a computer whiz kid – and shows how he lives his life using bitcoin.  It then explores home-based mining; the debate between old-school investors like Warren Buffet vs. new tech investors like Marc Andreessen (who is shown saying “the historical track record of old white men, who don’t understand technology, crapping on new technology is, I think, 100%”);  the dark side of bitcoin through drug and hitman-services on the deep web, where most merchants “prefer bitcoin”; and more.  It also highlights the incredible rise of the currency, from a growth perspective, comparing bitcoin to Facebook stock.

Thompson worked with her producer to choose who she would be interviewing and highlighting through the documentary, noting that her producer “had done a couple of stories that involved the hacking community, so she was able to connect [Thompson] with bitcoin users who were able to talk about what they were doing.”

The Bitcoin community knows very well that the key issue to adoption is the currency’s ease of use.  Currently, the largest challenges prohibiting immediate mass adoption of Bitcoin are understanding the currency and its protocol, and then easily using it in day-to-day life. It’s ironic that most people have no idea how their fiat currency operates, but continue to use it everyday. However, discussing Bitcoin brings these questions about money to the forefront.  Thompson also explains that many people don’t understand why bitcoin would be used over something like the U.S. dollar.

 Behind the ease of use of regular credit and debit cards lies a massively complex system of regulation, fees, and intermediaries that add significant hidden costs to the overall transactions in our banked society. Compliance costs, credit card fees, interest, merchant fees, account fees, exchange fees, and government levies/taxes are only some examples. On one hand, Bitcoin can avoid nearly all those fees; on the other hand, it lacks the sheer manpower and infrastructure that makes our modern financial system tick.

 Thompson sees this lack of infrastructure as Bitcoin’s greatest barrier to massive adoption.  “Storing bitcoin is already problematic for those of us who are banked,” Thompson explains. “Consider the world’s underbanked, who don’t get to put their paper wallet in a safety deposit box.”

Andreas Antonopoulos, the biggest supporter of bitcoin’s power to transform the underdeveloped world, agrees with Thompson on this. Somewhere in the not-so-distant future, Antonopoulos speculates that someone will crack the code and prime Bitcoin for mass adoption, making bitcoin easier for everyone to use (and that individual or company quite wealthy): “every entrepreneur in this space should look carefully at user interface and user security and figure out where they can carve out the next open-source solution to [these problems].”

Despite the difficulties Thompson sees in acquiring and storing the currency, she holds $10 USD worth, but only to go through the process of understanding how it is acquired. In the name of journalistic integrity, she is staying as neutral as possible. At the current time, CNBC does not have any plans to create any more Bitcoin documentaries, but Thompson sees this as a “rapidly developing story,” and notes that there were incredible changes to the technology even while she was filming, including the IRS’ decision to tax the currency like property.

Overall, “The Bitcoin Uprising” is enjoyable to watch and is accessible enough for public consumption and sharing. Mary Thompson did an excellent job of staying objective in her journalistic pursuits, noting that, whether she loves the digital currency or not, she must remain neutral if she will continue to report on it – quite refreshing from polarized views that suggest Bitcoin is either the answer to, or cause of, an impending financial apocalypse.

Catch “Bitcoin Uprising”and be sure to share your thoughts by commenting below or tweeting to us @BitcoinMagazine.

Disclosure: the author of this article is the founder and Chief Scientist of the Ethereum project

Last week, Adam Back and Austin Hill came out with an announcement on Let’s Talk Bitcoin, in which they announced their newest project: “sidechains”. The idea, they described, would allow for the existence of alternative blockchains, perhaps with different rules allowing various kinds of additional features or transaction types, but with a currency unit whose value is pegged to that of the bitcoin. The intent is to allow experimentation with different extensions to the Bitcoin protocol, using separate networks to avoid any risk to Bitcoin itself, while still using the same underlying currency unit. As soon as the idea was announced, there has been a large amount of public interest in the concept, and has brought renewed hope that the Bitcoin protocol can potentially become much more powerful than it is today.

Under the Hood

The idea behind sidechains is not new; the concept has been around since at least last year in December, and a precursor to the idea has been around for several years before then. The precursor, a protocol known as one-way pegging, was a mechanism that would theoretically be used to manage a transition from “Bitcoin 1.0” to “Bitcoin 2.0”, and worked as follows. Suppose that, in Bitcoin 1.0, 13 million currency units have already been issued through mining, with 8 million still left to give out. The distribution model for BTC2.0 would release 8 million units through mining, according to the exact same schedule as BTC1.0 after that point, but the other 13 million would be distributed through a mechanism known as “proof-of-burn”.

Essentially, one would take one unit of BTC1.0, send it to an unspendable address (eg. 1111111111111111111114oLvT2), and submit a cryptographic proof that this transaction took place, signed by the same private key that sent the transaction, as a transaction into Bitcoin 2.0. According to the Bitcoin 2.0 protocol, this would entitle the user to receive one unit of 2.0. This is called a “one-way peg” because the value of one BTC2.0 can be at most equal to one BTC1.0; otherwise, people would arbitrage the difference by converting the bitcoins over at the 1:1 rate. However, aside from selling BTC2.0 for BTC1.0 on the market, there is no way to go back, so if the experiment fails the value of BTC2.0 could drop to zero.

Bitcoin sidechains use an improved version of this system called “two-way pegging”, which works as follows. In order to receive one unit of BTC2.0, one would need to take one unit of BTC1.0 and send it into a “script” which we will call X and leave undescribed for now. A script in Bitcoin is an address that, instead of being owned by a private key, essentially acts as a lockbox that unlocks the bitcoins only when given a transaction that satisfies certain conditions. For example, one can have a script that unlocks the funds to the first person who submits a fifty-digit prime number consisting entirely of the digits 3 and 5. Making the transaction, and publishing a cryptographic proof that such a transaction was made, into the Bitcoin 2.0 blockchain entitles the user to one unit of BTC2.0.

Now, the definition of X is simple: X unlocks the funds (remember, this is one unit of BTC1.0) if given a valid cryptographic proof that the sender destroyed one unit of BTC2.0. Thus, there exists a mechanism for converting BTC 1.0 to BTC2.0, and that very mechanism creates another mechanism, limited in value to the total number of BTC2.0 created, which can be used to convert BTC2.0 back to BTC1.0. Hence, two-way peg.

 

The mechanism that these “cryptographic proofs” use relies on a cryptographic construction used in Bitcoin called a Merkle tree. In a Bitcoin block, instead of simply having every transaction the block directly, only a single 32-byte hash is actually included in the block header. This 32-byte hash is itself calculated from two other 32-byte hashes, each of which comes from two other 32-byte hashes, and so forth until finally the values at the bottom are the transactions themselves. It is precisely the point of this mechanism to allow for the existence of compact proofs that a specific transaction is in a specific block; all that one needs is the one branch of hashes going up from that transaction to the root node, or a total of 10 hashes for 1000 transactions or 20 hashes for one million transactions. This is impossible to forge; if you try to change even a single transaction in the tree, the changes propagate upward through the hashes until finally the root node ends up completely different.

However, this does not solve the problem completely; all it tells you is that some block, somewhere, contains a given transaction. It does not tell you that the transaction is in the main chain; in reality, the same bitcoins used in the transaction could have already been sent to a different source, making the transaction invalid. There are two ways to solve this. One approach, and by far the simpler one, is for the proof mechanism in Bitcoin 2.0 to ask not just for the Merkle tree branch, but also for the blockchain going back six blocks, much like a merchant asking for six confirmations, using mining power as a proxy for validity. For higher security, a much larger number of blocks like sixty can be required. This approach is simple, and seems to meet all of the required parameters.

Challenges

The above mechanism, however, as described is highly imperfect. When an ordinary merchant asks for six confirmations, pulling off a double-spend attack against that merchant requires producing six blocks faster than the rest of the network combined in real time, a task which requires at least 30% of total network hashpower to work with any non-negligible success rate. With the above described two-way-pegging mechanism, however, a malicious miner with even 1% of hashpower can generate six blocks, or even sixty blocks, eventually, and then use these blocks to fraudulently claim all BTC1.0 that have been put into the BTC2.0 lockboxes (or, in the other direction, fraudulently claim an unlimited number of BTC2.0). One possible patch that may come to mind is requiring the same person who created the lockbox to open it, thereby limiting the amount of damage that can be done per person, but this will not solve the problem because the malicious miner can easily collude with anyone else. The fundamental problem, that there is no way to come up with a mechanism for validating the blockchain that does not update itself over time, is either very difficult to solve or likely cannot be solved while staying purely within Bitcoin’s “static lockbox” scripting paradigm.

Another approach, one that can solve this problem without excessive difficulty, is more intricate and intrusive. It requires essentially including what is called a “light client” for Bitcoin 1.0 into Bitcoin 2.0. The light client is most easily described as a long-running “contract”, a program on the blockchain with a large amount of internal state that runs every time a transaction gets sent to it, that would accept blocks and verify block headers in exactly the same way that a Bitcoin client on your mobile phone would. This contract would then keep a running list of all block headers in Bitcoin 1.0, and in order to receive one BTC2.0 one would need to submit a cryptographic proof that you made the required transaction in BTC1.0 into the contract, alongside a security deposit of 0.1 BTC2.0.

The contract would check that the proof is valid, ends up at a block that is in the contract’s own internal mini-blockchain, and then wait one of two things happened. First, once sixty more Bitcoin 1.0 blocks get added into the contract, it would release one unit of BTC2.0 to the sender plus the security deposit. Alternatively, if someone else submits a cryptographic proof that the transaction is invalid for whatever reason (eg. it spends bitcoins that don’t exist) within that time, then they would receive the security deposit.

This would solve the security problem, but has one important flaw: it cannot be done within the Bitcoin protocol as it stands. It is fairly easy to implement in a protocol like Ethereum, because it is specifically designed for contracts, but Bitcoin’s scripting functionality does not allow for the existence of contracts that have internal state, so doing this inside of Bitcoin would require a very substantial change to the Bitcoin 1.0 protocol. Ultimately, the approach taken by Austin Hill and Adam Back may not look exactly like either of these strategies; however, the sheer complexity of the problem shows that there are still many challenges that lie ahead.

Mining

Another important question is: how will these side-chains be secured? The standard mechanism for securing a blockchain is mining, but mining requires a mechanism for rewarding miners on that chain. In a side-chain, every unit of the side-chain currency must be backed by a script-lockbox containing a unit of BTC on the Bitcoin blockchain, so there is no simple opportunity to issue side-chain currency units out of nowhere. There are two possibilities for this: demurrage (ie. a percentage-per-year tax on all BTC on the side-chain), and transaction fees. However, both of these provide a fairly low amount of revenue, and so it is not at all certain that plain old independent mining will solve the problem.

There are two approaches to get around this issue. One approach is to have the side-chain be secured by proof of stake, using the small revenue from transaction fees to compensate participating stakeholders with an interest rate. However, this approach would be very difficult to implement into a side-chain, because the computations involved in validating proof-of-stake are likely too complex to effectively implement directly on a blockchain. The other approach, and the one promoted by Adam Back and Austin Hill, is called “merge-mining”; essentially, miners include in Bitcoin blocks data from both the Bitcoin block and the Namecoin block, allowing miners to provide security for both chains at the same time using the same computational effort.

However, as argued by Bitcoin developer Peter Todd, the concept of merge-mining does have one very important security flaw: unless the majority of Bitcoin miners agree to merge-mine a particular chain, that chain is arguably not secure at all. To understand why, first consider the case of a more traditional altcoin, in our example running SHA256 for simplicity (if the altcoin uses a custom algorithm, then Litecoin miners can pull off the attack instead). If the altcoin has 5% of the hashpower of Bitcoin, then in order to attack the chain via a double-spend at least 5% of the Bitcoin network’s power would need to temporarily redirect itself to mining on the altcoin. This is potentially possible, but is a costly move: while the attack is in place, the Bitcoin miners would lose the revenue from mining on Bitcoin. In the case of a merge-mined side-chain, however, mining on the mainline of a side-chain or attacking it are both cost-free, so there would be no economic disincentive to attacking the alternative chain. This is not a mere conjecture; there have been actual examples of mining pools attacking merge-mined chains in reality.

Aside from security, this dependence on merge-mining also exposes another worrying limitation of the side-chains idea: while the spirit of cryptocurrency is arguably that of permissionless innovation, creating a side-chain requires the permission and active assistance of 50% of all Bitcoin mining pool operators. These limitations together suggest that the side-chains protocol, while great for many use cases, will certainly not be ideal for all.

The Promise

If the technical issues around side-chains can be addressed, what is the promise that they bring? Right now, cryptocurrency development can essentially be classified into four quadrants. The first quadrant consists of projects that use the Bitcoin currency and the Bitcoin blockchain – essentially, Bitcoin itself. The second quadrant is protocols that use the Bitcoin blockchain but not the Bitcoin currency; Mastercoin, colored coins and Counterparty are excellent examples of this. The third quadrant uses both an independent currency and an independent blockchain; this contains applications like (to take widely disparate examples) Ripple, Litecoin and NXT. Now, with sidechains the last quadrant has also been filled: using an independent network but using Bitcoin as the underlying currency.

It will be interesting to see what applications that niche works best for. For entire new ecosystems, it’s likely not the right approach; it makes little sense for a completely independent network like Ripple or Ethereum to tie its main internal token to Bitcoin financially and have the two be exposed to each other’s price movements. In the case of such major efforts, it also often makes sense to experiment with different monetary policies; Ethereum’s ether has a linear issuance model that constantly releases a certain fixed number of currency units every year, whereas Ripple released all 100 billion units of XRP to the Ripple organization all at once, and the organization is releasing them over time to developers, investors and people participating in distributed computing projects. For a fork that is intended to serve as a major protocol change, like upgrading from SHA256 to SHA3 or in the case of quantum computers from ECDSA to Lamport signatures or NTRU, it definitely makes total sense. For everything in the middle, it’ll be up to a case-by-case basis to figure out.

In the case of Ethereum, there is a special consideration to keep in mind: Ethereum is a general-purpose cryptographic consensus platform, not a specific “altcoin”. Hence, one can have many different currencies coexisting on the Ethereum platform as contracts; one can have boring old fixed-supply currencies, currencies with a monetary policy managed by a decentralized autonomous organization, currencies which exist to subsidize scientific research or provide a basic income, and even currencies with a built-in two-way-exchange mechanism to act as side-chains. Thus, Ethereum cannot accurately be pigeonholed into either the side-chains quadrant or the Ripple/Litecoin/NXT quadrant; it exists in both.

Indeed, it is very likely that as soon as the Ethereum genesis block launches, there will be side-chains for Bitcoin, Litecoin and Dogecoin implemented as contracts within three months. If side chains can be successfully and securely implemented, this means that Ethereum may even become the preferred means for storing BTC, LTC or DOGE using powerful multisignature storage contracts involving features like withdrawal limits. Between contracts on a general-purpose chain, high-performance special-purpose altcoins, quasi-centralized OpenTransactions servers, side-chains and Bitcoin itself, one thing is becoming clear: cryptocurrencies are going to be able to interoperate like never before.

  Rome wasn’t built in a day, and today’s money mechanics certainly didn’t come in a single treaty.  Our global financial system, like any human system, is not perfect and can be outright cruel and inhumane.  We have witnessed injections and bailouts for some, and austerity and social benefit cuts for the poor- that’s money mechanics.  Why do the orchestrators of such a system play down or block Bitcoins’ right to exist?  Former FED chairman, Alan Greenspan in December of 2013 stated, “I do not understand where the backing of Bitcoin is coming from“.  Warren Buffet has referred to Bitcoin as a “mirage“.

Money, as you might imagine has existed since our first human civilization.  While the exact origins are a highly debated topic, banking was alive and well thousands of years before coinage even came about.  For example, in ancient Mesopotamia clay tablets have been found showing various credit and debits, evidence of organized accounting and trade.

Our human experience is incredibly rich when it comes to money.  Throughout our history, man has used clay tablets, sea shells, husks, shark teeth, precious metals and crystals.  Sometimes gold and diamonds were used specifically because they are rare, but other times clay ceramic disks were used to remove any preciousness out of money itself- just useless ceramic disks that can shatter to pieces, yet they served as legal tender just as good as gold.

Image of Tally Sticks from England

In England, tally sticks were used from 1100 to 1824.  Essentially the sticks are split in half with notches cut along the edge to signify their denomination.  One was held in reserve and the other in circulation allowing anyone who returned with it to pay taxes.  The system worked so well, it existed for 724 years.

How money is defined, created, by whom, for what, has been a timeless question, and still is at the forefront of geopolitics, economics, philosophy, and our very daily lives.  Coming to a single definition of what money is quite a daunting task.  And most economists and philosophers will agree that the more you study money, the harder it is to define.  History has shown that society has constantly made changes to the definition of money, yet little discourse exists about restructuring money.  Money does not really exist in nature, we create it.  The act of defining money and organizing the creation of money will define society and make everybody in society bound to its rules.  The most famous quote attributed to Rothschild comes to mind: “Give me control of a nation’s money and I care not who makes its laws” — Mayer Amschel Bauer Rothschild.  Regardless if he really said or not, one thing can certainly be said about money in general- its the most mysterious, corrupt, and least democratic medium of our day.  Just think about it, its main use is to simply facilitate transactions and trade.  But as Nietzsche correctly noted, “money is the crowbar of power“.  As for the fortunes that usually amass at the expense of others, Honore de Balzac once wrote; “At the base of every great fortune there is a great crime“. Money in essence is abstract social rules embodied in law, those who control its issuance and creation control the rules and laws of literally every member of society.  Because of global finance and various trade systems, it is no longer just members of a particular society, but humanity and the planet itself.  The debate about money, capital and the role of states and banks is not over by any means.  The fierce debate about capitalism and socialism has died down since the Soviet scare dwindeled by 1991, and it seemed the world had enjoyed about 20 years of complete capitalism euphoria- at least until 2008.  As the financial bubble burst, markets imploded, and sent the country and the world into financial turmoil, faith based capitalism started shaking.  While millions of people lost jobs and homes, the top financial elites seemed to be in quite good shape.  The controversial “too big to fail” status and absurdly large bonuses throughout the duration of the bailouts covering that era were a sober reminder who runs the financial show.  Fast forward to today and the numbers are clearly out – the top 1 percent have doubled their money since 2009 according to the Wealth X and UBS Billionaire consensus report.  And yet again, we might be right around the corner from another round of similar bailouts that favor the big banks who enjoy huge subsidies.  The IMF just published a report  warning that the “to big to fail” crisis is not yet over, but has gotten worse since the 2008 crisis as the banks consolidated more – knowing quite well, no matter how bad things get, the governments have no option but to keep bailing them out at the expense of rest of society.  

Global Finance, Global Frustration

 

It was hard to digest the obscene robbing of the nation during the financial crisis after 2008, to see the perpetrators of the collapse receive vast amounts of capital, it was though Washington was completely staffed by Goldman Sachs.  The frustration turned into one of the biggest protest movements in world history, collectively remembered as “Occupy Wall St” and “the 99%”.  Though movement was not centrally organized, the theme was pretty clear: the 99% was getting completely frustrated with the inequality of money so concentrated in the 1% of financial elites and marched to Wall St.  The worldwide movement attracted not only disenfranchised youth, but people of all ages and classes, including prominent celebrity figures and academia professors.

Perhaps the most famous crusader today calling for equal opportunities and treatment, questioning our modern consumer capitalism march towards environmental destruction and apathy is Pope Francis.  In his address to the church on November 2013, he sent a clear message against the status quo of our global financial system, saying,

“some people continue to defend trickle-down theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system. Meanwhile, the excluded are still waiting.To sustain a lifestyle which excludes others, or to sustain enthusiasm for that selfish ideal, a globalization of indifference has developed. Almost without being aware of it, we end up being incapable of feeling compassion at the outcry of the poor, weeping for other people’s pain, and feeling a need to help them, as though all this were someone else’s responsibility and not our own.”  

Experiments In Money Creation

 

America has a very fascinating history when it comes to money mechanics and how todays finances came about.  As a matter of fact, many of the founding fathers viewed The Bank of England’s fierce desire to control the colonies as a “last straw” and led to the American Revolution – just ask Ron Paul, he knows his money history.  Benjamin Franklin was our father of debt free paper money, and it made the colonies very wealthy and vibrant using the colonial scrip which was completely backed by the nation and land itself.  England, on the other hand, was already under  the European Bankers, though Adam Smith was so apologetically sympathetic towards them in his central banking moral  treaty “The Wealth of Nations”, where the western world grabbed the  slogan “Invisible Hand” despite the fact that Smith only used it once.  Why did Smith argue in favor of private central bankers?  It was probably due to the fact that he was loyal to bankers and elites.  His young tutor, the Duke of Buccleuch who later married into the Montagu royalty family inspired him to write the “Wealth of Nations” as an apologetic treaty as to why a private charter for central banks should be the best solution for managing the governments money affairs.  Smith published his book in 1776, one year after the American Revolution broke out.  When Franklin went on a trip to England to discuss these opposing banking interests, he noticed the dire poverty and high unemployment; “The streets are covered with beggars and tramps” noted Franklin.

When Lincoln needed to finance a civil war that broke out and wanted to avoid the bankers, he created the Greenback.  And it proved to be effective, people gladly accepted the new legal tender, and considered it even better than the paper currency issued by private bankers.  But perhaps the most amazing money experiment in recent history occurred in Worgl Austria during the global depression of the 1930’s.

The widely ignored money theorists Silvio Gesell published, “THE NATURAL ECONOMIC ORDER”, John Maynard Keynes believed that Gesell’s theories hold much potential in economic theory, though Gesell himself was not an academic and did not write like the contemporaries of his time.  Nevertheless Gesell had a huge impact on the mayor of a small European city and he decided to make a form of scrip or money that actually loses value rather than gain through a form of tax called demurrage.  While the rest of Europe was gripped with widespread unemployment, the city’s money supply that Silvio Gesell called Freigeld (translates “free money” in German) was a huge success and drew much attention before the Austrian National Bank abolished it.  The city had almost no unemployment, shops were buzzing with business, and they built housing, a reservoir, ski jump and bridge during the year the currency existed- while the rest of the country seemingly gripped with unemployment and economic depression.  The currency proved very successful and practical.  By creating money that is debt free, and actually taxing the use of money, it makes it depreciative, and  the rate at which exchanges occur greatly increased and produced amazing results.  Well, apparently too good, and the European Bankers shut it down swiftly.  It is refreshing to see, that a relatively new cryptocurrency called Freicoin is based on Gesell’s demurrage concept attracting about a $700,000 market cap and growing.

Defining money is the privilege of those who already control it.  But recently, very recently, a debate has broken out, and is giving light to a subject that rarely gets a fair challenge in media or academia.  What is money?  Where does it come from?  Who controls it?  How do we define it….  

Hello Bitcoin

 

 

Various systems have attempted to combat or parallel mainstream currency.  In recent history we have seen local currencies, complementary currencies, return to precious metals and even barter itself.  But nothing has made more news or raised more eyebrows than Bitcoin, a purely digital currency that is not backed by any entity, organization or government.  In short, Bitcoin is basically software code that runs on multiple computers and machines in a peer-to-peer fashion to exchange digital numerations or nodes, verify them, create them, reward machines that create them, and protect them from possible cyber attacks or double spending.  This billion dollar industry has no address, no phone number, no email, yet it works, and it’s the most democratic system we’ve seen in modern history.  I must admit, Bitcoin is complex.  The more you ponder the further you go down the rabbit hole, just realizing how much potential this system has, not only for currency, but decision making, futures, contracts, and our very organization as a global community.  Bitcoin today is not the same Bitcoin it was first introduced.  The ecosystem of Bitcoin has exploded exponentially not only in use but also in the sheer computing power of Bitcoin.  At more than 40 petahashes, the Bitcoin computers plugged into the network around the world are now “hundreds of times greater than the 500 most powerfull supercomputers combined“.  This is quite a technological achievement, and it might just be starting.  As Bitcoins ecosystem is constantly being layered with complementary technologies, most notably Mastercoin, Ethereum.org and the MaidSafe.net projects.  What all of these emerging technologies indicate is that the web of the future, or web 2.0, will be a peer to peer decentralized network, solving todays systemic and ethical issues of privacy, security, centralization and anonymity.

The mysterious origins of Bitcoin, the alleged founder of Bitcoin who went by Satoshi Nakamoto remains anonymous despite many attempts to find him, like the failed Newsweek story, or trace him to perhaps a government entity or financial institution, some of the multiple conspiracy scenarios that constantly brew.  What many articles fail to mention was the Satoshi himself as published in his original paper, Bitcoin: A peer-to-Peer Electronic Cash System, stressed a very specific reason for creating the protocol. “The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transaction, and there is a broader cost  in the loss of ability to make non-reversible payments for non-reversible services…. These costs and payment uncertainties can be avoided in person by using physical currency, but no mechanism exists to make payments over a communication channel without a trusted party”.  

Its seems clear Satoshi was not bent on taking over the world or replacing any currency or bank.  There simply exists a technical, bureaucratic hole when it comes to small payments and the options we are given with the current banking-government paradigm.  Bitcoin and other cryptocurrencies such as Dogecoin are addressing these issues.  Even gas stations sometime won’t let you buy anything under $5.  So how are we to participate in our rapid globalization and digital marketplace that is exploding in the micro-payment ecosystem?  Can we really legitimize Visa charging us $0.10 plus 2% for such transactions?  The need for Bitcoin really does exist just looking at the numbers, say conducting 50 transactions under $0.10.  A large portion of fees built into credit cards contain the valid risk of chargebacks, dealing with disputes, reverse payments and security breaches that we have seen such as Target.  When thinking about Bitcoin in this mindset, Bitcoin almost becomes a modern day necessity.

Not every government agency is on the same boat when it comes to Bitcoin.  For instance there’s Miami PD along with secret service agents conducting sting operations, targeting users of bitcoins who trade bitcoins for cash.  After two meetings between agents and localbitcoin users, the agents said the bitcoins will be used to purchase stolen credit card numbers, as the party went forward, they were immediately arrested and were charged with money laundering and running an unlicensed money service business.  As if Miami doesn’t have bigger fish to fry than setting people up for trading bitcoins. Many well known figures like Warren Buffett and Alan Greenspan downplay and try to brush off Bitcoin.  However, a growing amount of people, from celebrities, to investors are taking on Bitcoin very seriously.  Even the Federal Reserve Chair Janet Yellen, who apparently understands bitcoin a bit more, is advising that the FED stay clear from any regulation regarding Bitcoin, since the technology is outside the banking industry and simply cannot be regulated.  And then there’s the Vice President of the St. Louis Federal Reserve Bank, David Andolfatto, a FED Bitcoin celebrity  rallying colleagues to try to see the benefits of this new technology to his audience of Federal Reserve members showcased a 36-page slideshow/report  titled ‘Dialogue with the FED- Bitcoin and Beyond: The Possibilities and Pitfalls of Virtual Currencies”.  In Andolfatto’s words,  he sees Bitcoin as “a stroke of genius”.   Instead of clamping down on Bitcoin, he is advising us to embrace it, and financial institutions must “adapt or die”. Bitcoin is beyond “will it make it” – it already has.  Every government agency in the world has heard of Bitcoin, it has a market cap of around $5,598,297,475 USD.  In the latest Bitcoin conference held in New York, Barry Silbert who serves as CEO of SecondMarket, a private bitcoin-dedicated investment trust noted that in 2013 Bitcoin received about $100 million into its ecosystem.  This year is a game changer, he estimates about $50 million has already been invested in the first quarter of 2014 and sees the year ending in tune of $500 million.  Bitcoin opened doors for a plethora of other competing cryptocurrencies called Alt Coins that are trying to carve out their own niche, be it faster transaction time (Litecoin), completely anonymous usage (Zerocoin), demurrage cryptocurrency (Freicoin) or currencies working together on top of the Bitcoin protocol (Mastercoin). Just the other day, the IRS answered my question-saying Bitcoin is not money, but property and thus subject to property gains tax rules.  The government bureaucracy is having a hard time understanding the fact that cryptocurrency as a new technology does not need the political process, it already exists, and its built right into the code itself.  It’s not that Bitcoin would not benefit from government participation, its just that at this point convincing policy makers to make beneficial policy is difficult because few understand the technology – its like trying to explain to grandmother how to use email and what the internet is for the first time.  Mirage or not the wide acceptance of Bitcoin is skyrocketing, sometimes being swapped just for fun, given to charities, kids soccer teams, to national basketball teams like the Sacramento Kings or fly to space thanks to Richard Branson because his Virgin Galactic space travel now accepts Bitcoins.  It begs the question: how do IRS officials plan on enforcing capital gains tax when their own kids are swapping Bitcoins on Craigslist for their skateboards or bicycles? Do you think Bitcoin is real money?  Whichever way you currently feel, you’re more than welcome to tip me a micropayment, or macropayment, with zero fees or banks associated, something PayPal, Visa or Mastercard does not currently offer.  Oh, one last thing: theres no late payments or overdraft fees…  Follow me @Pasha Tsiorba

In order to create a broad appeal for the concepts behind cryptocurrencies clear communication is crucial. Some of the terminology used in describing Bitcoin has been widely accepted, and taken as a given, almost unchangeable feature of cryptocurrencies. Other, more precisely codified components of the protocol can be changed as long as there is consensus around the usefulness of this change and more than 50% of the people running the Bitcoin network accept the new version. The metaphors and the corresponding terms used to  describe how Bitcoin works can also be updated, or even radically changed, if we think that the change would provide value. Why would we do that? As Bitcoin becomes mainstream, or aims to do so, one of the most important hurdles to overcome going beyond the early adopter crowd, is to be able to clearly explain what Bitcoin is and what are its advantages. The more effective we are in this, the faster it will be understood and the number of its users will increase more rapidly.

The Weight Of False Analogies

One of the fundamental concepts of the Bitcoin protocol and corresponding network is the Blockchain, the public ledger of transactions that lists every sender address, recipient address and the amount that has been transferred using Bitcoin. The computers participating in the global distributed effort to cryptographically encode the chain of transactions play a fundamental role. Explaining what they do and why they do it is an extremely valuable part of making Bitcoin understood by everybody. Traditionally we called this activity of the computers mining, and their operators miners.

Are the images and analogies that the mining metaphor applied to Bitcoin brings into our minds useful? If there are these advantages to choose, do the advantages weigh more than disadvantages, or is it the other way around? The origin of the mining metaphor comes from the fact that money used to be represented by coins minted from precious metals. The scarcity of  gold and silver use for coins, and the mining operations around them to extract them from locations around the world where they could be found, has its own lore, and charisma. Traditional economic theory requires this scarcity as a direct cause of the value of gold, and as a consequence of the coins minted from gold. Since we wanted bitcoins to be perceived as precious, and also their maximum number is set by the protocol and they appear to be consequently scarce, it looked like the mining metaphor could work. And we started using it.

There are however too many things that all this talk about mining implies that not only don’t apply, but are actually harmful to understanding Bitcoin: the imagery that comes with it of shiny golden coins, which link us to old perceptions of what the nature of Bitcoin is, and how it should be handled; the selfish activity of the miners, the gold rush, where the metal which is intrinsically useful in some industrial process, or in electronics, gets whipped to ridiculous valuations; the value of gold as investment… These and others don’t apply or only very weakly apply to Bitcoin, but we bring them with us nonetheless with the power of the words we accepted.

Weaving and Weavers: the First Automation

A different metaphor however, coming from a completely different area of economic endeavor, could be better for several reasons. We could use the term weaving for the activity of the computers, and we could call their operators weavers, referring to a metaphor from the textile industry. The weavers take the intertwined threads and through their expert, value added activity create a strong fabric – which is exactly what the global distributed network of computers creating the Bitcoin Blockchain does!

And think about it! Weaving machines were the first ones to be automated at the beginning of the nineteenth century. The Jacquard looms’ punch cards, which allowed any pattern to be programmed by experts, are nothing less than predecessors of the perforated cards programming our first computers. The rhythm of the weft and warp being locked together, forming the textile is the ten minute heartbeat of Bitcoin network.

Now, of course, no metaphor should go too far; no analogy can be perfect. I am sure we can easily find elements of the textile industry and of the activity of weaving that don’t apply to Bitcoin. But that is okay, as long as many of us believe that what it represents, with its imagery of a rich tapestry of variable and exotic fabric, is a step in the right direction.

The goal of course is to go  beyond the early adopters, to be able to talk to a larger audience, with friendly, familiar expressions that can be easily understood – to all kinds of demographics, beyond the geeks, and the libertarians. Could women be more easily drawn into the world of Bitcoin if we spoke about weaving the fabric of global financial emancipation? Could this result in a more attractive mental image than the macho world of secretive, solitary miners searching for gold?

The weaver metaphor extends beautifully to all the applications of the Bitcoin protocol beyond payments, too. What are these applications? Well, obviously, they are the emerging patterns in the fabric as encoded in the Blockchain! Different applications can overlap, and coexist, creating an ever richer tapestry.

And what about separate entities in the ecosystem, like Ethereum, Ripple, and others? They can be thought of as a separate fabric on additional looms, may be designed differently, which work to weave their own patterns.

Path Dependence of Our Memetic Future

The inspiration of our narratives matters, whether we think of the kinds of spaceships we design because of what Star Trek showed us, or imagine new social organizations based on a science fiction universe of a favorite author. The technology choices we make generate lock-in, and the ecosystem of solutions, and applications built on them makes it hard to change things after the fact.

Unlike our eyes wired backwards in their sockets, which need the very sensors be punched through to send the signals into our brains (all true!), like a television screen designed by a drunken joker, we must make sure that this narrative for Bitcoin, and the inspiration to a generation of designers and coders creates sustainable dependencies.

Let’s Design Many Fruitful Metaphors!

It is a fun game: instead of lazily accepting what we are told, what new, and clever ways to talk about Bitcoin can we come up with? It is not too late, and we can for sure find a receptive audience to our attempts to explain the wonders and the promise of cryptocurrencies: with friends, business associates, in our families or at conferences when we address a larger audience, giving an interview to journalists, or writing a blog post. Try it next time, and let’s see what happens. If the weavers’ metaphor takes hold, it will have possibly meant a step in the right direction for a global acceptance of Bitcoin.

Weeks ago, it seemed that Dubai may have been turning into a major Bitcoin hub. An image released on various social media platforms and news sources depicted upwards of 400 Bitcoin ATMs in a warehouse, with headlines like “Dubai About to Roll Out 400 Bitcoin ATMs.” However, later that week, the UAE Department of Economic Development stated that they have not issued any Bitcoin licences thus far. But Bitcoin is still making its mark in Dubai.

Early this week, the first official Bitcoin ATM made its debut in the heart of Dubai’s financial district. In conjunction, an exciting two-day event will begin on April 20. Cointalks Dubai is organized by The Online Project (TOP), and will be one of the first Bitcoin events to take place in the region and will provide an in depth look at Bitcoin and digital currencies. Cointalks Dubai is a community-driven event that will bring cryptocurrency enthusiasts, entrepreneurs, investors and professionals together.

The main event will take place at Impact Business Hub on April 21, with a special invite only event taking place on April 20 at The Capital Club in the Dubai International Financial Center. The event at Impact Business Hub is free to attend and will begin at 7:30 PM the night of the 21st. Among the event’s partners are Resronaut, Impact Hub, Wamda, Entrepreneurs Organization, The Capital Club, Endeavor, Arabnet and Bitcoin meetups across the Middle East.

The first day’s events at The Capital Club are invite only and will serve as an introduction to Bitcoin and digital currency, featuring Juan Llanos. As an experienced Compliance Officer, Llanos will also speak regarding the financial and regulatory environment of Bitcoin. The conference taking place on April 21 will feature some of the region’s pioneers of Bitcoin technology.

Topics to be covered at Cointalks Dubai include exchanges, the value of Bitcoin, security, and Bitcoin mining. Explaining these topics will be professionals across the Bitcoin community. Speakers will include AML/Regulatory Compliance expert, Juan Llanos, who’s also actively working as an advisor and investor in the cryptocurrency space; Bruce Fenton, Board Member of the Bitcoin Association. Cointalks Dubai will also feature David El Achkar, Co-Founder and CEO of Nyle and Bitcoin Lebanon; Bitcoin Jordan Group Co-Founder Ola Doudin; Sergey Yusupov of First Mobile Wallet; Co-founder of Bitcoin Jordan Group and CashBasha Fouad Jeryes, and Christopher LaBorde, Consultant at C. Works Engineering.

Cointalks Dubai will be the first organized event of its kind in the region, and will bring leaders in the cryptocurrency space together to promote larger adoption and understanding of Bitcoin in Dubai. Although we won’t likely see 400 Bitcoin ATMs in Dubai in the near future, Cointalks Dubai will work to combine emerging technology with an emerging city.

As more and more businesses, entrepreneurs and enthusiasts get a grasp on Bitcoin and digital currency, there will be an ever increasing amount of conferences to attend. Much like other technological innovations, the community will expand with the amount of information. Although many legislators and lawmakers have yet to weigh in on the future of Bitcoin, the community of Bitcoin businesses and individuals promoting conferences such as Cointalks Dubai see Bitcoin as a necessary technology, one that could ignite change in the global economy.

 

To attend Cointalks Dubai visit http://www.cointalks.me/

 

This post was released for Issue 19 of Bitcoin Magazine as part of a series of  articles about puzzles and games that started with Issue 12.

This series of puzzles and games was inspired by a talk given by the founder of the Pirate Party, Rick Falkvinge, at the European Bitcoin Conference in Prague on November 26, 2011 called ‘the fall of the gatekeepers’. A gatekeeper is a person who controls access to something, for example via a city gate. In the late 20th century the term came into metaphorical use, referring to individuals who decide whether a given message will be distributed by a mass medium. In his talk, Falkvinge maps the epic history of the people’s thirst for knowledge and communication versus the ruling classes’ attempts to control them and links this concept to Bitcoin and how it will bring the banking establishment to its knees.

THE HOARDER AND THE GATEKEEPER

The Hoarder and the Gatekeeper is a game for 2 players (the Hoarder and the Gatekeeper) that can be played on a hexagonal grid of any size. We’ll use a grid of 4 hexes per side here and we’ll call it ‘Coinland’.

Figure 1: Coinland

Coinland is full of coins, one coin per cell with the exception of the central one. Each cell is connected to its neighbouring cells by an edge. The ‘Hoarder’ will try to collect as many coins as possible by moving from cell to cell, while the Gatekeeper will try to collect coins by ‘taxing’ the Hoarder, placing gates on the edges between cells and charging a fee each time the Hoarder crosses them.

Print the board above (or draw one yourself). Then use loose change or draughts pieces or beans or whatever to fill the cells. Keep the centre cell empty.

The Hoarder uses a chess pawn (or any other object that fits inside a cell). The Gatekeeper uses a marker of a different colour than the edges of the board (if possible). Place the Hoarder piece in the centre cell.

Figure 2: Setup

Starting with the Gatekeeper, players alternate turns during the game until all coins have been collected or the Hoarder is not able to move, whatever happens first.

On her turn, the Gatekeeper must draw a gate in any edge between 2 cells.

Figure 3 – The Gatekeeper draws a gate

And on her turn, the Hoarder must move her piece in a straight line to a non-empty cell (it must contain a coin) in any of the 6 directions. She must pay as many coins to the Gatekeeper as gates she crossed during the move (she cannot move if she doesn’t have coins enough to pay). If there is a coin on the landing cell then the Hoarder collects it.

Figure 4: Example of Hoarder movement.

The Hoarder pays 2 coins and collects 1 coin.

When the game ends, count the coins that the Hoarder has managed to keep. This is her score. Then reverse roles and play again. Whoever achieved the highest score playing as the Hoarder wins.

PUZZLE

Coinland is full of gates and the gatekeeper is asleep (so only the Hoarder plays this time). Find a sequence of moves that harvest the most coins. Remember that the destination cell for each move must contain a coin, and each time you cross a gate you must pay one coin as a fee!

Figure 5: Find the sequence of moves for the highest score

 

RACE FOR THE COINS

In this game both players are hoarders and gatekeepers at the same time. So both need a pawn of a different colour and a marker of the same colour as their pawn. Setup the board as show in the figure. There will be 3 cells without coins.

Figure 6: Setup

Decide the starting player by any peaceful means. Players alternate turns during the game until all coins have been collected or both players pass in succession.

On your turn you must do one and only one of these actions:

• Move your Hoarder according to the rules (destination must have a coin). For every gate of the opponent’s colour that is crosses you pay 1 coin to her. It is not allowed to move your Hoarder across the other hoarder.

• Draw a gate of your colour on an empty edge.

• Pass if you cannot make a valid move (either moving your Hoarder or drawing a gate).

The player with more coins when the game ends wins.

 Thank you for reading!

Electrum is arguably the most well known Hierarchical Deterministic (HD) wallet, fully implementing BIP0032. An HD wallet generates all Bitcoin addresses using a specific algorithm from a single seed. A seed is the starting point and can be anything.

Further, as Electrum is a ‘Type 2’ HD wallet, the seed from which all key pairs are generated is presented to the user as a 12 word phrase using common English words. What all this amounts to is a so-called ‘brain wallet’ that provides particularly convenient back-up capabilities.

A user can simply write down 12 plain English words. Then, if they wish to access their funds anywhere, at any time, for any reason, they simply have to know these 12 words to gain access. The seed will recover all private keys and funds from the wallet.

What is more,  Electrum is unique in the desktop client space because it requests the blockchain from a server. This approach, for better or worse, means there are no delays in interacting with a rapidly growing blockchain.

The HD wallet approach that Electrum has pioneered is gaining momentum. Many are moving to these standards. Multibit, for example, is working to implement the same approach. Further, this will allow much needed interoperability with other wallets, as they move to the BIP0032 address generation method.

Twelve human readable words that can be presented in a variety of wallets will surely help adoption.

Given that Electrum is a such a useful tool, it is no surprise that there is a Litecoin port in Beta and nearing completion. There have been a few different ports of Electrum for Litecoin lately. However, these were later discovered to be unsatisfactory by the Litecoin core developers.

As a result, Warren Togami (Litecoin Lead Developer) asked ‘Pooler’ to work on the official port of Electrum for Litecoin: a tool that would be functional, clean and maintainable, adding great value to the Litecoin ecosystem.

The Litecoin developers are now requesting Beta testers for the software. All care should be taken, as the project is still in Beta testing. Testers are encouraged to be extremely careful, deal with small amounts and keep a backup of their wallets.

Nevertheless, the Litecoin developers maintain that the port is now good enough for public testing. It has been built with all the Electrum functionalities.

The Litecoin core developers currently have 3 Electrum servers for Litecoin, provided by Animazing, Xurious and Kyrio. However the developers would like to see more, to minimize centralization.

So in addition to calling out for Beta testers, they are requesting that others set up servers. Specifically, anyone with a server with at least 2 GB RAM and 8 GB free disk space would make the Litecoin Electrum ecosystem more reliable.

The server software is available here, with instructions on how to set up the server also available. If you’re interesting to either Beta test Electrum for Litecoin or setup a server, you are encouraged to go here and open a dialogue with the Litecoin core development team.

The Bitcoin economy will be drastically different a year from now, as it is much different today than it was a year ago. Washington will have a huge effect on what direction the Bitcoin markets move, as Congress and regulators shape the rules Bitcoin stakeholders must adhere to. Additionally, the U.S. is the global financial leader and the regulations that come out of Washington likely will shape the treatment of Bitcoin in other nations. The discussions among members of Congress, the regulators of the regulators, cover a broad range of possibilities for Bitcoin. At the U.S. House Small Business Committee hearing on Wednesday, April 2, 2014, the possible future path of Bitcoin ranged from being a bubble with a close end in sight, to being a threat to the US dollar as the reserve currency.

Members from both sides of the aisle of politics expressed the benefit in not stifling innovators who use their ingenuity to foster financial technology.  Ensuring that regulations were effective and not excessive was the hallmark of members’ responses. However, the potential threat in lack of harmony between federal regulatory agencies could stifle the technology and cause a lack of investment by institutional and venture capitalists concerned about regulatory uncertainty.

Is Bitcoin A Bubble?

An economic bubble occurs when the price of an asset rapidly expands, followed by a period of contraction. Bubbles are often the result of speculation or government interference in a market. When bubbles pop, those holding positions in the underlying inflated asset suffer financial losses.  Congress is examining the consumer and investor risk of a Bitcoin bubble.

The assumption that Bitcoin is a bubble comes from the digital currency’s extreme volatility.  Mark Williams, the author of Uncontrolled Risk, a book describing what caused the 2008 real estate bubble and former field examiner for the Federal Reserve Bank in San Francisco and Boston, told Congresswoman Yvette Clarke (D-NY) Bitcoin is clearly in the contraction phase in the Small Business hearing.

“Last year the [Bitcoin] space rocket went to the moon, this year it’s coming back down to earth.”

Williams also pointed out that in 2009, the year Bitcoin was unleashed, its annualized volatility was 160%.  Today that number is about 140%, which is 7 times more risky than the Argentinian Peso.  Additionally about 29% of bitcoins are owned by 47 people and bitcoin hoarding can lead to price manipulation.

To counter this claim, Jerry Brito of Mercatus Center testified there is nothing inherent in Bitcoin’s design that makes it extremely volatile; rather the volatility comes from the fact that it is thinly traded.  He also stated, for the record, that Bitcoin volatility will subside if the Bitcoin economy expands and derivative products that allow for hedging against volatility become available.

Does It Matter If Bitcoin Is A Bubble?

Bitcoin saw large price swings in 2013. Starting the year at about $13 per BTC, it hit a high in November of over $1,200. Today, the price is hovering around $425. Mr. Williams told Congress, “we’re clearly in the pop phase right now.”

When we look at my colleague Jesse Colombo’s bubble chart on Bitcoin it does seem to resemble the classic bubble stages of stealth, awareness, mania, and blow off. However, Colombo, who is famous for predicting the 2008 housing bubble as early as 2004, has not taken a position on whether Bitcoin is a bubble because he says it’s such a small market that anything is possible.

There are roughly 50,000 merchants that accept Bitcoin in the U.S., which is less than 1% of the e-commerce market.  Since Bitcoin represents such a small piece of the overall U.S. economy, Rep. Mick Mulvaney (R-SC) posed the question, “so what if it’s a bubble?”  If Bitcoin prices were to crash, relatively few people would be hurt. However, Adam White, of Coinbase, a merchant processor that also testified at the Small Business hearing, said their merchant base is growing about 10% per month and 95% of their merchants are small businesses.

Could Bitcoin Be The Next World Reserve Currency?

Investopedia defines a reserve currency as “a foreign currency held by central banks and other major financial institutions as a means to pay off international debt obligations, or to influence their domestic exchange rate.” Because the USD is the international reserve currency, the U.S. has benefited from “exorbitant privilege,” paving the way for extremely large trade deficits, debt, and monetary expansion. If the USD were to lose this status, we can only guess at the extent of the negative implications for our country, and for the financial health of every American.

Rep. David Schweikert (R-AZ) stated in the hearing that by the end of this decade he believes there will be a new international reserve currency.

Bitcoin offers transaction services without third-party intermediaries, circumventing the banking system that currently dominates finance and significantly lowering transaction costs. As an efficient payment system or value of exchange, Rep. Schweikert contends Bitcoin could threaten the USD as the world reserve currency, but he’s not sure a nationless currency is a bad thing.

“What becomes fascinating here in monetary policy is all of a sudden you would have a currency, without intervention from a central bank. You would actually have an honest peg of value.”  

A dissenting opinion came from Jerry Brito, who said Bitcoin has no chance of becoming the reserve currency in the short term.

“Maybe 100 years from now, but that’s impossible to predict. To say that the dollar has very deep network effects would be an understatement. Unless there is some cataclysmic monetary event, and I’m not convinced there will be, Bitcoin poses little threat.”

Did Milton Friedman Predict Future Currency?

If bitcoin were to replace the USD as the reserve currency, Mr. Williams pointed out that central banks would be replaced with computers and miners.

In 1999, 10 years before Bitcoin, Milton Friedman proposed “e-cash” or a system on the Internet that allows for money transfers anonymously, without third party intermediaries, which sounds a lot like Bitcoin.

Milton Friedman also called for an abolishment of the Federal Reserve Bank.

“We don’t need a Fed … I have, for many years, been in favor of replacing the Fed with a computer.”

The hearing on Bitcoin last week was a positive step for Congress to examine the benefits and risk of Bitcoin for small businesses.  However, the wide reaching discussions regarding what the future could hold for Bitcoin show the importance of the Bitcoin community to continue to educate regulators on what Bitcoin is and how it can contribute to economic growth.

Rep. Steve Stockman (R-TX) announcing his intent to introduce the first bill on digital currencies is an important step in jump-starting this dialogue in the nation’s capital.

The Central European Bitcoin Expo (CEBE) is setting up to be one of the largest conferences to take place in Central Europe. Taking place in Vienna from May 31 to June 1, the expo will feature notable speakers from within the cryptocurrency space, which will provide insight into technology, international legislation and the future of virtual currency in Europe and abroad.

Recently added to the list of speakers for the event were Charlie Shrem and Richard Stallman. These two virtual currency advocates will be joined by the already extensive list of speakers to be featured at the expo including, Dan Held, Adam Vaziri, David Johnson, Kingsley Edwards, Vitalik Buterin and many more.

Charlie Shrem is Co-Founder and partner of BitInstant and has not stopped advocating Bitcoin even after his arrest in New York City for money laundering. Charlie recently spoke via internet web conference at the Texas Bitcoin Conference, and will do the same during the Central European Bitcoin Expo. “I’m really excited to be speaking at the CEBE. Vienna is my favorite city in the world, and one of the first major Bitcoin hubs I visited back in 2011,” Shrem stated. “The Expo has some amazing speakers and visionaries like Richard Stallman and Dr. Stephanie Murphy.”

Known freedom campaigner and President of the Free Software Foundation Richard Stallman will also be speaking at the Expo. Stallman is a software developer, computer programmer and free software activist. He has been involved in political advocacy for free software and user freedom, campaigning against software patents and the extension of copyright laws since the mid-90s. During the Central European Bitcoin Expo Stallman will be speaking about software freedom, while others featured at the event will speak about finance and economic issues regarding the use of virtual currency, mining, challenges and the future outlook of Bitcoin.

 

Tickets for the Central European Bitcoin Expo can be purchased at cebexpo.net

Fine art meets bitcoin cold storage in Troy Fearow’s “labour of love”, CryptoArt, a project that took the fine art dealer 8 months to construct and launch.

Troy searches for and commissions high level artists, starting with Alexander Fedosov of the Ukraine, to produce fine art paper wallets in limited editions. These prints are meant for bitcoiners who wish to store their bitcoin safely and show them off in a beautiful way. And these prints are going fast.

Troy refers to these 8.15 x 11 printed art pieces as “Cryptocertificates” and are the size of traditional stock certificates – a beautiful juxtaposition of old meeting new investing. They can be framed and hung on walls, or stood up on tables. Currently, four hypersurreal prints are available, in ‘Patriot’, ‘Soldier’, ‘Bobby’ and ‘Chinese Girl’ style.

Every piece of art showcases a public key in a QR code form, which you can send bitcoin to. On the back of every piece of artwork is the private key. Every piece can be loaded with currency, unloaded, collected or traded, or kept for one’s enjoyment.

Troy has been a fine art dealer for over 15 years, and has a background in investments. He discovered bitcoin a few years ago through a friend, and has since been encouraging his group of friends and people he meets to look into the technology. He, like many bitcoiners, gives bitcoin away for free just to encourage adoption. I spoke with Troy over Skype to uncover the purpose for this project and learn about his intentions with this business.

Victoria: Troy,  what is the impetus behind this project?

Troy: The idea is to find really talented artists who can comment on the crypto movement and create fine paper wallets. My vision is to create another physical form of bitcoin; with any luck, the wallets themselves will increase in value along with the bitcoin they store. I want people to be able to view their bitcoins, know that they’re safe.

Victoria: So it’s a win-win, a double-investment, if you will. Investing in art and in bitcoin at the same time. Tell me, how did you find the first artist you feature, Alexander Fedosov?

Troy: I own fine-art.com and have a database of thousands of artists. I actually don’t remember how I found Alexander; I literally searched thousands of websites trying to find the right one. Someone appealing. I wanted the art to be… a little anti-establishment, but not offensive. I am a big fan of hyperrealism. When I see people illustrate something that… looks so real, that speaks as fine art to me. I am very selective of the artists who will contribute to this project, and I prefer realism. This project is really a labour of love for me. I don’t want to churn out art, and I have turned some submissions down, unfortunately. But it’s time to give the bitcoin community some artistic attention.

Victoria: Tell me about the process. When I purchase a piece of art from your site, what can I expect?

Troy: First of all, currently, I ship everywhere I possibly can. So, after you visit www.cryptoart.com and of course fill in your details and pay (the site now accepts bitcoin), I send it to you. When you receive it, you’ll see on the front of the art piece a QR code. This is simply your public bitcoin address. You can scan this with your phone and even transfer bitcoin from your phone to the piece. At anytime, you can scan your art to find out your current balance using an application like www.bitcoinbalance.com. It takes you to blockchain.info and tells you how many bitcoins are on it. On the back, if you turn it over, you’ll see a security stick that is on some media. The private key is under that.

Victoria: Is that safe?

Troy: I wanted the art to be trustless. I suggest people remove the security sticker and put another private key on the back; you can do this without damaging the art print. Take the sercurity sticker off, go to bitaddress.org and print off a new private key. I actually went through quite a bit of trial and error with this, going through many publishers, printers, and had a project engineer. There are many things I had to worry about: acidity levels, media types, copper at one point… It was quote a process to get this working perfectly without damaging the art piece! Even the pixels for the public QR code match the print off you get from websites.

Victoria: It sounds like you put a lot of thought into making sure this was done properly.

Troy: Yes, I want it to be beautiful, but I also wanted to make sure the utility was there. The art piece itself is a standard 8.5 x 11, so you can easily frame it. You could even keep all your different art pieces in a binder and show everyone your bitcoin! I am working on producing larger pieces as well, which will also follow standard sizing.

Victoria: These would make for great gifts. I already want to gift some to my cousins to get them into bitcoin. It seems like a way to make bitcoin more accessible, for people to actually touch and feel their holdings.

Troy: You can definitely gift them. It’s a beautiful gift idea. You will also notice that each piece has a suggested denomination of bitcoin ranging from 10 millibits for the Patriot [and] up to 1 bitcoin for the Chinese Girl. You could even preload these and gift them. Eventually, I will create larger paper wallets that will say ‘infinity bitcoin’ on them. That’s more of a piece you would frame. And, of course, you can overload any one of these pieces; those denominations are simply suggestions.

Victoria: I love the idea of this. The combination of art and bitcoin, of making bitcoin more tangible for people and increasing the adoption of the technology through this medium. What does bitcoin mean to you?

Troy: Bitcoin is open for interpretation. As far as my personal opinion, coming from a finance background, I am a huge believer. There’s so much infrastructure [being created], so much professional institutional interest… it’s going to catch up with the early adopters. I’ve been watching it for a while. I saw the first run up to $30, then saw the crash. Then I saw the run up to $260, then saw the crash. Every crash is followed by a lull, and we kind of seem to be in that lull again. At the same time, we have really sophisticated infrastructure being built, and of course you have a lot of the space developing with alt-currencies happening; it’s all very interesting. I personally haven’t seen anything that could replace bitcoin. [But] expect to see alt-currency cryptoart, as well.

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Troy and Alexander’s beautiful artwork paper wallets have been a hit in person, garnering him attention and lots of positive feedback at meetup groups and fairs. Even without the prints on display, just the idea of bitcoin on artwork struck a chord with the bitcoiners he interacted with. Several people came up with the idea of the huge potential of social tipping: where the public can ‘tip’ micropayments for artwork they enjoy. These ‘tips’ could go to the artist or even to the institution that displays the art.

Troy is releasing limited edition runs at 200 prints maximum per design. He plans on taking his time to acquire really great artists, develop a strong following and ensure the “quality is there.”  Bitcoin is on speed, but for Troy and his beautiful art, it’s lovely knowing that someone is taking their time and doing it right.

For now, Troy is thrilled to have launched his “labour of love” and is encouraged by the positive response cryptoart has received so far. “It’s so wonderful to meet other bitcoiners,” he laughs. “I introduced bitcoin to a lot of my friends and circles. To go to a conference and all of a sudden be in a room with hundreds of bitcoiners… it’s nice to know I’m not crazy.”

I now have the Army girl hanging in my office for every visitor to see. The art arrived well packed, in layers of bubble wrap and foam peanuts and was just a thrill to open and admire. Having cryptoart not only allows me to admire my bitcoin, but acts as a point of discussion for anyone who visits. Visit www.cryptoart.com to purchase your own paper wallet.

Hint: Stay tuned for more articles on the power of social tipping + art.

Late last month BitScan launched their new mobile applications, including a revamp of the company’s popular iOS application. The app is completely redesigned and streamlined for speed. Furthermore, in response to customer demand, the BitScan team has also launched a mobile application for Android. This launch comes months after the company began its crowd-funding of the Android version, which reached a third of the way to its goal in just five days in early March.

BitScan provides one of the largest Bitcoin directories and currently consists of over 6,000 merchants in more than 130 countries. The company believes that the continued promotion of Bitcoin commerce is key to the mainstream adoption of the virtual currency. In the months previous, BitScan has been focused on the development of their mobile platforms and website, designing them to support efficiency, speed and scalability for their users.

BitScan for Android was released on March 25 and much like the iOS application, provides users a source for Bitcoin news, and a location based Bit Trade Map and Bit Trade Listing platform. The release of the Android version of BitScan was supported by the company’s ambitious product development schedule that began earlier this year. They invested heavily in back-end technology and re-organized their data behind a REST API (representational state transfer), which has caused huge gains in application performance and made for a simpler user interface.

Within the application is Bit Buzz, a bitcoin news source which allows users to keep up with news regarding virtual currency from their mobile device. These stories are displayed in a very mobile friendly manner and contain valuable information into the cryptocurrency community – for both the basic and advanced user.

By far one of the best parts of BitScan’s mobile application is the Bit Trade Map. This interactive map provides pinpoint locations of Bitcoin merchants throughout the world and is as easy to use as other mobile-based map applications. In addition, users can also use the zoom function to explore every merchant around the world, which is perhaps the most eye-opening part of the application. Seeing the blue Bitcoin icons of the 6,000+ merchants gives a glimpse into just how large the Bitcoin community has become since its humble beginnings years ago. The application takes into account the user’s location and finds businesses and service providers in their area that accept Bitcoin. When the user finds the business, they can research their findings in further detail with a simple finger press. BitScan also provides users with contact information for each merchant, including phone, email and website.

Furthermore, the Bit Trade Listing feature allows users to see the same details contained on the Bit Trade Map, only in list form. The list is sorted by the merchant nearest to the user’s location and still provides further information on each merchant when pressed.

BitScan has a robust and scalable foundation in place, and has achieved a large grasp on the mobile market. From this, the company will shift its focus to adding additional tools to succeed in their vision of promoting Bitcoin commerce around the world. “Counterparty trust is, understandably, a big issue in the bitcoin space,” said Rob Wilson, CEO of BitScan in a recent company press release. “While multi-signature technology will, once commercially implemented go some way to reducing the trust component in consumers’ spending decisions, Bitcoin needs a means by which merchants can establish, build and demonstrate their trust credentials up-front. BitScan is working hard to provide them with the means of doing so.”

 

To download the application on both Android and iOS, simply search “BitScan” in the respective app-store.

 

There is a new video that is taking the Bitcoin community by storm. Produced by recently launched internet cable brand SQ1  (pronounced square one), the video titled “The Bitcoin Phenomenon” explores the groundbreaking aspects of digital currency. Filled with interviews with some of the crypto community’s best and brightest, the half-hour long video gives a glimpse into the Bitcoin ecosystem by exploring what makes the cryptocurrency special, while also providing narrative regarding technology, legislation, important political implications and what those interviewed envision for the future.

The idea for The Bitcoin Phenomenon came about a year ago, when founder of SQ1, Bhu Srinivasan, was introduced to the idea of Bitcoin from a friend and decided to explore it further. Although not a Bitcoiner at heart, Srinivasan knew that the Bitcoin conversation was just getting started and chose to get a crew together and shoot at the Bitcoin Conference in San Jose last year. SQ1 reached out to individuals they thought would make perfect guests for the interviews, each of whom had a different background and expertise within the digital currency space.

Of those featured in the video are well-known individuals within the community including, Bitcoin core developer Gavin Andresen; venture capitalist Jeremy Liew; Coinapult CEO Erik Voorhees; Peter Vessenes, Head of the Bitcoin Foundation; Co-Founder of Coinbase Fred Ehrsam; medicinal marijuana activist Steve Kubby and Buttercoin CTO Bennett Hoffman. Also interviewed are crypto-anarchists including, Trace Mayer and founder of Antiwar.com, Angela Keaton.

The Bitcoin Phenomenon begins by giving an extensive and thorough background of Bitcoin and the technology surrounding it. The interviewees share personal stories with how they got “hooked” on Bitcoin, while defining several key terms that can puzzle even the most experienced user.

Andresen states in the short film:

“Satoshi brilliantly designed the incentives, so you don’t need to pay anybody to make sure that all transactions are valid, because they get paid by the system itself. The reward for doing the work of processing transactions and making sure there is no double-spends is tied into the creation of new bitcoins. So the people who are being awarded new bitcoins are the same people who are making sure double-spends don’t happen – That’s the way new bitcoins come into existence. These people who validate bitcoin transactions are called miners.”

The video accurately illustrates the function of mining in the simplest way possible. Those interviewed also explain the way miners are paid, and the fact that Bitcoin only has a finite amount that will be created (21 Million created will be reached in 2140). “There is a lot of altruism in the system, the very first miners just wanted to help – they thought it was cool. As soon as there was an exchange rate, miners realized they could turn the [bitcoins] they mined and make money,” Peter Vessenes stated regarding the growth of mining in late 2009 and 2010.

Not only does this short documentary focus on the basics, but it also explores various views on the clash between the politics of early-adopters, the VCs and entrepreneurs looking to take Bitcoin to the mainstream. The interesting fact is that The Bitcoin Phenomenon was filmed nearly a year ago when these topics were not spoken of very regularly. However, in that year we have witnessed the explosion of Bitcoin and digital currency in the press, and the onslaught of legislative and political debates throughout the world. The topics covered in the video are happening now, making it even more effective as a source of knowledge.

The interviewees in the video spend most of their time explaining the benefits and challenges surrounding Bitcoin. Among those are the infamous Silk Road and other criminal activities that have soiled its reputation. Trace Mayer explains, “What I am interested in is the ability of the market to solve these problems, because these particular market actors were excluded from traditional banking systems. Bitcoin has provided a solution to that.” He continues, “it is very difficult to exercise your speech if you don’t have the ability to transact. What we are seeing with Bitcoin, is money has actually become speech.”

One of the benefits explored by the video is the benefit of zero transaction costs. Nearly everyone in the video agrees on the importance of what no transaction cost could provide for the economy.

“The first wave is building the infrastructure, which just makes the thing work,” explains Jeremy Liew. “Right now just to make Bitcoin work at all you need exchanges, to get money into bitcoin; you need wallets, to hold the bitcoin; you need payment processors to spend the bitcoin.”

A benefit that is very exciting within the community is the ability to make microtransactions. In card-not-present transactions, the smallest transaction that can be completed is around 30 cents. This is because it costs roughly this amount just to process the transaction. However, with Bitcoin users would be able to complete microtransactions without the merchant having to foot the bill for the transaction fee. For example, if you wanted to pay a penny to read an article online, that can be made possible with Bitcoin.

The documentary also discusses the variety of political viewpoints of the future of Bitcoin. Each individual interviewed has a certain vision for the future. The radical politics of the Bitcoin movement believe it should remain close to the fundamentals, while others debate that in order for the virtual currency to become mainstream, the establishment interests could help legitimize Bitcoin.

The Bitcoin Phenomenon provides great insight into the world of Bitcoin, where the future is headed for digital currencies and what that means to the future of the global economy. This video can be understood by even the most inexperienced individual. It can bridge the gap between those questioning its validity or debating its usability. The Bitcoin economy is still growing and new technologies are springing forth each day. Vessenes states, “I think it is the protocol of money on the internet.” In fact, SQ1.tv just started accepting Bitcoin on Monday, and currently over 50% of users have used Bitcoin to pay for their subscriptions. Although the future of the virtual currency is unsure, plenty of leaders in the community have some idea of what is to come, even if their ideas are all a little different.

“I think Bitcoin will grow to something where 5 percent of people’s wealth will be held in Bitcoin.” – Fred Ehrsam

“Bitcoin might succeed somewhere else in the world. Maybe Bitcoin would make sense as their national currency. I think it will be interesting in the next five years to see what happens.” – Gavin Andresen

 

To watch the complete video visit https://www.sq1.tv

 

We often imagine a world where we can walk down the street and be able to pay using virtual currency everywhere we go. For a small suburb outside of Cleveland, Ohio, this is becoming a reality. Located in the Cedar and Lee district and just ten minutes outside of downtown Cleveland is what will soon be known as Bitcoin Boulevard US. Residing in Cleveland Heights, accurately named Bitcoin Boulevard US will soon give patrons of local businesses the ability to make purchases with Bitcoin. In early May, several businesses along Lee Road will begin accepting Bitcoin.

Organized by CoinNEO (koy-nee-oh), Bitcoin Boulevard US currently consists of eight merchants and 2 service providers, with the hope to have 10 on board by the date of the event. The event will be an organized community event in the same spirit as Bitcoin Boulevard in the Netherlands. CoinNEO is following a similar model, and will be one of the few Bitcoin communities of its kind centered in the United States. The event is planned for May 1, and will allow both the experienced and beginning user to get a handle on using Bitcoin within brick-and-mortar businesses. Bitcoin Boulevard US will cover over two walkable blocks along the same street, with opportunities to experience fine dining, retail shopping, salons and artisan sweets – all using virtual currency.

CoinNEO is a Bitcoin consulting firm based in Cleveland Heights which partners with organizations to explore opportunities, risks and solutions associated with accepting Bitcoin as a payment option for their customers and B2B associations. Founded by Nikhil Chand, CoinNEO helps educate safe and secure Bitcoin practices and implements Bitcoin tools for online and in-person transactions.

The company has worked hard to inform merchants about the benefits of Bitcoin, with the first being The Wine Spot in Cleveland Heights. Since that time, Chand has been focused on spreading knowledge of Bitcoin and organizing Bitcoin Boulevard US. In fact, the Wine Spot was the host of the most recent Cleveland Bitcoin Meetup. Chand and CoinNEO have been hard at work preparing merchants to accept Bitcoin for the opening of Bitcoin Boulevard US.

Among the current merchants will be Sweetie Fry, creator of “ridiculosly good fries” and hand-made ice cream; Mitchell’s Fine Chocolates; The Wine Spot, a cafe providing wine and craft beer; Shawn Paul Salon; popular restaurant and bar, The Tavern Company; sustainable clothing designers, Revive; Parnell’s Pub, The Katz Club Diner and service provider, Monroe Constructs.

A walk down Bitcoin Boulevard US will place you right in the middle of a Bitcoin economy in action. Bitcoin Boulevard US will provide a destination for Bitcoin commerce for both local and international patrons. The number of small businesses adopting virtual currencies fosters broader discussions on the role of these currencies, now and in the future. For local businesses like those who are part of Bitcoin Boulevard US, Bitcoin has the potential to increase margins by reducing processing and fraud fees, which is especially important to a small business’ level of success. Virtual currency can increase brand awareness, grow our customer base and reach globally.

 

Bitcoin’s protocol is open source. So is its narrative. The story and the code evolve. We all contribute. Each pulls in a direction. Themes emerge: engage or disengage with regulators, build for anonymity or transparency, embrace or shun agorist beginnings.

There is no one way, just individual frames-of-reference. Bitcoin is greater than the sum of these arguments. Ultimately it will be moulded in our collective image.

A good entrepreneur sits, smiles, nods and focuses on reduced transaction fees. A libertarian has loftier ideals. Many wear two hats. After all, many businesses today were once on display at events like Porcfest.

Those who fell in love with Bitcoin as libertarians, every day add value as entrepreneurs. There are still a great number in the ecosystem. Over time perhaps this will change. There are those who believe it will.

Amir Taaki is less compromising. He only wears one hat. He is dedicated to this technology for its greater promise. There is no lying in him. This is reflected in his work: Libbitcoin.

There is a lot of noise in the space. It can drown out the music of what matters, like protocol implementations. Libbitcoin is one such implementation. Payment processing, pretty interfaces, congressional hearings and financial oversight committees are all irrelevant without a solid technological foundation.

The opportunity to talk about this subject with Amir is something I relish. It’s good to get back to basics.

Amir, what is a protocol implementation?

Protocol dictates how two parties formally interact with each other. With Bitcoin, this means how the software underpinning the network speaks to other nodes.

In a world of diversified Bitcoin software, for those nodes to understand one another, they need to speak a common language. This common language is the Bitcoin protocol, as set down by Satoshi.

An implementation is merely one individual realisation of Bitcoin, as written by a specific group of coders. They might choose to write the code in a dozen different ways as appeals to their preferred style (code is art). And each of those different implementations may act no differently. A protocol implementation, is an implementation of Bitcoin that implements the protocol as defined by the network.

So, what is Libbitcoin?

Libbitcoin is an asynchronous C++ toolkit library for Bitcoin. The first commit on Git was in May 2011.

I have a strong dislike of frameworks, which I see as programs that are already written containing some stubs for you to fill-in. They are a place to hang your hat. Instead I prefer the toolkit approach, which is a flexible collection of classes and functions that can be assembled into different programs.

And what are some of its unique features?

Libbitcoin is asynchronous, operating around the concept of threadpools. Operations take a completion handler that returns an std::error_code indicating success and arguments (depending on the operation used) for return values.

I’m also a big believer in the UNIX philosophy of building bricks, and “worse is better” which emphasizes simplicity of implementation over interface. A simple implementation is important for system’s software to remain pure and focused in its operation without side effects.

Why is it important for a system like Bitcoin to have many implementations?

It’s important to have a diversified ecosystem of open software around Bitcoin. There are two big reasons why: the health of Bitcoin and maintaining our independence.

A Bitcoin, which runs the same code everywhere is a Bitcoin susceptible to the same flaws and bugs. If everybody runs the same Bitcoin software then any attack vector has the ability to burn down the entire network overnight.

The strongest operating system is Linux because there are so many different versions of Linux, and no single way to attack Linux. Linux is an organism with diverse and healthy genetics.

The other risk is that a monoculture surrounded by proprietary tools in the hands of a few will come under pressure from regulators or corporate interests who seek to coopt this technology for their own ends.

People will begin to compromise on Satoshi’s principles in small ways, opening the path towards more and more corruption of Bitcoin.

It’s not sufficient that Bitcoin alone is open source, as there are many difficult decisions where the choice between A and B is not always clear.

Sometimes only a very select few understand the deep implications and trade-offs of certain development choices. Sometimes the decision is a small or insignificant one. But if our intentions are not pure (or are corrupted by pressures) then it’s easy to take the million small decisions that morph Bitcoin into ‘Govcoin’ or ‘Corpcoin’.

But I thought Bitcoin had a “reference implementation”?

There is no reference implementation. This is a self-given title to a project by people seeking to establish and cement their official status and legitimacy.

The real reference implementation is the software people use. We are in the same boat, so whoever has the users has the power to dictate decisions. If the users choose to use software that advocates for government or corporate interests, then the users are voting for development decisions that benefit government or corporate interests.

If however, the users use and deploy software in critical infrastructure that promotes black market, p2p trade and small business then they are voting and pushing the consensus of Bitcoin towards a Bitcoin for the people.

In the end, it’s all different mafias. And you have the power to choose.

How big an issue is protocol implementation for the success of Bitcoin?

It’s not only about the consensus as agreed by the network; it’s also about the features and where the energies of developers go.

There are features in Bitcoin that threaten the freedom of Bitcoin users such as triangulating Bitcoin transactions, logging network info in big surveillance databases or address blacklists (as proposed by Agent Hearn).

If we don’t have a push back of development that is actively developing technology to free people then people will be forced to rely on technology that is abusing them.

Are there plans to adapt Libbitcoin for any alt-coins?

Yes, I plan to support Litecoin and Dogecoin.

What do you see as the future for Libbitcoin? Where do you hope to take it?

I have a big focus on blockchain scalability, and my aim is to rip out LevelDB and replace it with custom databases.

There’s a lot more juice that can be squeezed out of the blockchain by creating custom databases. You can make several assumptions about blockchain operation that allow big performance gains and some nice features.

Dark Wallet aims to have Coinjoin operational by default. What is Coinjoin and how is that progressing?

CoinJoin is the ability to indistinguishably join my Bitcoin transaction with another person’s. Another term is “trustless mixing”.

CoinJoin protects sender privacy. DarkWallet has CoinJoin already functioning, and it will be available upon release in the send dialog (activated by default).

Stealth addresses are the other side of the equation, protecting receiver privacy. I can publish a single stealth address and only I will know the payments belonging to that stealth address (despite the transactions being public).

Nobody will be able to recover the transaction history for a stealth address despite it being public.

CoinJoin + Stealth = Bitcoin anonymity

Bitcoin is an open architecture in which we all imbue our values. The decisions of those working on Bitcoin at a core level will, over time, greatly affect the Bitcoin we end up with.

There is a purity of purpose to Libbitcoin that transcends the desire for material gain. It is Zen: a million dollars of code, written in painstaking detail, over three years, with no financial compensation, at great personal sacrifice, across the squats of Europe. There is a kind of poetry in that.

Much like Bitcoin itself, it smacks of hope.

Libbitcoin does not seek endorsement, or tacit approval, from the current financial paradigm.

The Libbitcoin code library is careful to remind us of Satoshi’s original message, left inside Bitcoin’s genesis block. At inception, forged in the immutable blockchain, the words “// The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”.

The message offers a haunting glimpse into Satoshi’s mind, as he mined the genesis block on that fateful day in 2009. How ironic will that message become? Only time will tell. But, regardless of where Bitcoin is taken, no one can ever remove that timestamp. There’s a weird poetry in that too.

Bitcoin has re-introduced the idea of money as a competitive good. It has done so in a meaningful way. This idea has been conspicuously missing from the economic debate for too long. I, for one, am pleased to welcome it back.

We’ve always had competitive ‘private’ monies, centrally managed and lacking global reach. A current example would be the Brixton pound.

These monies could never effectively compete with money by fiat decree. If these monies existed on the Internet, they were promptly shut down. If they existed outside the Internet, they could never scale to threatening levels. The fiat monopoly was easily maintained.

Bitcoin cannot be effectively shut down. Bitcoin also facilitates value transfer on a global scale. It is these two factors combined that make it competitive.

As a result we have a working experiment in money as a virtual good, issued outside the apparatus of state, competing with other monies. This can be quite difficult to fathom. Over several generations we have grown accustomed to money by central decree. Surely that’s how it must always be.

Leading economists would have us believe that it is imperative and necessary that money be centrally monopolized, at the same time espousing the benefits of free market competition everywhere else. What a crock.

Capitalism requires free markets. If money is both completely monopolized and half of every transaction, then we are missing out on capitalism.

In reality money is no different to any other good. It should be subject to the same market forces.

The lack of a free market in money is at the core of all our economic and societal problems. Yet we accept it without question. The greater casualty is capitalism itself, which is routinely blamed for the constant boom-bust cycles.

The fundamental laws of economics operate like the laws of physics. They are immutable. More government regulation cannot rid us of this endless to-and-fro. Only competitive money, arising out of the marketplace, can steady this.

A basic understanding of business cycle theory is needed, before we can recognize the real importance of Bitcoin as competitive money, from an economic perspective.

Imagine if the government decided, for reasons of public policy, it needed to affect the price of beer. To do so it created the Federal Beer Bureau. Periodically the Federal Beer Bureau would meet, in secret, and decide what the price of beer would be over the short term.

It would force all brewers in the country to price accordingly. We would recognize this as a little strange at best. After all, supply and demand should determine what a beer costs.

Yet we do not question this kind of Orwellian activity when it applies to our money.

Money is a good and it has a price too. Money is the most important good in an economy: as one half of every transaction. The price of money is the interest rate, moving in relation to the supply and demand for money in the economy.

With the bank at the centre of the process we can illustrate. A bank is a business. In order to profit they take in savings and loan out those savings at a higher interest rate.

If the bank only has a little bit of money in its vaults to lend, then it is low on its inventory of goods: money. It must encourage customers to save more, in order to fill up on supplies. It does this by increasing the interest rate. Consumers are now incentivized to save more, through deposits with the bank.

Now that the bank has filled up on supplies of this good, they need to make a profit. They do this by lending out the good (money) to businesses. To encourage this activity, they lower the price of money to an optimal point.

It is this action that determines the correct price for money. The market is doing it all by itself, without any help from the government.

The bank will find the optimal price for money, according to these competitive forces, and that will be the price of money. If it does not do this optimally, it will go bankrupt, just like any enterprise that cannot operate efficiently in a competitive environment.

When the interest rate is high it means consumers are not saving enough money. This is important for business. If a business wants to borrow money to invest for products that will be available in the future, it must ensure consumers are saving money for that future consumption.

If consumers would rather spend money on the present instead, it will be reflected in the level of savings and, by extension, the interest rate. There will be a low savings rate, scarce amount of savings available and high interest rate.

In this way the interest rate also operates as an important signal to producers and the economy.

So when the government and its central bank ‘sets’ (manipulates) the price of money, they ensure that the economy receives fake signals about the level of savings and desire for future consumption.

These false signals cause borrowing and investments that should not occur. An economic boom results, that must necessarily correct itself with a bust.

For a time business will incorrectly believe savings exist and invest in big future projects, hiring more people and lowering unemployment.

Eventually they will realize that the projects are not profitable and run out of money to borrow. Then the longer-term picture of the inevitable bust is much more bleak.

With Bitcoin, we have a quality, free market money, outside the purview of state manipulation. It exists in the marketplace and will provide an alternative to the madness inherent in this manipulated system.

But if Bitcoin only serves to re-introduce the notion of money as a competitive good into the arena of economic debate, and provide a working example, it would have accomplished a great deal.

Virtex is soon launching a platform that will allow for the exchange of cryptocurrencies at an international level. The company based in Kaunas, Lithuania is the realization of a project led by CEO Paulius Meskauskas, CMO Tomas Andzelis, and CRO Mantas Gustys, and was inspired by new technologies in cryptocurrency. Kaunas serves as the technology and economic center of Lithuania, and the Virtex offices are located at the heart of the city. Along with a group of more than 20 individuals, Virtex has set out to create an exchange that benefits traders by offering transparency of operations and partnerships.

Virtex came about through the group’s interest in what cryptocurrency could provide for the future. “We wanted to get immersed with the digital currency revolution, rather than watch it from the sidelines,” a company spokesperson stated. The exchange platform was created using a reputable web development framework that allows for the creation of custom applications. In regards to operations, Virtex has stated that the exchange will operate on a 100% liquid basis, which could make trading on the exchange very efficient.

Virtex has stated that it is taking a professional and user-oriented approach to the cryptocurrency exchange market. Launching in less than a month, the company will offer a 3-step account structure that will determine trading fees, Starter, Trader and Enterprise. These will all be indexed within a 30-day period and will vary from 0.2 to 0.3 percent – the higher the trade volume, the lower the rate.

As far as funding and withdrawal methods, Virtex is working to add to their existing list of options. There are four companies partnered with Virtex that will provide funding and withdrawal options, including OKPay, AstroPay and KADUcollect. Although these will be the only available funding methods at launch, Virtex is looking to offer more in the future. When the launch date occurs, the exchange plans to offer trades in Bitcoin, Litecoin, USD, EUR, NZD, AUD, GBP and CNY.

Virtex is looking to attract traders from all across the world, but will not allow trading in USA and FATF blacklisted countries. By taking extra precautions and not allowing countries that are high risk, the company can establish a trustworthy trading platform. To grab the attention of traders in Lithuania and abroad, the company is currently offering a 50% discount on traders who register during the pre-launch phase. The discount will last for three months.

As with any cryptocurrency exchange, the security of the platform and funds is of utmost importance. In the past, we have witnessed the effects poor security has on exchanges in the digital currency space, which has resulted in stolen funds and drops in value and has altered the view of cryptocurrencies in the public eye. With those challenges, many have learned from past mistakes and made vast strides toward increased security measures when it comes to how funds remain in the right hands. For security, Virtex has established a SSL (Secured Sockets Layer) that will protect the privacy and security of each individual account. Customer data will be stored on dedicated servers that will be scanned periodically for unsolicited activity, and furthermore will be monitored by a third party that Virtex has partnered with. In addition, the company has stated that cold storage wallets will be used to keep funds unavailable to potential risks.

The name of the exchange bears no relation to Canada-based exchange CaVirtex and is not connected in any way. A company press release stated, “Virtex is not attempting to steal CaVirtex’s thunder, and these two exchanges should be able to operate side-by-side without too much confusion. Virtex believes that we can coexist with CaVirtex, which is why we have decided to avoid the Canadian market.”

Although these exchanges share similar names, both are working toward the same goal: to provide a reliable and secure trading platform and increase the use of digital currency. One has chosen to focus on a single country, while the other focuses on the entire world. Either way, we can only hope that both are successful and help grow the digital currency ecosystem.

 

by Erica and Stefan Armstrong (wife and husband accounting team) and David Mondrus

Open ledger accounting has the potential to make accounting more accurate and simpler than ever.

One of the problems with accounting as it currently stands is its inability to provide 100% accuracy. This might be surprising for those not actively managing books day to day, but the details of transactions, the speed with which they move and the complexity of their classification means that 100% accuracy is far from certain.

For example, a large bank has thousands of transactions a day that they have to balance to cash. They simply can’t balance to the penny every day. It takes too much time and would cost too much. Over time this adds up to the bank being out by millions of dollars. But, if transactions were automatically posted to an automated block ledger when the transaction took place the ledger would always be right. This would save companies time and be more accurate as you would not be able to actually conduct the transaction without the tracking.

How would this work? Well, essentially the company’s accounting department would “spin up” an internal company coin when they opened their books. This coin would be convertible to Bitcoin or whichever Crypto currency is prevalent, but would only be able to be used internally. They would then distribute this coin according to the annual budget. As departments interact with external suppliers, the payments are made through the accounts payable office, but in a fully automated fashion. That is the department’s purchase normally, but pay via an automated internal coin -> BTC converter. Internal departments payments are of coursed handled without the need to convert. Once the books were closed for the fiscal year, all coins would convert to Bitcoin to mark to market for the last time, and that coin would be closed. Then the cycle begins again.

This method guarantees internal transaction integrity, transparency and accountability

1. Less transactions errors: Currently, all transactions for a company must be entered manually. This means that if a bank account balance is off at the end of the month, you have to figure it out, and there’s an incentive to “fudge” the reason. If transactions were automatically posted as soon as they were completed, this could no longer happen.

2. Full transaction auditing: Currently an auditor can only test a percentage of transactions in the system as it’s cost prohibitive to verify each transaction. But with an open ledger accounting system, auditors could simply monitor the system.

3. Real time financials: By tying the internal ledger to a reporting system that aggregates and rolls up the data, a company can track their financials in real time.

4. Better risk management: Real time financials allow for better risk management through automated asset allocation, re-balancing and exposure monitoring.

5. Better credit worthiness management: Currently we must rely on 3rd party credit rating agencies to advise us of the quality of a business customer. Access to a verified transaction chain means we no longer need to rely on people to make a decision on our behalf. We can now see and trust the data we see enough to make our own credit worthiness decisions.

6. Cheaper and better public company accounting: The open ledger accounting methodology could be used to create real time financials for publicly traded companies allowing everyone to review the company’s transactions. This significantly reduces public disclosure compliance costs, and reduces the risk of “off balance sheet accounting”.  Simply, it makes another Enron or Bernie Madoff become much less likely.

 

To be sure, there are both risks and complications with this method.

Most companies aren’t going to have the technology to “spin up” their own coin. They also can’t do their own mining anyway, since this removes the chain credibility. They will have to reward the coin miners in some way, this will obviously cost $. Additionally, this method also leaks information that the company might not want to share. We think this concern can be reduced through appropriate level aggregations, but an aggregation too high removes the transparency. Also this does not address simple dishonesty, or the classification problem, although we expect that very quickly that will become a non-issue through an emergent implicit agreement on classification standards.

Finally there’s the sheer inertia and complexity of it all. Accountants are not exactly known for their breakneck charge of innovation adoption, GAAP standards took years to lock down and FASB and IASB will have a say in how this is monitored, measured, controlled and accounted for.

But we think that in the same way that the accounting profession adopted every other time and money saving technique to do their craft, after they’ve understood the implications of this technology, and its veracity, utility and cost savings are demonstrated they will flock to it, well, like accountants to accounting.

The Sacramento Kings became the first team in the NBA to accept Bitcoin in January of this year. In the first months since the announcement, the team only allowed season ticket holders to use Bitcoin for purchases at the arena, but last week the team announced their partnership with BitDazzle to launch KingsBitcoin.com.

KingsBitcoin.com, powered by BitDazzle, is the first online marketplace to accept the virtual currency in the NBA. Launched April 3, the website allows customers to pay for game tickets, memorabilia and special fan experiences using Bitcoin. The co-branded online store makes it possible for Kings fans to support their team from the comfort of their home, using a secure and contactless payment.

As the first professional sports franchise to accept Bitcoin, key personnel of the Sacramento Kings are looking to be a step ahead of the competition. “We’re constantly looking for the next technological breakthrough that benefits the team and our fans,” Kings President Chris Granger stated. The Kings are the first partner to launch on the BitDazzle platform, a service that allows charities and e-commerce merchants to quickly launch and run co-branded storefronts.

BitDazzle launched late last year and is powered by Cashie Commerce. The company provides a platform that gives companies and charitable organizations the ability to create an online marketplace. BitDazzle merchants create co-branded stores where customers can purchase their offerings using Bitcoin. In addition to BitDazzle, the Kings are also partnered with Atlanta based payment service provider BitPay, who handles the team’s merchant processing.

Kings fans can visit KingsBitcoin.com and shop as they would any other online marketplace, the only difference is that everything on the site can be paid for using Bitcoin. For fans who have yet to attain Bitcoin, they can sign up for an account via Coinbase with an email address, use a virtual currency exchange or find the nearest Bitcoin ATM. Customers add items to a shopping cart, enter a shipping address and complete the purchase by scanning the payment QR-code from their Bitcoin wallet.

BitDazzle Founder and CEO Hieu Bui spoke of the partnership in a press release last week:

“We are excited to work with the Sacramento Kings to enable one of the NBA’s most loyal and enthusiastic fan bases to purchase merchandise for their favorite team using Bitcoin. BitDazzle was created to be the best place to buy and sell with Bitcoin, and the addition of a top tier brand partner like the Kings is a great step forward in our mission. We look forward to continuing to work with them to expand the reach of KingsBitcoin.com”

The Kings are not likely to be the last professional sports team to choose to accept Bitcoin. It seems that for the Kings, adopting new technologies and payment methods to expand the fan experience makes sense. Bitcoin can play a special role, especially in an area of the country where technology is so prevalent. “With BitDazzle, the Kings can provide Bitcoin users more retail options and a convenient, cashless and frictionless transaction never-before seen by NBA fans,” Granger stated.

 

I caught up with singer-songwriter and Bitcoin enthusiast, Tatiana Moroz, to talk about her experience at SXSW this year.

—TRANSCRIPT OF INTERVIEW—-

Question: Tatiana, please tell us about yourself and your music.

Tatiana: Hi my name is Tatiana Moroz and I’m a singer/songwriter from NJ. I have been singing as long as I can remember, I always knew what I wanted to do when I got older. I grew up listening to a lot of different kinds of singer/songwriters from the 60s and the 70s like Simon and Garfunkel, Cat Stevens, Carly Simons, Bob Dylan, and Neil Young, and I was really influenced by their ability to utilize music to bring about change in the world. The problem was that my generation didn’t really have anything we stood for. I later went to Berklee College of music and I started writing my own music. Around 2011 I got involved with the Ron Paul movement and I found exactly what I was looking for in terms of thought and philosophy that I wanted to bring people, and a political outlook and potentially a solution for a lot of the problems we were facing.  I hadn’t seen any solutions in a long time and I felt that what Ron Paul was saying really resonated with me and a lot of other people. I thought that it was culturally inspiring, so I started writing music about that. I went to a lot of different events, I played for Ron Paul himself, events across the country and later around the world.

Question: What is your involvement in the Bitcoin ecosystem?

Tatiana: My involvement in the Bitcoin ecosystem started out in 2012 – Tony Gallippi from BitPay sponsored me at the Ron Paul festival down in Tampa for the RNC.  At the time he was basically trying to evangelize Bitcoin to me which I had no idea what it was, at all. I did buy some coins from him and of course my interest increased as the value went up. It wasn’t until the crypto currency convention that Jeffrey Tucker threw in Atlanta in October of 2013 that I really started to understand the cultural impact that Bitcoin would have, and the ability it had to withdraw support for the state. That was something that wasn’t initially clear to me.

What I did recognize at those conventions was the same enthusiasm that I felt when I first found Ron Paul, when people were still really helpful. That was really infectious and led to me to start educating myself more on Bitcoin. I decided Bitcoin should have some sort of song, you know I have written songs for other topics before. So I started out just writing a jingle. I played it for a friend of mine who is a huge Bitcoin enthusiast. He was like “this is OK, but I think you could do better, you’re missing the spirit of Bitcoin”. It pushed me to turn the jingle into a full fledged song. While the recording online is just a demo version, there is a full song version which I performed and debuted for the first time at the Buenos Aires Conference, which was the first Latin American Bitcoin Convention, in December. I had also previously played at the Crypto Convention at the BitPay Party in Atlanta back in October. After that I played at the Texas Bitcoin Conference and the Berlin Inside Bitcoins Conference. So yes, I’ve been to a lot of conferences and have been blessed to play at them.

Question: How many Bitcoin related events did you attend during SXSW?

Tatiana: On Wednesday night I did the Crypto Women’s Party which was at Lani on 6th and Congress. That was fun, I did a little set there. At the Conference itself Jordan Page and I performed at the Sean’s Outpost Charity Dinner that benefited the other charities as well. I was the moderator at the Social Media Panel and I participated in the music panel and the women’s panel. Later on that weekend I was on the women’s panel at the 512Bitcoin Mini Conference at Brave New Books. So yeah, I spoke at all of those and it was interesting because I’m not used to speaking so much. But I think that sometimes when it comes to Bitcoin it’s good to have people who aren’t that experienced with it because they offer a unique perspective and you can make people feel more comfortable, having someone coming from a normal person perspective can be more welcoming and reach out to a new demographic.

Question: Were these events well attended?

Tatiana: The events were well attended, for the most part. The Bitcoin Convention had a lot of attendance, especially the women’s ones.

Question: Please describe your favorite Bitcoin related event while you were in town. Where was it, what was it about? Why did you love it so much?

Tatiana: My favorite Bitcoin related event was actually the charity panel at the Bitcoin conference itself. It was at 9am the second day of the conference and I don’t think anyone was there that early, but I was because all my friends were speaking at the panel. I just thought the stories of what motivated people to start their charities and what motivated people to incorporate Bitcoin into them was really inspiring. I remember jotting down different notes about how I could write a song to express the awesomeness that I was hearing. I think when people hear of Bitcoin they don’t necessarily understand how it can be beneficial to charities. For example, you can give money directly to people and the charity doesn’t have to pay such large fees. If a charity chooses to hold on to their Bitcoin, there are hopes it will go up. Many charities sat on their Bitcoin and now it’s worth more than it was when it was donated and I think there is a lot of appeal to that. I think the Bitcoin charities are more about empowerment than handouts, so I really liked that. Of course, the anti-war message seems prevalent in at least half of them and its something I identify with and think should be kept in people’s minds.

Question: Did you see any Bitcoin ATMs while in Austin?

Tatiana: I saw two Bitcoin ATMS while in Austin. One was at Brave New Books, which is my favorite bookstore in Austin. I went on their crypto show (radio show on 90.1 put on by the Brave New Books crew). I also saw the one at the Handle Bar.

Question: Do you think the general public is ready for Bitcoin after SXSW?

Tatiana: After SXSW I think there are going to be a lot of new adopters to Bitcoin. There was a huge tech presence of course at the conference, and it seems that at the SXSW exhibit hall there was a lot of buzz about bitcoin, everyone wanted to know more. I think it will allow more people to join the Bitcoin ecosystem and to feel like they have a place they can start fitting in Bitcoin to help them run their business and expand their markets.

Question: Did you send or receive any bitcoin while in Austin for SXSW?

Tatiana: I paid for a couple meals with bitcoin while at SXSW, tacos with bitcoin, and pedi cabs.  I also got some donations for my own project to do an album, hopefully completely paid for in bitcoin. That will be interesting to see if we can make it happen.

Question: Why is Bitcoin so important, anyway?

Tatiana: Bitcoin is important because it allows you to peacefully withdraw from the war machine.  I think it’s going to revolutionize the way the world exchanges money, and it puts the money back in the pockets of the people. No one likes to be robbed, and that is genuinely what is going on when the Federal Reserve decides to print more dollars. We are funding the war and we are losing the value of what we already do have.

Marc Hochstein, Executive Director of American Banker, was the moderator for the morning keynote “Bitcoin, Remittances and the Developing World” at the New York City Inside Bitcoins conference. Marc was joined by Pelle Braendgaard Co-Founder, mobile Bitcoin wallet Kipochi;  Christian Jacken, Bitcoin Entrepreneur and co-founder Liquid Democracy;  Edan Yago, CEO, Epiphyte; Mary Dent, Founder, dcIQ  and Stephanie Murphy co-host Let’s Talk Bitcoin! and COO Fr33 Aid.

It has been 15 years since Japan based NTT DOCOMO launched the first mobile phone internet service. This same year, in 1999, SMS texts could be exchanged between different networks for the very first time. As Christian pointed out, we are now at a point in time that the mobile phone is replacing the laptop. Earlier this year in the Let’s Talk Bitcoin report “CGAP: Bitcoin Not Helping the Poor” I noted that more people have access to mobile phones than working toilets.  

This panel also came together about two weeks after it was announced that the Bitcoin Foundation is in the process of creating a committee for Financial Inclusion which will probably be headed by Bitcoin luminary Andreas M. Antonopoulos, the Chief Security Officer of Blockchain.info and co-host of Let’s Talk Bitcoin.  

The discussion was focused around the transmission of money across borders and how utilizing Bitcoin could potentially be quicker and cheaper and even more easy than through the banking system or companies like Western Union and Moneygram. This panel will look at the possibilities for Blockchain technology to facilitate international remittances from immigrants in the west to their families in the developing world. But, like any payment mechanism using Bitcoin for remittance introduces, it could add an extra layer of foreign exchange risk and operational risk for the recipient.

Edan said that he believed that remittances would not be the driver of Bitcoin adoption because more liquidity is first needed. However, adoption and therefore the velocity of transactions appear to be increasing at an exponential rate as the only barrier to entry for Bitcoin adoption is a text enabled phone. This is hardly a “barrier” as the Vodafone Foundation recently revealed in its report (PDF) “How mobile phones are changing the world – and the challenges facing the next mobile revolution,” that a reliable mobile phone in sub-Saharan Africa has dropped to $10 for a basic 2G handset with voice and data. Pelle mentioned that he was able to buy a mobile phone very cheaply as well …but in a colored fashion that his purchase had what I will refer to as a tourist “surcharge.” Further it was interesting to note that Edan is working on a free trade zone in the Honduras that would use cryptocurrency as legal tender.

In the Remittance Prices Worldwide site the World Bank notes that “the single most important factor leading to high remittance prices is a lack of transparency in the market.” The panel however focused on whether or not compliance and regulatory costs might undermine the cost advantages of remittances using Bitcoin. Stephanie got back to basics noting that Bitcoin is Peer to Peer and there is nothing stopping individuals from transacting directly with one another {rather than using a value added service that is subject to more regulatory scrutiny).

Blockchain technology is a foundation of transparency and therefore Bitcoin is a natural disrupter for remittances. In regards to regulation in the under-developed world, most panelists seemed to agree that Bitcoin would add a layer of transparency to informal Hawala value transfer networks.  Pelle pointed out that Hawala already works quite well even though there is a push for western style banking.  

Although it may be too early to make a correlation, worldwide remittance prices are at a low according to March 2014 Remittance prices report Analysis of Trends in the Average Total Cost of Migrant Remittance services (PDF):

“In Q1 2014, the Global Average total cost of sending remittances was recorded at 8.36 percent, declining from 8.58 percent in the previous quarter and reaching a new lifetime low.”

These averages are contrasted with outliers in South Africa that are north of 19% according to Remittance Prices website at the World Bank. However, Edan noted that most money is being sent between remittance channels which are cheap.  

The U.S. dollar is the world’s reserve currency and that includes the global citizenry…not just banks. More people use the U.S. dollar outside of the United States than inside. That said, people are more likely to use their local currency than the U.S. Dollar. Keeping this in mind, Edan noted that he didn’t believe that Bitcoin would replace local currencies around the globe.

Mary said that one cannot thrive in the modern world unless you have financial access, access which Bitcoin might be able to provide.

Dear Washington DC,

It has recently come to my attention that you’ve misplaced another SIX BILLION DOLLARS. This time it was the State Department. Where did it go? The Washington Times reports the Inspector General’s audit uncovering the details that look like gross mismanagement or corruption. Although uncovering mismanagement and fraud is the department’s job it can also be politically dangerous. Angry Democrats turned on this same Inspector General following their report about possible use of the IRS as an intimidation tool to benefit the Obama election.

Washington, we’ve seen this before. For a quick recap; in 2005 you lost track of NINE BILLION DOLLARS in Iraq. In 2012 you were caught and fined another 3.4 BILLION in settlement for “lost” trust funds for American Indian Trusts. This pattern of Federal Government incompetence or fraud seems to repeat ad infinitum from web search engines that never forget.

The problem with having one government department watching over another department, has proven that eventually either a partnership or adversary relationship often develops. If potentially unpopular data emerges that would embarrass the current administration of the day, we know it can be buried by somebody with the right connections before the public catches wind, somebody changes a rule, or fires the right person at the right time and it is the American people who suffer. To illustrate, we don’t have to go far.

The Inspector General’s assessment from August 2013 issued a warning about possible upcoming Obamacare privacy problems. They predicted then that privacy safeguards weren’t being implemented adequately in the rush to get the program rolled out in time. It only took a month for this concern to prove a reality. Because of the highly charged political ramifications and embarrassment, rather than fix the problem … two months later you fixed it by “Cheating”. You changed the rules so privacy breaches no longer needed to be reported. Only a month after that, Obamacare health care exchanges were called a hacker’s dream. Is it any wonder why there is no rush of people signing up?

You see Washington, that’s where we’ve got a problem.There’s got to be a better way. Your strategy of hiding and obscuring fraud and then enacting a strategy to intimidate is the modern day equivalent of “kill the messenger”. It only proves to us that we can’t trust you to police yourself. But bitcoin has it covered…

We have an app for that.

Six billion dollars is pretty hard to misplace. It’s currently more than the entire market cap of bitcoin. Yet, in the world of bitcoin and the block-chain ledger, we can account for every penny’s worth of bitcoin – as it is all transparently recorded in the block-chain. We might not know who exactly owns it, but we can see it. This ability to issue commonly known public key addresses assigned to designated departmental accounts would allow you to follow the money. As you already have the NSA helping you listen to every phone call, and can probably help me find my missing Milli Vanilli mp3 songs I “legally” copied to my hard drive – one might wonder why you can’t find a pile of money big enough to fill a six car garage of $100 dollar bills.

I understand your need privacy for the State Department funds. But did you also know you can use the block-chain ledger to keep private accounts secret as well? The block-chain technology is perfect for both sides. For your auditing team, they will need to know the private keys to those private ledger accounts so they can verify the money ended up where it was supposed to. The reports indicate you can’t even find the contracts for the missing funds. Those too can be stored in the block-chain. The public would learn to trust triple entry book accounting much more than a department of people who simply can’t be immune to intimidation or threats for reporting embarrassing troubles. The reported data of the Office of Inspector General can be easily followed by others. This removes them from the equation as the facts become self-evident and will stand on their own.

There is a long list of countries that have defaulted on international debt obligations loaned from other countries. How does a creditor trust that money they lent to a government will be used properly in a way that will allow it to sustain itself? When Greece was bailed out several times, how many government officials and auditors were fooled into believing Greece’s own self-reported accounting? They found, to their horror, the debt hole they dug themselves was far deeper and much worse than they reported. The Greek banking implosion threatened to take the entire Eurozone with it and involved fraud on a massive scale.

With the invention of Bitcoin’s block-chain, is it possible that it’s just a matter of time before the creditors come to understand the immense benefits of the ledger? The transparency opportunity it provides might be the game-changer. International lenders might find that putting trust in the trustless transaction system was the key to verifying loans are used as they were intended. The mechanisms that allow transparency will finally make these countries accountable to the lenders and their own people.

Washington, I’m sure you agree that these countries should be held accountable. Perhaps you agree that this system might be more effective than our current strategy of just throwing money at the problem. While their citizens remain in poverty, their ruling elite suddenly drive new Lexus and Mercedes. Imagine for a moment the good that could come to their citizens to have the information they need hold their governments responsible. Think of what citizens of Venezuela could do to expose the lies and brutality that seems to be tearing itself apart with half of the country still believing the government leaders who continue to point fingers in every direction but themselves.

Vice knows she’s ugly, so puts on her mask*. Corruption requires darkness and secrecy to continue its cancerous nature. If we can agree it is reasonable to hold foreign countries accountable through enlightened transparency, can we take our own medicine?

Bitcoin technology can afford your constituents the ability to “follow the money” as well. Is it reasonable that we would also hold you accountable for the funds you taxed from us? Perhaps one day we might consider adding this new ability as a requirement to the current Freedom of Information Act. I suspect we’ll see resistance from those with the most to lose. But active resistance to this movement might illuminate who is benefiting the most by secrecy, and by extension, the most likely to abuse that power. Those who protest the loudest should be scrutinized first and most thoroughly. To paraphrase Shakespeare: those officials doth protest too much.

Consider for a moment what you can save in budgets. We wouldn’t need nearly as many auditors, accountants, clerks, and the overhead in HR, risk management, project managers, quality control departments, building maintenance and security that go with them. With programmable money and a few clicks, you can see exactly where it goes if you are consistent and insist on compliance and transparency at every level. By using public wallets created for each account and each department, the trustless system could work in the same ways. It could offer better protection by using third party signatures to verify authorization to move the money when appropriate. Putting money into trusts for social security would allow citizens to watch their own retirement accounts and validate they aren’t raided for other projects. Would this require you to exercise more discipline? Yes. Would this happen overnight? No. It might take generations to get the house in order. We didn’t get into 18 trillion dollars of debt overnight; is there a better plan?

Washington, how many people are employed at various government offices that are assigned to audit, track, account, disperse, authorize, supervise, collect, budget, and grant authorization to spend money? Do we really need to be paying for all this redundancy? Do you think these unfortunate workers stood up in elementary school and proudly declared to the classroom that they wanted to grow up and babysit numbers through accounting ledgers all day? Do you think they now sit at their desks under fluorescent artificial lights staring at numbers and praying silently to just…make… it …until… Friday?

Then the downtrodden then go back in on Monday and repeat…year after year. Do you think this work is fulfilling to them? They painfully endure office politics, employee reviews, cost of living increases, and unclean break rooms. They are silently embarrassed to admit they are encouraged to spend every last drop of their budget each year because if they don’t, their reward for efficiency will be an even smaller budget for the next. The funds in transparent block-chain accounts might provide opportunities to liberate them from their shackles, cleverly disguised as office chairs.

Imagine for a moment a world where we can train them to be scientists, musicians or artists. Classrooms of the next generation of students can be guided to study science, math, art, history, medicine, and education. Those are the productive GDP increasing jobs that inspire a person to feel their work is worth-while and fulfilling. There will likely be many who would gladly take up an offer to be retrained into new important and interesting fields of study. Imagine hundreds of billions saved through consolidation and transparency, money suddenly freed from the bondage of obsolete departments could be diverted into new futuristic fields of study.

Imagine ways we can repair our planet and put new savings into paying off our national debt, funding NASA again and once again leading the world in science. We might cure diseases or build wondrous monuments to the world. With funding for a new army of educators, they could prepare our children for a dignified future off the streets and out of jail. Our world needs more artists because the imagination of artists acts as the pathway of light that science then follows. The technology stored in the block-chain has the potential to unlock the potential in people currently wasting time looking at numbers change columns to make all these possibilities come true. Imagine the possibilities.

But that is then, and we must return to now. Let the current embarrassment of the State Department’s six billion dollar oversight be the catalyst for change.

*Poor Richard’s Almanac

Special thanks to James D’Angelo for additional insight in this subject. Please visit his “Bitcoin Blackboard 101 Series” on YouTube for further information.

Bitcoin payment processor BitPay has achieved rapid growth since its founding, and in the past month the company has opened locations throughout the world. With new Latin American headquarters and recently opened locations in San Francisco and New York, the company seems to truly be working to become the largest global Bitcoin payment processor.

Last week, BitPay announced the opening of their European headquarters in Amsterdam, exactly two weeks after the company announced openings of their additional locations and the onboarding of key personnel throughout the world. The Amsterdam headquarters will handle sales, implementation and support to the 7,000 current European merchants.

Joining the BitPay team will be Moe Levin as the European Director of Business Development who will work toward the company’s goal of growing to 30,000 merchants by the end of 2014. Before Bitcoin and BitPay, Levin served in various roles in management, marketing, entertainment and event management after graduating Magna Cum Laude from York University. Levin is actively involved in the Bitcoin community and recently arranged Bitcoin conferences in Amsterdam, as well as one of the largest US conferences in Miami Beach.

Also joining the team in Amsterdam as Senior Sales Engineer is Pieter Poorthuis, who will be responsible for sales and customer implementations throughout Europe. Poorthuis has experience in the finance industry, having previously managed the implementations of ING’s mobile payment products, with specialty in contactless payments.

In addition to opening the European headquarters, BitPay has also added former General Manager of Mastercard in the Netherlands, Marcel Roelants to the company’s Board of Advisors. “As the world of payments is changing rapidly, BitPay is at the forefront offering technology and support to merchants,” Roelants stated in a recent press release. “Establishing its headquarters in Amsterdam is a great way to be closer to its European customers.”

With the addition of two employees in Amsterdam, the Atlanta based payment processor has reached 33 full-time employees worldwide. In a single year the company has achieved vast growth in personnel and the amount of countries and merchants serviced; BitPay currently has over 26,000 merchants worldwide. Co-founders Tony Gallippi and Stephen Pair along with other key personnel are known as thought leaders in the Bitcoin space and have also been featured as speakers at several conferences around the world.

In fact, the company is sponsoring the Bitcoin Foundation’s Bitcoin2014 conference in Amsterdam, and will be exhibiting at The Next Web conference later this month. For many involved with Bitcoin, the continued adoption and technological advancement of virtual currency has heavy implications on the future of finance and the global economy. BitPay and many other companies provide solutions for businesses to begin accepting the popular cryptocurrency. If in fact Bitcoin is the future payment method, payment processors like BitPay will be positively positioned to provide merchant-to-consumer solutions throughout the world. “Being Bitcoin ready is about more than accepting bitcoin, it’s about being ready for the future,” says Levin.

Ottawa, ON – Locally owned and operated BitAccess announced today that it will be appearing before the Canadian Senate’s Standing Committee on Banking, Trade and Commerce on April 9th, 2014. Co-founder Haseeb Awan is expected to present the ATM’s unique capabilities and hopefully assist Senator Irving Gerstein in purchasing some bitcoin from the machine. Mr. Awan will also be discussing the benefits of their technology.

The in-person demonstration by BitAccess to key government decision makers is expected to educate the Senate committee on bitcoin’s accessibility and ease of use. This will mark BitAccess’ first global showcase of their latest, 3rd generation, two-way ATM that both buys and sells bitcoin.

“[The Bitcoin] industry will flourish with regulations in place, however everyone involved in the process need to understand the protocol and implementations in detail before [regulating it]” Awan says. This demonstration marks a very important milestone for Bitcoin in Canada as it is the first time elected officials will publicly purchase bitcoin. The Canadian Senate is pursuing an 18-month long study into the “Risks, Advantages and Promises of Digital Currency” that, so far, has been primarly concerned with bitcoin and the Bitcoin protocol.

About BitAccess

BitAccess, founded in 2013, is an Ottawa-based start-up with local manufacturing facilities. The company currently employs 10 individuals and is growing quickly. BitAccess manufactures digital kiosks capable of converting fiat currencies, such as the Canadian Dollar, into digital currencies, and back into fiat currencies. Their latest model features the most advanced ID verification technology on the market, and it is the most physically secure model produced by BitAccess to date. The company has a customer base in 10 different countries across 4 continents. For more information on BitAccess, please visit www.bitaccess.co

About the Senate of Canada’s Study

The Senate of Canada’s Committee on Banking, Trade and Commerce has just begun its 18-month long study on the use of digital currencies. Specifically, the committee is looking to understand potential risks, threats and advantages to electronic forms of exchange; at this point they are understanding digital currency. The committee has heard from the Department of Finance Canada, the Bank of Canada, an economic historian, a professor from the Rotman School of Management at the University of Toronto, and a cryptography professor from Concordia. The committee meeting is open to the public and the audio will be webcasted. It will also be televised for future broadcast. For additional information on this hearing, please visit www.senate-senat.ca/banc.asp

Contact:

To learn more about this event, please contact:
Victoria van Eyk
Bitcoin Strategy Group
139 Bank Street, Suite 200
Ottawa, Ontario, K1P 5N7
Office: (613) 898-8674
victoria@bitcoinstrategygroup.ca

 

Last Wednesday, the Committee on Small Business held a hearing aimed at exploring Bitcoin, the benefits and risks for small businesses. The hearing was attended by financial, legislative, economics and leading Bitcoin professionals. “Bitcoin: Examining the Benefits and Risks for Small Businesses,” was one of the first hearings to be entirely focused on how Bitcoin can affect small business.

Those appearing at the hearing to give testimony were Jerry Brito, Senior Researcher at the Mercatus Center; Adam White, Director of Business Development and Sales at Coinbase; Mark Williams, Master Lecturer in Finance at Boston University School of Management; and L. Michael Couvillion, Ph.D., Associate Professor of Economics at Plymouth State University. Wednesday’s hearing was overseen and moderated by Missouri Republican and committee chairman Sam Graves.

The meeting on Capital Hill gave insight into the ins and outs of Bitcoin for small business. Chairman Sam Graves began the discussion by explaining the purpose of the meeting: “We have invited a distinguished panel of experts who will explain what Bitcoin is, how it operates, why it might be a good fit for small businesses and what are the risks associated with Bitcoin.” Throughout the hearing, the committee hoped to provide information in order to put small businesses with a better position and understanding regarding adopting Bitcoin, and if it could be a way to increase customers.

Also discussed was the inherent benefits of Bitcoin in commerce, providing merchants a way to process payment in a manner that eliminates fraud, has low processing fees and allows for market expansion. Adam White of Coinbase stated in his testimony,

“Bitcoin enables individuals to push payments to merchants without having to share personally identifiable information that can be intercepted by criminals and used for fraudulent purposes. This push functionality gives Bitcoin a unique characteristic that eliminates the risk of fraud, something that merchants, card processors, and banks spend billions of dollars per year combatting.”

White obviously focused on the positive traits of Bitcoin, however other topics discussed were related to price volatility, tax implications and dangers of illicit activities. Overall, the hearing gave positive insight into the use of cryptocurrencies as payment method, while also providing extensive information and first hand experience. Rather than making quick judgments and conclusions, the committee has set a great example of how to handle new and disruptive technologies like Bitcoin. The hearing proposed obvious benefits and challenges for small businesses choosing to accept Bitcoin as payment for goods and services.

Benefits
Lower Processing Fees and Global Payment – The entire panel spoke of the reduction in fees that Bitcoin makes possible. Additionally, Bitcoin also allows users to bypass costly exchange rates, meaning that businesses can transact globally without affecting profit margins. “If you are a small-margin business, that difference could mean doubling your profits,” stated Jerry Brito.

Elimination of Fraud – Bitcoin can protect small businesses from chargebacks and transactions reversal from third parties, because there is no central intermediary. The fraud fees from credit card transactions could be detrimental to a business’s future by getting kicked out of the credit card networks. Bitcoin requires agreement by both parties to complete a transaction.

New Market Expansion – Because Bitcoin is a new technology in the payment space many companies are jumping on board, which differentiates their business from the competition. The cryptocurrency can also help drive sales. For example, in two months since the decision to accept Bitcoin, Overstock.com reported over $1 Million in Bitcoin transactions.

Challenges
Volatility – Price volatility tends to be one of the biggest challenges faced by the growing cryptocurrency. How can something financially viable fluctuate in price so heavily? The expectation is that Bitcoin should be perfect right away. The reality, there is more work to be done, as with any new technology seeking widespread adoption. However, businesses should not worry because there are many companies in the Bitcoin community that allow merchants to settle Bitcoin in their local currency.

Security – In terms of security, the hearing contained discussions in regards to, as Mark Williams states, the “virtual bank heist” of Mt. Gox and others as vulnerabilities of Bitcoin. The committee also explored the risks of wallet theft, while Brito observed the absence of an intermediary to replace stolen Bitcoins.

Also discussed in the hearing was tax implications surrounding the IRS announcement to treat Bitcoin as property as well as illicit activity and how it relates to the cryptocurrency.

What does the hearing do for the future of Bitcoin in small business?

The hearing held by the Committee on Small Business is a step in the right direction toward better understanding of Bitcoin and what it can provide for business of all sizes. Entrepreneurs and company leaders will likely look closer into how virtual currency like Bitcoin can benefit their operations.

According to L. Michael Couvillion, “Bitcoin represents a much cheaper payment processing system compared with credit/debit cards. Its swipe fee is $0.15 compared with $0.25 for credit cards, and a typical Bitcoin wallet provider has a 1% fee compared with about 3% for credit cards. This results in cash flows which are between 7.5% (for micro sales) and 1.6% (for large sales) higher If a customer chooses to pay with Bitcoin rather than a credit card.”

The idea that Bitcoin can not only save money on processing fees, eliminate chargebacks and fraud, all while making global transactions possible makes complete sense to many business owners already accepting Bitcoin. For those that haven’t taken the first step, luckily there is an abundance of information to be found on the topic, as well as an entire community available to help along the way. Bitcoin has the ability to change the small business economy by increasing savings on transaction and fraud fees, and enabling businesses to transact with an expanding global marketplace.

This was written by Vinny Lingham , the CEO and co-founder of Gyft.com and originally posted at https://medium.com/p/ba5f3fcce103.

As Bitcoin stabilizes below $500 for the first time since its eye-popping run to over $1,000 in November 2013, many crypto pundits are scratching their heads and trying to make sense of the current weakness — especially given the excitement & innovation that we are seeing within the global Bitcoin community. Venture capital has also been pouring into Bitcoin startups at a rabid pace (north of $100m so far this past year). However, over the past couple of days, I’ve had numerous friends contact me asking the same question : “What’s happening with Bitcoin?”

Bitcoin is currently trying to finding an equilibrium point — at least at the current volume levels — given all the recent disruptions to the ecosystem (including the recent MtGox collapse). Equilibrium would be defined for me as the point of stability in price where there is symetric volume and consistent growth on a daily basis between buyers and sellers (utopian, but right now there is asymmetric growth which is not being quantified — so traders are having a problem predicting where it would go).

History shows that it needs to find a very stable price point for a few months before it can really retest any previous highs. External factors like Russia, Ukraine, China, etc will contribute to Bitcoin volatility and changes in the supply/demand curve globally.

I spent some time at the CoinSummit conference in San Francisco last week and my panel discussion, “Bitcoin transactions — what are the barriers for merchant and consumer adoption?” was well received by the community.

It’s very clear that Bitcoin has amazing potential but the fact remains that we are still in the very early stages of its evolution — which many have likened to the Internet in 1993. Mainstream consumer adoption is just not there yet. We’re waiting for the “Netscape moment” for Bitcoin.

I also don’t believe Bitcoin is suitable as currency — I think it’s a commodity that can be traded for goods and services. It may become a currency in time, but it just isn’t one right now. It’s a scarce, digital commodity — and the trading that takes place on exchanges really reflects the market sentiment around the value of this digital commodity.

In the not too distant future, entrepreneurs and technologists will use the actual Bitcoins themselves in new and interesting ways (think smart contracts, etc.) —how many will be ultimately needed is unknown, and that’s what creates the imbalance in price. Right now it’s all speculation as to what that future value of a Bitcoin will equate to. This is what makes the Blockchain far more interesting than the actual Bitcoin — but I’ll leave that for a future post.

I have some alternative views (i.e. not stuff the mainstream press totally gets), as to why Bitcoin is trading below $500 right now, but I want to point out that I am a Bitcoin bull for the long term. I even predicted at the Silicon Valley Bitcoin Conference in May 2013, it would reach over $1,000 in 2013 when it was trading at $100 to audible snickers and laughs from a very Bitcoin friendly audience.

That said, conversely, here are the key reasons why I think the Bitcoin price may not organically reach $1,000 again this year, without an external event shifting the supply/demand curve for Bitcoin. It is difficult to predict anything further out than a single quarter in the Bitcoin world, so instead of making bold predictions I would rather focus on highlighting some issues that are suppressing the Bitcoin right now.

TechCrunch published a story yesterday about the recent IRS rulings around Bitcoin — which classifies it as an asset, not a currency (which effectively makes transactions using it taxable). To be frank, anyone who thought that Bitcoin would not be subject to taxes in some form is living in a dream world.

Anyone who made 5000%+ returns over the past year or so should not be complaining about paying capital gains tax — it could have been worse and been classified as income tax. That said, it will have an impact on the price of Bitcoin as some people holding them will need to sell some of their coins ahead of tax filing next month.

The real impact is that the notion that Bitcoin is a “deflationary” currency vs the USD has effectively been dispelled. Any deflationary gains have to be offset via capital gains taxes. This does not mean that it is not deflationary vs other currencies, but given the IRS has given strong guidance here — it’s effectively mooted in the USA. It will remain a store of value, but it clearly is not a currency in its current form.

The upside of the IRS guidance is that given it’s not classified as a currency, you can buy and hold Bitcoin for years and never pay taxes until you realize the gain. Contrast that against the treatment of foreign currency holdings (and subsequent appreciation against the USD) and you’ll see it’s a fair outcome.

The IRS guidance when coupled with unconfirmed rumours that China is “banning” Bitcoin has led the mainstream press to postulate that these are the reasons for the current weakness in the price.

I’d like to offer some alternative views:

Merchant adoption is outpacing consumer adoption

This is a key issue that is creating sell side pressure for Bitcoin. The number of new merchants now accepting Bitcoin globally has grown in the region of 5-10 times in the past six months, especially since Bitcoin popped late last year and became an increasingly valuable (albeit volatile) asset to own. The number of consumers (and realistically, mainstream consumers) using Bitcoin has grown fractionally in the same period — partially due to the perceived price and some other issues which I’ll dive into below. One reason is that the promise of micropayments for Bitcoin has not been realized, which is what is holding back mainstream adoption.

What’s now happening when new merchants start accepting Bitcoin is that it’s giving people who have existing coins the ability to use it as a currency and effectively “sell” their coins to the merchant. The processors such as BitPay (which Gyft uses to sell gift cards) then in turn either sells these coins to private buyers (off book) or via exchanges (such as Bitstamp) to exchange for local currency for the merchants. This money is understandably used to continue to replenish inventory and operate their business, and more importantly, pay taxes to Uncle Sam.

Although many Bitcoiners are hoping for more large retailers like TigerDirect and Overstock to adopt Bitcoin, it may have a negative impact on the BTC price as these retailers will most likely convert 90% of their coins to cash ,  putting additional selling pressure on Bitcoin. This outcome may not be as desirable in the short term, but it will create a better long-term outlook for Bitcoin given the liquidity options. Again, if you asymmetrically add large retailers without driving consumer adoption at the same time, the demand supply curve will shift undesirably.

As the number of transactions via Bitcoin processors increase, it ultimately creates more sellers in the marketplace — which obviously creates downward pressure on the trading price. Now, I’m not saying that this is a bad thing in the long term, but the problem is that if you have asymmetric growth in new Bitcoin users and Bitcoin “acceptors”, it will create a lopsided marketplace which will suppress the price — which is exactly what is currently happening. We’re seeing the impact of this in the market right now, I believe. There is another factor, which brings me to my next point.

Lack of trust with exchanges and limited ability to purchase

Consumers are spooked right now. MtGox ran away with $500m+ in Bitcoins and is bankrupt. No one really trusts any of the exchanges — even some smaller exchanges went under the past 3 months. The only “safe” place to buy Bitcoin in the USA is via Coinbase and they are not an exchange.

The US does not have a single licensed Bitcoin exchange and the rest of the world is reeling from MtGox. Bitstamp is proving to be the new global exchange of choice but the media has done a great job of keeping new potential Bitcoin users at bay with the usual inflammatory headlines whenever something negative happens in the Bitcoin space.

Most people I know who want to buy and sell Bitcoin are doing it “off-book” — which means the transactions are going instead via trusted networks. This will take buyers out of the marketplace and will ultimately mask the true supply/demand curve for Bitcoin. Anyone who doesn’t know a buyer will sell their coins via an exchange or via a merchant accepting Bitcoin which will put sell side pressure on the BTC price.

So instead of “buy side” money winding up in the exchanges which would be used to drive up the price, it’s sitting on the sidelines which has the impact of lowering the demand side of the equation within the marketplaces where Bitcoin is priced.

Loss of momentum

Given the above, the Bitcoin price has been struggling and this creates downward momentum. The good news is that it keeps out the “get rich quick” types (for now) who typically almost justify the reasoning of some of the non-believers who think that Bitcoin is a Ponzi scheme.

In reality, anyone who buys Bitcoin with the view that it can only go up and up forever is most likely a speculative and uninformed buyer who will sell at the first sign of blood. Although every new technology will have these buyers, the recent dip in prices is likely to keep these types away and as a result, less speculative buying which will allow Bitcoin time to find equilibrium, before it runs again (historically Bitcoin goes through spikes and consolidation phases regularly).

Again, a lack of buyers will leave Bitcoin with a lower settling price and equilibrium point in the broader market.

Miners margins being squeezed

If you were a miner 2-5 years ago, you could comfortably mine Bitcoins and make profit margins of 50-95%. Input costs would have been electricity and additional hardware. The difficulty of mining was low and it was not very competitive, so labor costs were cheap (hobbyists mainly) and you didn’t have to invest in chip R&D.. Since then, we’ve seen a surge in competition amongst miners and an astronomical increase in the difficulty index (far outpacing the price growth in the actual Bitcoin).

Miners were mining 50 coins every 10 minutes just over a year ago. With the geometric progression in the distribution of coins that happens every 4 years, the allocation is now 25 coins every 10 minutes. Less coins, albeit at a higher price. Even six months ago, miners were probably holding onto at least 50% of the coins they made and spending the other 50% on costs (electricity, salaries, hosting, hardware).

That number is now probably closer to 80% and dropping (lower margins at lower BTC prices and lower efficiency of mining equipment given the difficulty index). What does that mean? If miners need to cover their costs, they need to sell the BTC at market prices to pay the bills. If now they are only keeping 10% or less, then it’s another 22.5 coins on average hitting the exchanges every 10 minutes vs 12.5 coins in a 50% margin scenario (in actuality, the pools pay out on different timescales, but this is an approximation and oversimplification in order to make the point).

If someone wanted to track the flow of coins via the pools and see how many of them wound up on the exchanges or spent at retail, I think the results would be fascinating (let me know if you or someone you know has or wants to do this).

Given the reasons above, I think that Bitcoin will be range-bound in the $350-$550 range for at least the next quarter, that is, unless an external catalytic event occurs. I do think we’ll see a point of equilibrium and stability where the price stabilizes for a couple of months — when you see that, it should be a sign that a future surge is in the cards (based on historical evidence).

Disclosure: I own Bitcoins personally and within my company, Gyft, which accepts Bitcoin as a payment method. I have bought some Bitcoin today at the current price and will buy & sell them in the foreseeable future. I have every intention to keep trading Bitcoin. The information above is not to be misconstrued as investment advice. Bitcoin is a highly speculative commodity that is best traded by people who have a passion for and understanding of disruptive technologies. Please consult your financial advisor before taking any advice from someone who clearly has nothing better to do than write about Bitcoin on a Sunday evening.

The crypto community is expanding with new currencies centered around Bitcoin 2.0, some of which are increasing the possibilities of the Bitcoin ecosystem. Many of these cryptocurrencies give the possibility of the creation of contracts, surplus sharing and many more, built completely on the Blockchain.

One of these is Permacredits, a completely green credit that is creating an ecosystem to support permaculture and the future economy. Much like other Bitcoin 2.0 currencies, Permacredits are attempting to solve a problem. Xavier Hawk, a leader in permaculture and staunch supporter of cryptocurrency, is using Permacredits to create an ecosystem where anyone can enter into it. In combination with Hawk’s founding of eco-village Colony Earth, Permacredits and Bitcoin will eventually be used to fund the economics of the permaculture community.

Bitcoin Magazine had the chance to interview Xavier Hawk and attain more information on Permacredits and the permaculture movement.

Bitcoin Magazine: What projects have you been involved in besides Permacredits?

XH: I was a business consultant for many years. Soon after, my wife and I founded an eco development called Colony Earth, which I designed to run on Bitcoin and other alt currencies.

BM: How did you first hear about Bitcoin?

XH: I was looking for solutions for Colony Earth to have a local currency and found Bitcoin in late 2012.

BM: Could you explain what Permacredits are, how they’ll be used, and what locations will start to use them?

XH: Permacredits are Bitcoin 2.0 in action. They are a currency, an asset, a stock, a ledger, and a tally all rolled into one. All the vendors and villages in our network will accept them as currency, paying for things like rent, salaries, groceries, Permaculture Design Courses, books, apps, and more. We will be selling Permacredits and using the BTC we raise to fund Triple Bottom Line permaculture based businesses around the world.

So let me be clear here – This is the first time a coin is being used to directly build a market. It happens to be a market that is based on values like sustainability, rejuvenating soil, taking care of people and ultimately producing profits. Permacredits are actually backed by voluntarily gifted surplus profits, and have a base floor price equal to those profits shared back into the network by the businesses we fund. As we add more businesses and those businesses succeed, they gift a growing surplus back into the system across all Permacredit coins, and they raise in value. Essentially it is backed by the hard work, ingenuity, and profits of the entire world of Permaculture based businesses. Permacredits is a vehicle to transform the world into a healthy, sane, more balanced place for future generations and make money doing it.

BM: Will there be any Bitcoin to Permacredit exchanges?

XH: Yes, fungibility is one of our main focuses as it relates to the economic ecosystem of Permacredits. In fact, we are communicating with a number of exchanges and other solutions in order to provide easy entry and exit points for everyone in the ecosystem, the holders of credits. There is a great deal of interest we are receiving based on the unique nature of what Permacredits do and how they really stand out. With platforms like Ripple and new decentralized exchanges coming into play we have a lot of other options as well. What is even more exciting to me personally, is that we are developing some outside the box avenues that will increase adoption in markets that Bitcoin hasn’t yet even entered.

BM: How are Permacredits stored?

XH: We are currently using the Counterparty platform to issue and store credits. Their GUI is extraordinary and the developers there are excellent. We are ready to issue now with a fully functioning wallet, and they are working with us to tailor the functions and branding of those wallets directly for Permacredits. Since this is Bitcoin 2.0 in action, and rides on Bitcoin’s blockchain, you can store your credits in any bitcoin wallet. There are some caveats with that however, and you will not receive the full functionality in a wallet not designed to specifically handle Permacredits.

They are not mined. They are 100% green in that regard. They are a user created asset built on Counter Party, which provides us with the ability to be quick and flexible to respond to the market.

BM: What will you do to make Permacredits easy to use?

XH: Part of our first issuance will be earmarked for bounties and network development, unlike Bitcoin which had to bootstrap the entire network based on first mover organic discovery. We are in a position to actively engage vendors and build the network of places that accept Permacredits. Like Bitcoin, there is little risk because it can be converted directly into old money. We will have a directory and this will make it easy for holders of CREDITS to find locations that accept them. Also we are looking at integrating some straight text messaging platforms for our friends who live where smartphones do not.

We are also developing a decentralized decision making app that will be where Permacredits holders can choose new projects entering the ecosystem to get funding. The DAC structure we have put in place ensures the collective intelligence and incentivised participation of Permacredits holders, alongside an expert council to vet the best projects to ensure quality. The system will be self governing once it is explained and demonstrated. This is all very new and we expect some learning curve in the beginning.

BM: What market are you targeting with Permacredits?

XH: What is personally inspiring about this is a sentiment I shared at the first Bitcoin Conference I spoke at. I see the world of permaculture and sustainable living as a market similar to Bitcoin in that it has early adopters who are intelligent, disruptive, creative and risk taking. There is a strong desire in the world of permaculture for Local Currencies. We think Permacredits are a perfect solution. It is an appreciating asset, a local currency, an open sourced ledger, and voting mechanism. Permacredits allow for decentralized autonomous coherence between people with similar ideologies, desires, values, and interests no matter where in the world they are. This is a vehicle for people to create upward class migration and a healthy planet at the same time, just by involving themselves in the ecosystem.

BM: How will Permacredits work in Colony Earth?

XH: Our idea has been to use credits as units of value exchange within eco developments like Colony Earth. Work needed around the Development will be posted as Permacredit bounties in the app that are smart contracts that complete as the work is done and checked off on by the farm steward, or whomever placed the bounty. Rent is automatically paid in credits as self completing smart contracts, and community surplus is gifted into everyone’s wallets automatically. Imagine not having to touch money, write an invoice, chase down rent, or any of those things to simply live work and play in the environment you choose. I mean, this is the future.

BM: When will Permacredits be released?

XH: We are shooting for our first issuance to coincide with the summer solstice on June 1st of this year. We will therefore shoot for a launch of our sales window to open at the end of April or beginning of May. We have those goals, but really our launch is pegged to how quickly we can find a nation whose laws are not only friendly to cryptocurrency, but encourage its growth. We think we have found that nation and are actively engaging with their legislators and lawyers to incorporate there and clear the runway for our launch.

BM: How do you see Permacredits affecting the future of cryptocurrency and the permaculture movement?

XH: I honestly think Permacredits will define how DAC’s will express themselves in the near future. Ultimately, I believe we will be the seed that springs forth entire ecosystems of autonomous self governance that our civilization desperately needs if we are to mature into a truly coherent class-one civilization.

We are the first to market with such a dynamic currency that engages all of Bitcoin’s higher functions. We are templating Decentralized Autonomous Coherence amongst humans across the globe who share a similar passion for healing the planet, living in the kind of abundance that permaculture systems create, and taking care of each other.

Imagine being able to determine where you want your money to go when paying taxes. Would you choose bombs and war or would you choose bounty and healthy living environments that bring out the higher functions in you and your family? Imagine if the world got to actually decide coherently in a decentralized organic manner where they want to put their money, their energy, their life force, what would we create? Permacredits is asking that question.

 

Xavier Hawk, Permacredits and Colony Earth could very well change how we think of everyday living. “We are at a huge transition point in our society. If we can get this enterprise running, we can spark change for all mankind,” Xavier stated. Time will only tell what the impact will be.

Bitso, the first Mexican exchange, opens for trading tomorrow.

Currently this is the only local platform on which to exchange bitcoins for Mexican Pesos. Interested parties will be able to register at bitso.com. The company emphasises that its platform has been designed with ease of use and power in mind.

The company already has over 1,000 pre-registered users. It expects these parties to gradually begin using the new exchange platform from tomorrow. It is expected that trading activity will increase as participants become more comfortable with the exchange and the company, and as they get to know more about Bitcoin. During its beta period Bitso will be offering 0% commission on trades.

The platform is currently a standard exchange service between bitcoins and Mexican Pesos.

To buy Bitcoins, you fund your Bitso account with Mexican Pesos using any number of funding options. Bitso offers several funding and withdrawal options such as Bank Wire and Mexican SPEI Transfers. Additionally, users can fund their account in person at over 130,000 locations nationwide, including Oxxo, 7/11, Elektra, and Walmart.

To buy bitcoin, you place a buy order on the open market. Your buy order will then be fulfilled as soon as a seller is willing to sell at the price at the agreed price. If you choose to buy Bitcoins using a market order, your order will be processed instantly at the current market rate.

The process of selling works the same. Users fund their Bitso account with bitcoins, and then place a sell order on the open market. When a buyer is willing to pay the price at which you have agreed to sell, the order will be processed. Users can then withdraw Mexican Pesos using one of the many withdrawal options.

Bitso is a Mexican-based company and provider of crypto-currency services, including remittance facilities and consultation. The company operates from offices in Mexico City, Puebla and Vancouver.

As part of the new generation crypto-currency exchanges the company fully recognizes the importance of adhering to applicable regulations.

Bitso wants its potential clients to know that it is focused on ensuring full adherence to AML/KYC regulations.

Security of funds is also a key issue for consumers looking to utilise the services of any exchange provider. Bitso stores up to 98% of customers’ funds offline, air-gapped and under AES-256 encryption, in multiple locations. The site runs entirely over SSL and has two-factor authentication available for all accounts.

On the technical and process side of the exchanges operations, bitcoins are automatically added to a user account after six confirmations. Bitcoin withdrawals under five coins are usually processed instantly. Withdrawals that exceed five coins may be manually verified, and make take a few hours to be sent. User verification is not required to trade, it is only required for certain funding options, as well as internal funds transfers that exceed a certain threshold.

Parties interested in trading between Mexican Pesos and bitcoins are encouraged to contact the company directly for further advice or for clarification on any issues.

As most people have now heard, the IRS just granted itself the power to tax the gains realized when individuals sell or spend their bitcoins — much like stocks. That means you are also responsible for knowing exactly how much your Bitcoin holdings have increased in dollar terms since you bought them. If you are a miner, it even means all those 1’s and 0s sitting idly on your cold storage hard drive are now considered gross income. Naturally, this has produced some trepidation among Bitcoin lovers, who now are obliged to keep incredibly onerous tax records if they want to stay on the right side of the law.

Compliance will almost assuredly be an ongoing issue, given the private nature of the technology. “While users with sizeable Bitcoin wallets might be motivated to comply with the new policy, those with smaller wallets might not find the hassle worth their time,” noted the Tax Foundation in a recent blog post on the ruling. But there may be some unforeseen issues for the IRS — and benefits for Bitcoin users. Given the inherent difficulty with enforcement, the IRS ruling could backfire if more people self-report their Bitcoin holdings as capital losses (in order to gain tax benefits) than capital gains.

If that happened, Bitcoin could essentially become a tax loophole. With the reliance on self-reported Bitcoin holdings and the anonymity of private wallets, the government may need an army of cryptographers and a substantial increase in audits to ensure compliance from small-time Bitcoiners. As with pirated movies and software, enforcement would need to be so draconian it is likely infeasible.

Better yet: if the Bitcoin community managed to change the protocol to increase the rate that miners can “unlock” new coins… Bitcoin might have a built-in incentive to both adopt the currency and report taxable earnings. Let’s say that we accepted an inflationary Bitcoin, much like we have an inflationary dollar, around 2 or 3% annualized. At the end of the year, a consistently inflating bitcoin would trigger no capital gains liability, only capital losses, reducing the tax liability of the filer.

If this held, then Bitcoin could actually trigger regular refunds of varying quantities for both hoarders and spenders alike. Businesses large and small, as well as ordinary consumers could essentially earn a reduced tax burden every time they used Bitcoin, as long as its value kept falling.

Of course, proceeds from Bitcoin sales would still have to be reported, but that is less of a problem than reporting every single capital gain throughout the year. So inflation could mitigate the worries that many Bitcoin businesses and investors have about the new IRS rules.

A perpetually inflating Bitcoin would also be great for miners, in that it would both reduce the cost and increase the incentive to continue mining. It would also be great for law enforcement, since it would encourage voluntary tax compliance. This would also reduce the reporting burden for bitcoin users and add a little extra incentive to use the cryptocurrency. Everybody wins!

If the Bitcoin protocol doesn’t change in this respect, some other cryptocurrency might realize a potential competitive advantage here and take its place as the electronic money of choice. Many economists have already pointed out that a deflating Bitcoin is going to stifle adoption. The IRS ruling will likely only make that worse, forcing the Bitcoin community to improvise.

At the end of the day, Bitcoin is a very unique tool with properties of both an asset and a currency. In that sense, it remains malleable, and with sufficient momentum, may continue to outwit attempts to control or stamp it out. “While the IRS has finally provided an answer,” said the Tax Foundation, “there are good reasons to believe that they got it wrong. Virtual currencies are tricky assets to categorize.”

As Princess Leia said to Governor Tarkin in Episode IV: “The more you tighten your grip, Tarkin, the more star systems will slip through your fingers.”

If the IRS starts to tighten that grip too much, expect Bitcoiners to start syncing up those wallets.

Author’s Note: Matt McKibbin of Liberty Panacea contributed to this post

Altcoins, or alternative cryptocurrencies such as , Primecoin and Dogecoin, have always been a popular and controversial topic in the Bitcoin space. The purpose of most of these currencies is to offer small modifications from Bitcoin proper, including faster confirmation times, attempts at socially useful mining algorithms and different monetary policies such as fast exponential decay, quadratic decay and even infinitely linearly growing supply, and investors and users of the coins believe that these additional features and modifications will make the currencies either overtake Bitcoin or at least survive in some niche. Detractors, on the other hand, argue that Bitcoin’s network effect is too large, and altcoins do not provide nearly sufficient value over Bitcoin to ever take over to any significant extent.

Daniel Krawisz from The Mises Circle has taken the lead in the anti-altcoin faction, with two lengthy articles written on the subject in the last few months. The first article, The Problem With Altcoins, introduced the issue of network effects, the property of interaction protocols such as social networks, file formats, currencies and languages to become intrinsically more valuable the more users they have, as an argument for why one currency succeeding is the only stable state, and used various arguments to attack individual altcoins. I later wrote a response, and Krawisz’ second article, The Coming Demise of the Altcoins, was in part a response to my response, expanding on his reasoning as to the exact nature of the network effect that he was describing.

The key parts of Krawisz’ argument are as follows:

The market cap of a currency should be seen as roughly proportional, all things being equal, to a currency’s liquidity, which refers to the value that can be bought or sold without significantly altering the price. While it is theoretically possible for a currency of a given market cap to support any volume of trade as a medium of exchange, this requires that people become less and less willing to hold the currency for any length of time as the volume of trade increases. In this situation, severe practical difficulties ultimately develop. For example, if someone wanted to buy something worth more than the entire market cap of the currency he was using, he would have to pay with several transactions.

And, on why this is important:

Consider the hypothetical example of an economy that uses exactly two currencies, Acoin and Bcoin, which are equally preferred by holders. For whatever reason, Acoin develops a very slight advantage over Bcoin. Consequently a few people exchange Bcoin for Acoin, thus very slightly increasing the market cap and liquidity of Acoin and slightly decreasing that of Bcoin.

Now, in addition to its initial slight advantage over Bcoin, Acoin has the advantage of becoming more liquid. As a result, more people will tend to sell Bcoin for Acoin. Thus, Acoin’s initial advantage is self-reinforcing, and as the disparity between Acoin and Bcoin increases, its superiority becomes more and more evident.

Eventually, Krawisz writes, this positive feedback loop would lead to exactly one coin succeeding. This is not the network effects argument that most people would expect with regard to currencies; the standard argument, and one that I had originally incorrectly inferred that Krawisz had in mind, is the network effect of merchant adoption: a currency is more useful if more merchants accept it, and merchants want to accept a currency that many customers use. This standard argument I refuted in my earlier piece, arguing that it is much easier for a merchant to simultaneously accept multiple cryptocurrencies than it is to accept both bitcoin and dollars, and so switching costs are small and therefore network effects are small. Rather, Krawisz is arguing for a different kind of network effect: the effect of liquidity, the precise argument behind which he outlined in the paragraphs quoted above.

Breadth and Depth

In finance, there are actually two definitions of liquidity, and it is not always clear which definition someone talking about liquidity is referring to. The first definition, and the one more often used in mainstream finance, has to do with market depth; the question is, how much of an asset can be sold on a market without affecting the price by more than some specified amount? For example, in the current Bitstamp order book, you can sell $100000 without bringing the price down by more than 1%, and you can sell $500000 without bringing the price down by more than 2%. On BTC-E’s LTC/BTC order book, on the other hand, you can go down 1% with $16000 and 1.5% takes $36000; the LTC/USD has a similar amount.

The second definition, however, and arguably the one that is much more useful to the average user, refers to the spread: what is the percentage that you lose when trading LTC for BTC or USD? This is what people mean when they say that currency is liquid, whereas a house is illiquid: the effort of buying or selling a house takes up a substantial portion of the amount that you are going to receive. In both Bitcoin and Litecoin, this measure of liquidity is made up of the bid/ask spread on the exchange (the difference between the lowest sell order and the highest buy order) and the transaction fee; in total, this amount is almost always less than one percent, and because exchange fees dominate there is actually not much difference between BTC and other altcoins.

Of course, the assertion that narrow spread is more important to average users than the ability to sell large quantities needs to be defended. In general, most purchases made with currency are very small; Overstock reports an average of $226 for Bitcoi customers, an average credit card transaction is $88 and the Android and iOS app markets show $14. On the employment market, on the other hand, transactions go up to the low thousands apiece. But in any case, it seems clear at least at first glance that most people fall far below the point at which the “depth” kind of liquidity even matters, especially once the much larger and more stable non-financial liquidity in the form of products for sale and workers for hire comes into play.

A more sophisticated, and audacious, reply may point out that the point of currencies is not to purchase goods and services; it’s to speculate on them. This argument may seem absurd at first glance, but Daniel Krawisz actually makes it, and so it must be responded to. In this case, it’s not the size of a single consumer transaction that matters when it comes to liquidity, but rather the total sum of an individual’s wealth. A currency is then sufficiently liquid if, in most cases, most individuals can liquidate their entire holdings, presumably to speculate on the next currency to come along, without taking too big a hit on the spread. In these circumstances, the weaker depth of altcoins does start to become an issue.

However, the idea that the primary utility of a currency is for moving one’s entire savings from one currency to another certainly needs to be questioned. In the current world, the main purpose of altcoins is indeed to speculate on them, but arguably that is only because cryptocurrencies have not yet found their intrinsic value and are largely treated as investment vehicles in comparison to the dollar. If cryptocurrencies do take on a much larger role, however, the point that BTC is more liquid will become moot. If BTC is the dominant currency, it will be the most liquid currency. But liquid against what? Altcoins? If so, it seems like altcoins do need to exist after all. Products? In that case, as we discussed, depth-liquidity really is not that much of an issue.

Smartcoins and Feature Coins

The category of altcoins that Krawisz describes in more detail is what can be described (in my words) as “feature coins” and “smartcoins” – essentially, currencies with either extra features on top or entire frameworks that allow users to write applications inside of them, categories that have also been described as cryptocurrency 2.0. Krawisz argues that the advantages of these platforms are also insufficient to defeat Bitcoin’s depth-liquidity advantage. Krawisz writes:

When people say, “But Ethereum can do smart contracts!” this is actually false. It is only the Ethereum protocol plus liquidity that make smart contracts possible. If Ethereum were not liquid, it would be impossible to build any real penalties into a contract because it would be impossible to tie a sufficient value into them. Since there is no logical reason to expect Ethereum ever to be liquid, there is no logical reason to expect that many people will be able to create smart contracts with it.

The problem with this argument is obvious: once again, you really don’t need that much depth-liquidity for the platform to be useful for ordinary people, and spread-liquidity has proven to be a trivial problem in any case (and, in Mastercoin and Ethereum’s case, will be even more trivial because of the possibility of decentralized exchange contracts reducing exchange fees to literally zero). If MSC, or ether, can have a depth-liquidity of even $5000 for 1%, then its smart contract functionality will work just fine for transactions under that size. If you assume that the smart contract functionality of these transaction media is powerful enough to be worth a 1% fee, then you can see how the platforms can be useful under that size. And even over that size, some merchants may want to accept MSC/ETH as currencies directly. And once enough people are using them, their depth-liquidity can go up, progressively tolerating higher and higher levels of maximum value.

Additional Considerations

Another reason behind the success of altcoins is the issue of anti-network effects: in some ways cryptocurrencies become less useful the more people use them. The main reason behind this is currently technical – a single blockchain gets bulkier the more people use it, and it becomes more cumbersome to download and use the client. Theoretically, this can be handled via scalability solutions such as light clients, verifier-based challenge-response protocols, Merkle mountain ranges and SCIP, but it exists for the moment. As a result, different currencies have different informal policies on what kind of transactions they want to accept; in the case of Bitcoin, for example, developers have proven very hostile to data inclusion and meta-protocols, whereas Datacoin is specifically designed for storing data. Dogecoin has vastly lower transaction fees than Bitcoin, making it ideal for small-value microtransactions. In the long term, of course, this will not last, since scalability technologies will make it more valuable to coalesce everything on one blockchain, but in the short term it is a valid reason why altcoins exist.

A more important argument, however, comes in the form of what Dmytri Kleiner calls the public function of money – the idea that money has a function beyond just its ability to facilitate transaction. This second function has to do with the concept of “seignorage” – when you create a new currency, you also need to issue new units of that currency, and those new units would need to be allocated in some fashion. As people start using the currency for trade and as a store of value, the value of those units increases from zero to nonzero, providing the initial recipients of that currency with a sort of “phantom” return that was not paid by anyone. This creates a powerful, decentralized, solution to the public goods problem: instead of expecting individuals to contribute money to useful projects where only a millionth share of the utility will go to themselves, we can fund said projects via emergent value created out of nowhere. Bitcoin uses this emergent value purely to fund network security; Primecoin tries to simultaneously fund network security and scientific computation, although its implementation is unfortunately a relatively weak one.

One of the main attractions of cryptocurrency 2.0 is the idea of “appcoins” – protocols with a currency or token system built in, where the token system generates the emergent value to fund the development of the protocol. Having every protocol add its own currency for funding purposes may seem ugly, but the quantity of potential monetization per unit ugliness is vastly higher than existing solutions, such as making a protocol that is proprietary, charging license fees and excluding users who cannot afford to pay, and releasing “crippleware” apps in order to facilitate monetization or advertising. In the future, using emergent network assets (including non-fungible assets such as namespaces) as a funding mechanism may become the dominant business model for decentralized applications. If Bitcoin was the only game in town, none of this would be possible.

This idea goes beyond just appcoins: this emergent network value from a currency can also be used to support communities, either by providing a limited “citizen’s dividend” program (eg. Auroracoin) or supporting other public goods that have nothing to do with cryptocurrency specifically. The concept of “branded coins” has become popular, particularly in the space of funding musicians and artists, and currencies based around “useful” activities, such as Curecoin, are becoming increasingly popular. Cryptocurrencies with a socially useful public function will benefit from superior community support and marketing, ensuring success at least among the community of people who care about the specific objectives that each individual “coin” supports.

In conclusion, the arguments in favor of altcoins can be summed up as follows. First, some altcoins do have substantial benefits over Bitcoin, with particular emphasis on cryptocurrency 2.0 platforms that offer smart contracts, the ability to issue custom assets, decentralized exchange, etc. Second, even without such benefits, there is a reason to have alternative currencies right now, which can basically be summed up as “lower transaction fees”. Third, currencies in general have a crucially important “public function”, and Bitcoin is very unimaginative in its attempt to exploit this possibility, using it solely to fund an arguably excessive amount of network security. Decentralized applications have the potential to use internal currencies and assets to fund themselves, and currencies can be used to fund external public goods as well.

Finally, out of the the main arguments of network effects, merchant adoption, spread-liquidity and depth-liquidity, the first is a non-issue because switching between altcoins is very easy, the second is a non-issue because exchange fees dominate spreads in any case, and the third is a non-issue because most ordinary users fall under the thresholds. In the future, I expect to see a power-law distribution in the crypto-asset space: a few large platforms, like Bitcoin, where the bulk of mainstream activity can take place, a larger number of platforms with coins built in of varying size, and a very large number of small altcoins whose main attraction is a specialized community. Let a million currencies bloom.

Much Party.

When: Friday, April 4th, 2014 7:00pm-1:00am
Where: Meltdown Comics & Collectibles
7522 Sunset Blvd, Los Angeles, California 90046
Who: Shibes only
Admission: Free

Spelunk.in has decided to take the party to the west coast. This Friday, April 4th, Meltdown Comics & Collectibles will be hosting a one-of-a-kind DogeParty.

Yes, this is an actual party starting at 7:00pm and running to about 1:00am on the wonderful Sunset Boulevard. You can adopt-a-dog with doge because real shiba inus and cousins will be there thanks to two shiba inu rescue centers.

You can also vote for your favorite shibe for Best in Show. The proceeds of this will help the two local shiba inu rescues, Two Dog Farms and the Southern California Shiba Inu Rescue.

Meltdown Comics will also be accepting dogecoin for their products. Also forget about all the miners, because this party will feature a digging demonstration by Sebuh Honarchian, CEO of Infinite Solutions (sebuh.com).

The party will be live with music from DJ Headshot and Carl Schwenk. Let’s Be Frank will be serving up hot dogs and doge-treats from their truck.

So go get your doge on. It will be as the shibes say, such fun.

To the moon!

Ross Ulbricht, alleged Silk Road HBIC, is claiming that new federal bitcoin laws classifying bitcoin as assets and not money invalidate the money laundering charges he faces. In short, he argues that you can’t launder money if you’re not using it.

Earlier this year, Robert Faiella, 52, and Charlie Shrem, 24, were arrested on federal money laundering charges for their bitcoin activity on Silk Road. It would stand to reason that if Ulbricht did not break anti-money laundering laws, they didn’t either. The two allegedly sold more than $1 million in bitcoin to Silk Road users. Selling assets isn’t money laundering.

The defense also brings up the wisdom of keeping money laundering laws on the books in the first place. If money laundering laws are worth their compliance costs and the erosion of privacy they create, surely they are worth enforcing fairly and should apply to Bitcoin as well, since it’s clearly a medium of exchange which can be used for criminal enterprises.

However, the evidence is extremely clear that the laws aren’t worth it. Anti-money laundering efforts in Europe and North America cost billions according to the Economist, and the magazine deems the laws a costly failure at trying to keep people from financing terror. Efforts to stamp out money laundering also erode privacy. “Know your customer” laws force banks to be cops, essentially conscripting private businesses “into agents of the surveillance state,” according to the American Civil Liberties Union.

Bitcoin, on the other hand, makes all transactions public, which is a level of transparency not seen in other currencies.

Ulbricht was arrested last October in San Francisco and accused of running the online marketplace under the name “Dread Pirate Roberts.” His lawyers are arguing as well that the hacking, narcotics trafficking, and criminal conspiracy charges against him in connection with the site are “unconstitutionally broad” and can’t be applied to the normal operation of a website.

Ultimately, providing a violence-free marketplace for drugs and selling bitcoins are victimless crimes, completely and totally unworthy of prison time or punishment. While classifying bitcoins as assets as opposed to currency makes no logical sense, hopefully it will help free these people from prison and help erode the remaining misplaced support for deleterious legislation against money laundering.

Figuring out cryptocurrency conversions can be a difficult task – especially when you have an exact amount you would like to convert, say 0.22 BTC to DOGE. There are plenty of tools out there that will get you to the correct conversion eventually, but Cryptonator is the first cryptocurrency converter that works directly from the Chrome browser.

Launched in February, Cryptonator is an online cryptocurrency calculator that allows instant conversion of over 300 cryptocurrencies into currencies, including USD and Euro, with a single click. The platform is available online and as a free Chrome extension. It supports popular cryptocurrencies like Bitcoin, Litecoin, Dogecoin, Auroracoin, and some interesting ones like NoodlyAppendageCoin and Magic Internet Money. Cryptonator gives users a way to see what their coins are worth.

 

A user’s most important cryptocurrencies can be customized to Pinned Rates for quick access and real time monitoring. Calculations are completed through using the volume-weighted average of the selected cryptocurrency prices across major online exchanges. Each calculation is accurate and precise, because Cryptonator is synchronized with all major online exchanges. Rates on Cryptonator update every 30-seconds, assuring users that they will get their exchange at accurate rates when converting cryptocurrencies to USD, EU or other cryptocurrency.

The Chrome extension itself has great aesthetics and is easy for anyone to use. I spent nearly an hour finding out how much of the nearly 300 cryptocurrencies I could exchange for 1 BTC. The ability to customize pinned rates means that users will no longer have to visit multiple exchanges to check cryptocurrency values. Cryptonator makes us realize just how large the crypto community has become and provides an incredibly useful tool for everyone interested in virtual currency.

The company is also currently in development of the Cryptonator mobile application, which will include additional features not seen within the web or Chrome platforms. Those additional features have yet to be seen.

Overall, Cryptonator provides a solution to a common problem: how do I quickly convert cryptocurrency? Furthermore, this platform provides accuracy and ease of use and eliminates the need for visiting multiple sites to find current rates. Cryptonator’s Chrome extension is currently free and can be downloaded here.

For more information visit http://www.cryptonator.com/

 

The term “Black Swan Event” describes certain events in history so profoundly unexpected and massive in scale, that they fundamentally changed the course of history. There are good Black Swans (the unpredicted rise of the internet), and bad Black swans (rise of Hitler).

The absurdity of a Black Swan ever existing was so outrageous during the middle ages it became a metaphor for the laughably impossible.  In today’s world we might comparably say something about snowball’s chance in Hell. For many centuries, the metaphor existed until about the year 1700 they were discovered to actually to exist in Australia.  Now it’s the symbol of the Western Australia flag.

Nassim Taleb , a Professor of Risk Engineering at New York University brought back the once familiar phrase in his 2007 best-selling book, “The Black Swan: The Impact Of The Highly Improbable”. The extremely influential book has been referenced numerous times by financial advisors, risk evaluators and CEOs attempting to divine meaning and predict the almost unpredictable. It has been called one of the most influential books since World War 2. This has made Professor Taleb a highly sought after speaker and lecturer. His theories are in stark contrast to his nemesis Paul Krugman whom he seems to delight in disparaging.

Nissan Taleb

He writes:

History, proceeds by “jumps,” controlled by “the tyranny of the singular, the accidental, the unseen and the unpredicted.” Gradual change is only mankind’s paradigm view, yet actual change is “almost always outlandish.” (emphasis added)

Why it matters

Financial experts have found themselves wiped out by Black Swan Events. The sub-prime mortgage crisis wiped out thousands of businesses and brought entire countries to their knees. Companies must have a backup plan to make their companies less fragile. Catastrophic events, no matter how unlikely, can somewhat be planned for. Not necessarily specifics but by asking the right “what if” questions.  By their very nature Black Swan Events themselves cannot be defined or predicted  by definition they haven’t happened before. However you can study the results of those organizations, people, or survivors to study and learn how they dealt with the aftermath. This study can help prepare companies to build strategies to get back on their feet the quickest and minimize damage.

The Black Swan Theory isn’t a predictive one, but Taleb’s examples in history and a philosophy about expecting the unexpected and making one resilient has garnered a large following. Taleb made a fortune by making many small bets on improbable events, but making fortunes from the ones that do happen,

The basics tenets for his Black Swan Theory come in three major criteria. We’ll list the criteria and evaluate whether bitcoin meets the criteria.

1.   The event is a surprise:

Before Bitcoin, there were no examples of a currency unbacked by a nation that could be transferred to anybody in the world without trust. Before the introduction of the internet it would have been impossible.  Outside of a handful of extreme fringe Cryptologists the idea was ridiculous for governments and banking institutions to comprehend. There were no plans to control it or stop it, let alone take it serious enough until it was too late to kill it.

Number one qualification:  Yes.

2.    The event has a major effect.

The currency has thus far reached at its peak about 12 billion dollars in total worth. It was only about 2.5% of the value of Google the search engine company. However now most, if almost all countries in the world know of bitcoin and many have issued warnings or bans for its banking systems to not use it. Bitcoin has created a swell of world-wide supporters and a tight-knit community. It has politicians, bankers, regulators, investors, and scientists scrambling to understand it, control it, profit from it and use it as a catalyst to change the world.

Number two qualification: Yes.

3.  After the first recorded instance of the event, it is rationalized by hindsight, as if it could have been expected.

If we look back at two widely recognized Black Swan Events, we can evaluate the hindsight rationalization. With the Internet, we can now see that because of all the personal computers that were purchased in the 80s and early 90s…it was OBVIOUS that they were going to eventually going to be connected to share in in electronic mail and read the news. For 9/11 afterwards, “experts” suddenly connected the dots of rising anti-Americanism in the radical parts of the Muslim world. They suddenly “remembered” the bungled attempt to bring  the World Trade Center buildings down with a car bomb in the underground parking lot a few years earlier and it was “obvious” that this same kind of thing was going to happen again.

Is bitcoin yet being analyzed and rationalized using a lens of history? Are we at a point yet where we have enough data available for businesses to create risk mitigation programs? Perhaps the jury is still out on this one. It’s still in the beginning stages and history has yet to decide where this bitcoin experiment will sit in the annals of history.

Number three qualification: – Undecided.

One black swan event was perhaps the genesis of bitcoin’s birth: The subprime mortgage crisis which almost brought down the entire banking industry. Bad policy that encouraged home ownership and loans were provided for anybody who could fog a mirror. Bankers knew that, but it wouldn’t be their problem as they sold off the loans and became rich off from somebody else’s problem. When the loans went bad it set off a chain reaction that spread to massive insurance agencies and investment houses that all were linked to the bad debt. Of course looking back, it was OBVIOUS that this was bound to happen. That’s why credit reports exist. Loans that turn bad are not good for anybody. An army of Monday morning quarterbacks wearing suits and ties came out of the woodwork to tell the financial news world that they could see it coming all the time.

But what about bitcoin? Should not the man who coined the phrase in its current incarnation make that declaration? What does Taleb think about bitcoin? He sent a tweet on the subject on March 20 of 2013:

Bitcoin is the beginning of something great: a currency without a government, something necessary and imperative.

But I am not familiar with the specific product to assert whether it is the best potential setup. And we need a long time to establish confidence. I only talk from skin-in-the-game. If I had money in bitcoin, I would have reported it. But I don’t yet.

I am waiting to understand it better, not with my brain, but with my experience…

In May of 2013 he followed up with a tantalizing twist on the subject:

For bitcoin to make it, it needs to be banned by a few governments and critiqued by policy makers. Otherwise it will fade.

These words coming from the man who defined the term seems to indicate bitcoin’s fate may be remembered in mythical terms one day.

In the midst of the banking system crash, on Halloween of 2008, London’s BBS news website summarized the events on their website frozen in history. The headline read “Recession Fears Grip the United States”. Sometime that night, in a lonely badly lit basement room, a computer was hosting an obscure website dedicated to the tiny population of paranoid cryptologists.  Silently and almost inconsequentially, a new message blinked into existence on a newsgroup forum. It contained a simple and plainly worded message from someone previously unknown.

The seemingly insignificant post title might have easily been ignored. It read…”Bitcoin P2P e-cash paper”.  The message indicated it was from somebody calling himself “Satoshi Nakamoto” and the paper itself was uninterestingly titled “Bitcoin: A Peer-to-Peer Electronic Cash System”. It sat there unread as fellow forum member cryptologists were dressed in Halloween costumes and otherwise engaged in cyberpunk parties for the night. The next day, although nobody at the time realized it – somebody finally read the message on the forum board and eventually word spread.

The world would never be the same. November 1, 2008 – was zero day.

Bitcoin may be that Black Swan we’ve been waiting for.

Bitcoin exchanges are going through hard times. In the span of a month, Mt. Gox has gone bankrupt, Flexcoin has shut down due to robbery, and Vircurex has halted Bitcoin withdrawals. Coinex.pw was also hacked. At first glance, these events appear devastating for the Bitcoin economy. But when we look deeper, we discover something extraordinary.

The following fact has the potential to fundamentally transform financial markets: Depositors are losing their money. This is great news, albeit not from the recent depositors’ perspective. From a broader economic standpoint, Bitcoin bank runs are radically changing the core of financial markets: the incentive structure.

Nearly every country on the planet has both a central bank and government-backed deposit insurance. The Bitcoin economy has neither. Why is this important? Because these institutions create an unhealthy incentive structure – one that has been plaguing the financial world for nearly a century.

To illustrate, think about your bank. Have you ever asked to see their balance sheet, to make sure they are solvent? Of course not – your deposit is guaranteed, even if the bank fails. So why would you care? The bank could burn all the money in its vaults or flush it all down the toilet. It makes no difference; deposits are insured by the government.

This creates perverse incentives, as banks do not need to compete over responsibility, security, or solvency (nevermind the outright bailouts irresponsible banks receive). We should not be surprised, then, when these companies engage in wild speculation and risky lending. Depositors don’t feel the pain.

It doesn’t work that way in the Bitcoin market.

It turns out, if you leave your private keys with a third party, you’re running a risk. The keys might get lost, the accounts might get hacked, or some unscrupulous company might steal your deposit. Of course, if you think of Bitcoin as digital cash, this is not surprising. The same risk is run if you leave a suitcase full of money with another party.

After all of these exchange failures, what’s the first thing on everybody’s mind when they deposit their Bitcoin on an exchange? Safety, of course. And entrepreneurs know it. This is key. Customers have an incentive to care about the safety of their coins, and entrepreneurs have an incentive to satisfy this demand. Huge profits await the individuals or companies which provide secure Bitcoin banking. And the race has already started.

It seems like every week, new exchanges are popping up all over the globe. Tens of millions of dollars have been invested in young companies working to create secure Bitcoin wallets. Companies like Blockchain.info might already have a working solution – they don’t store your private keys at all. Exchanges are now voluntarily auditing themselves, in an effort to prove their security to customers. Entrepreneurs are going out of their way to create financial security for your Bitcoin deposits. In the future, we may see the creation of private deposit insurance, with all the right incentives behind it. You don’t get that kind of innovation in Old World finance.

As markets grow, it’s easy to get excited about entrepreneurial success, profits, and value-creation. But bankruptcy and losses are also exciting. We are watching resources being transferred in real-time from the less-productive to the more-productive. Few first-generation Bitcoin companies still exist, and that’s not a bad thing. New entrepreneurs are entering the market, and we can expect to see more creative solutions to our problems – coupled with more bankruptcies and displacement of old firms.

Though sometimes painful, the Bitcoin world is building a brand new financial system, and it’s grounded with the right incentives. With this perspective, it is hard not to get excited about the future challenges Bitcoin faces.

Written By: Christopher Rajotte, Andrew Ittleman, and Mitchell Fuerst, Fuerst Ittleman David & Joseph, PL, Miami, Florida

From the recent collapse of the major bitcoin exchange, Mt. Gox, to the alleged identification of Bitcoin’s creator in California, the prominence of bitcoin in the public consciousness seems to escalate by the day. The public’s focus on bitcoin at this time of year is especially appropriate given that it is tax season. The use of bitcoin in the marketplace raises a host of tax issues and many bitcoin users are searching for answers as to how to treat and report their bitcoin income or transactions. This article is meant to serve as a primer on the key tax issues raised by bitcoin use and how those issues should be analyzed under existing tax laws.

I. The IRS’s Position and the Public’s Awareness

On March 25, 2014, the IRS issued Notice 2014-21, which “describes how existing tax principles apply to transactions using virtual currency.” Before relying too extensively on the information provided in this Notice, it is important for taxpayers to be aware of the authoritative weight given to such Notices by the IRS and the Federal courts.

Notices such as Notice 2014-21 are public pronouncements on matters of general public interest that permit the IRS to state a position without undergoing the time-intensive procedures necessary to issue a Revenue Ruling or promulgate Treasury regulations. While the IRS will generally respect the position it sets forth in Notices, thus allowing taxpayers to rely on Notices during a controversy with the IRS at the administrative level, IRS Notices do not have the force and effect of law and do not bind courts. Moreover, while courts are generally inclined to give some authoritative weight to IRS Notices, due to the haste in which they are issued, the weight and deference courts afford to IRS Notices is generally lower than other IRS pronouncements, such as Revenue Rulings. Additionally, within the overall tax landscape, the issues addressed by Notice 2014-21 are narrow. The bottom line is that taxpayers should review Notice 2014-21 and use it to inform their decisions when reporting bitcoin transactions and income, but should also be aware that the Notice is neither the sole nor final authority regarding the taxation of bitcoin. Federal tax law as applied to bitcoin or any other asset is complex and wide-ranging; Notice 2014-21 touches on a very small part of it.

II. What is Bitcoin?

Before the tax implications of bitcoin can be analyzed, it is necessary to first briefly explain what bitcoin is and how it is used. Bitcoin is a decentralized virtual store of value that is beginning to gain greater and greater acceptance as a medium of exchange in the mainstream marketplace. Notice 2014-21 describes virtual currencies, such as bitcoin, as:

[A] digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value…Virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency, is referred to as “convertible” virtual currency…

Bitcoin derives value not from governmental backing or a link to an underlying commodity, but purely from its finite nature, the effort required to generate new bitcoin, and the value its users place on it and its acceptance as a medium of exchange in certain segments of the market. The trading value of one bitcoin has undergone significant fluctuations recently. For instance, between October 2013 and December 2013 the value of one bitcoin increased by over 1,000 dollars. Through mid to late March 2014, the value of one bitcoin remained close to 600 dollars.

Bitcoin allows its users to hold a medium of exchange without the need to rely on the banking system or other regulated transaction channels. Bitcoin is transferred, digitally, from one owner to another. The key to bitcoin is its construction as a cryptocurrency. This means that one must be in possession of certain key codes in order to access bitcoin. When a sender (such as a buyer using bitcoin to make a purchase) intends to transmit bitcoin to a receiver (such as a seller accepting bitcoin as payment), the sender sends a “public key” to assign to the receiver his ownership rights. The sender also certifies the transaction by signing with his “private key.” Third-parties, by reference to a public registry called the “block-chain,” can verify that the sender sent his public key to the recipient and certified the transaction by signing with his private key. The block-chain prevents manipulation of bitcoin ownership and double-spending is prevented by maintenance of a public registry that records transactions and current ownership interests. It records all bitcoin transactions, keeping track of such vital information as the counterparties to each transaction and the date of each transaction.

Reconciliation of bitcoin transactions is also part of what creates new bitcoin. More specifically, certain computer users provide computing power to record and reconcile bitcoin transactions, and to provide status updates regarding bitcoin ownership. Verifying and reconciling transactions, however, can only be completed by solving complex mathematical problems. This process is called “mining.” As incentive to engage in the mining process, miners receive new bitcoins as a result of their mining activities. Bitcoin supply is finite (the maximum number of bitcoin that will ever exist is approximately 21 million), and the amount that can be mined at any one time is also limited: as the amount of bitcoins that can exist approaches its limits, the amount that miners receive decreases.

Transacting with others in bitcoin requires ownership of a “bitcoin wallet.” Bitcoin wallets can be installed on a computer like software, can be made mobile for use on a mobile phone, can be web wallets, accessible via the internet, or can be held in “cold storage,” which means they are offline and the requisite key codes are recorded only on paper. The purpose of a bitcoin wallet is to save bitcoin addresses (the public and private codes explained above)—the information needed to transfer bitcoins. There is no restriction on the number of bitcoin wallets someone may utilize.

A good summary of fundamental questions and answers surrounding bitcoin can be found here.

III. How Will Bitcoin Be Taxed?

Although it is unclear precisely how the IRS will treat and characterize each of the countless varieties of bitcoin income or transactions, it is clear that all transactions using bitcoin, and the disposition of bitcoin, have federal tax consequences. Indeed, the federal tax questions raised by use of bitcoin are almost too many to count. For instance, assume A holds bitcoin worth 1,000 dollars, and “cashes it in” for 1,000 dollars of US currency. Assuming A purchased the bitcoin when its value was lower, say 500 dollars, does A have to recognize 500 dollars in gain, as he would with most dispositions property? If so, what character does his gain take? Similarly, assume A holds bitcoin worth 1,000 dollars, and exchanges his bitcoin for 1,000 dollars’ worth of services. Is this a taxable event?

What if Employer pays Employee in bitcoin in exchange for Employee’s services? Is this exchange properly characterized as wages subject to employment tax withholding?

Further, assume a bitcoin holder has more than $10,000 worth of bitcoin in his virtual wallet, the server on which the record of bitcoin ownership is stored is located outside the United States. Is the bitcoin holder required to make a disclosure under the Foreign Bank Account Reporting requirement of the Bank Secrecy Act?

While some of these issues have been addressed by Notice 2014-21, a vast majority of tax issues raised by bitcoin use remain unresolved. Assuming, as seems likely, that bitcoin’s prominence in the marketplace continues to grow, these unresolved questions will have to be confronted by the IRS and the federal courts. Until then, taxpayers are encouraged to make prudent and educated judgments with the assistance of experienced tax professionals as to how to report their bitcoin transactions to the tax authorities.

IV. Classifying Bitcoin for Tax Purposes

Prior to the issuance of Notice 2014-21, the key questions surrounding the taxation of bitcoin revolved around its classification as a currency or property, and, if it were classified as property, whether gains derived from bitcoin will be capital or ordinary in character. Notice 2014-21 makes clear that for tax purposes, bitcoin will be treated as property. Below we explain some of the primary ramifications of this treatment.

a. Why is Bitcoin Not a Currency?

First, it is important to explain why the IRS will treat bitcoin as property, rather than currency, as this question has been looming over the bitcoin community for years. Under the Internal Revenue Code (IRC or Code), currency is broken down into “functional” and “non-functional” currency. For most purposes, functional currency refers only to the US dollar. It is extremely unlikely that the definition of functional currency under the IRC would be expanded to include bitcoin or any store of value other than dollar.

For that reason, if Bitcoin were classified as a currency, it would more specifically be classified as a non-functional currency. If bitcoin were considered a non-functional currency, exchanges of bitcoin for US dollars would be treated as an exchange of a foreign currency for US dollars and would result in the recognition of ordinary income, to the extent of any gain, under IRC § 988. A general application of ordinary income treatment to bitcoin transactions was a significant worry of bitcoin users prior to the IRS’s clarification of bitcoin’s tax classification.

However, because bitcoin does not bear the traditional indicia of currency, it always seemed unlikely that the IRS would treat bitcoin as a currency. Bitcoin is not backed or issued by a central government and is not linked to another asset such as gold or silver. Moreover, Bank Secrecy Act regulations (not binding for purposes of the IRC) define “currency” as “the coin and currency of the United States or of any other country, which circulate in and are customarily used and accepted as money in the country in which issued.” 31 CFR § 1010.100(m). Due to bitcoin’s current lack of widespread circulation and its lack of customary acceptance as a money equivalent in the US and other countries, and drawing on the Bank Secrecy Act definition of currency, it seemed apparent even prior to the issuance of Notice 2014-21 that the IRS was unlikely to classify bitcoin as a currency, an assumption confirmed by Notice 2014-21. See Notice 2014-21 at Q-1 and Q-2.

Different countries have taken different positions regarding bitcoin’s status as a currency. For instance, last year Germany did not go so far to recognize bitcoin as an official currency, but it did recognize bitcoin as a “unit of account,” opening it for use in the wider marketplace and creating a framework by which to tax bitcoin-based transactions. Conversely, Japan has refused to recognize bitcoin as a currency or anything similar. China has also refused to recognize bitcoin as a currency, and has instead defined it as a virtual commodity. China has gone so far as to ban its banks and payment institutions from dealing in bitcoin. A summary of the treatment of bitcoin in selected jurisdictions prepared by the Global Research Center of the Law Library of Congress can be found here.

b. Treatment of Bitcoin as Property

Following the issuance of Notice 2014-21 and confirmation that bitcoin will be treated as property rather than currency, the primary practical question that arises is whether the IRS will classify bitcoin as a capital or non-capital asset. This determination is important because dispositions of capital assets held by a taxpayer for a year or more are generally subject to lower rates of taxation than dispositions of non-capital assets. Less favorable for US taxpayers, however, is that long-term capital losses generally cannot be used to offset ordinary income (the income that most people earn, such as wages or investment interest).

Capital assets are defined under the Code by what they are not. In defining capital assets, the IRC starts with the simple premise that a capital asset is “property held by the taxpayer (whether or not connected with his trade or business).” IRC § 1221. Thus, the default classification for property is as a capital asset. From there, the IRC excludes eight specific types of assets that are not capital: inventory, real or depreciable property held for use in the taxpayer’s trade or business, intellectual property created through the taxpayer’s personal efforts, accounts receivable, government documents, certain dealer-held derivative financial instruments, hedging transactions, and non-inventory supplies regularly used or consumed by the taxpayer in his trade or business. The definition of capital asset makes clear that the determination of whether an asset is capital depends on how it is held by a particular taxpayer.

c. Bitcoin Activities Giving Rise to Ordinary Income

Whether bitcoin is treated as a capital asset will chiefly depend on the taxpayer’s use of bitcoin or the activity from which the taxpayer earns bitcoin. For instance, for a person engaged in the “mining” of bitcoin, income produced by those efforts will likely result in ordinary income. See Notice 2014-21 at Q-8. A miner of bitcoin that later sells his bitcoin or uses it to purchase goods or services will recognize ordinary income, rather than a capital gain.

With respect to mining, a strong analogy can be drawn between bitcoin and other commodities, the mining of which gives rise to ordinary income. See Prichard v. Helvering, 310 U.S. 404 (1940). Like other commodities, bitcoin is a finite resource that must be extracted from within a larger source. In this way, mining bitcoin, like mining ore or extracting oil from the earth, resembles a manufacturing activity which generates ordinary income upon disposition of the proceeds of the mining or manufacturing efforts.

Further, one who “deals” in bitcoin, i.e. makes selling bitcoin his or her regular trade or business, will recognize ordinary income on any transactions resulting in a gain. See IRS Notice 2014-21 at Q-7. Conversely, one who merely “trades” in bitcoin will likely incur a capital, rather than ordinary, gain. The distinction between a dealer and a trader is a fine one, and largely hinges on whether the subject property is being sold to “customers,” as opposed to merely being traded on an exchange. Given the current state of the bitcoin market, and the paucity of recognized exchanges devoted to bitcoins, it may be difficult for a taxpayer to argue that he is a “trader” rather than a “dealer” in bitcoin, and thus entitled to capital gain treatment.

An analogy can be made with guidance recently issued by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), which draws a distinction between “users” and “exchangers” of bitcoin for purposes of determining whether individuals or businesses will be considered money services businesses (MSB) for purposes of the Bank Secrecy Act. Under that guidance, individuals or businesses that mine and dispose of bitcoin for their own purposes, and not as a business service performed for others, are not treated by FinCEN as MSBs under the Bank Secrecy Act. Drawing upon that distinction, trading in bitcoin solely on one’s own account, as opposed to facilitating bitcoin transactions between third parties, or making a regular practice of selling bitcoin to third parties, should receive capital gain treatment.

Additionally, an individual or business that receives bitcoin in exchange for sales of its inventory or for sales of the services that make up its regular trade or business will be required to treat the bitcoin earnings as ordinary income. Again, this is because the bitcoin was earned as a result of efforts that were within the taxpayer’s regular trade or business, not the sale or exchange of a capital asset.

d. Bitcoin Activities Giving Rise to Capital Gains

More relevant to most taxpayers are the tax consequences of disposing of bitcoin that was purchased or received from a previous holder or was earned for performing activities not within the taxpayer’s regular trade or business. For instance, suppose a taxpayer purchases bitcoin as an investment for 100 dollars and its value later rises to 200 dollars. Upon disposition of the bitcoin in any manner, such as sale for 200 dollars in cash or the purchase of 200 dollars’ worth of goods or services, the taxpayer is likely to have 100 dollars of capital gain. Similarly, if the taxpayer purchased the bitcoin for 200 dollars, or performed services outside of his regular trade or business and received 200 dollars of bitcoin in receipt, then disposes of the bitcoin for property or services worth 400 dollars, that person will have 200 dollars of capital gain.

This is so because absent the taxpayer’s status as a bitcoin dealer or one who holds bitcoin as inventory for sale in a regular trade or business, bitcoin does not appear to fall within any of the other exceptions of IRC § 1221 and therefore should be classified as a capital asset.

In this way, using bitcoin for everyday transactions differs significantly from the use of cash.

taxpayer’s gain and loss on the disposition of property is generally measured by reference to the taxpayer’s basis in the property, which is generally measured by the cost to acquire the property and the taxpayer’s subsequent investment in the property. When a disposition of property results in the receipt of value (such as money) in excess of the taxpayer’s basis in the property, then the taxpayer has realized a gain. When a disposition of property results in the receipt of value exceeded by the taxpayer’s basis in the property, then the taxpayer has realized a loss. See IRS Notice 2014-21 at Q-6.

A taxpayer’s basis in cash is almost always the face value of the cash. Thus, in almost all instances, the taxpayer’s basis and amount realized are equal, and no gain or loss results for a buyer using cash. However, the tax treatment of purchases made with bitcoin more closely resemble barter transactions, in which property or services are exchanged for other property or services, without the use of money as a medium of exchange. In a barter transaction, the amount realized by the selling party is the fair market value of the property received in the exchange. See IRS Notice 2014-21 at Q-6. Due to bitcoin’s fluctuating value the resulting disconnect between a taxpayer’s basis in his bitcoin and the bitcoin’s market value, dispositions of bitcoin will likely generate gain or loss. Unless bitcoin’s value stabilizes significantly, the fact that tax consequences will likely result from each disposition of bitcoin could serve as a major obstacle to bitcoin ever becoming as liquid or freely used in the marketplace as cash.

As was made clear in Notice 2014-21, for tax purposes transactions denominated in bitcoin or other virtual currencies must be reported in US dollars, which will require taxpayers to determine the fair market value of bitcoin income or bitcoin involved in a particular transaction in US dollars. Notice 2014-21 specifically states that a determination of fair market value can be made by reference to an exchange rate established by market supply and demand. However, all such exchange rate determinations must be reasonable and consistently applied by the taxpayer. See IRS Notice 2014-21 at Q-5.

e. Basis Tracking

Because bitcoin has an established exchange rate, the fair market value of bitcoin should be easy to determine at any given moment. However, determining the fair market value at the time of bitcoin disposition is only half of the equation necessary to determine the gain realized from a disposition of bitcoin. The other half of the equation is the taxpayer’s basis in the bitcoin, generally the amount expended in acquiring the bitcoin under IRC § 1012.

Keeping track of bitcoin basis will likely be an area of focus for any future IRS regulation because a number of questions, and potential areas for abuse, may result from unclear or incomplete rules for basis tracking. For instance, assume an individual buys 10 bitcoins on day 1 when bitcoin is worth 75 dollars each, 10 bitcoins on day 5 when bitcoin is worth 110 dollars each, and 10 more bitcoin on day 20 when bitcoin dropped in value to 100 dollars each. If the taxpayer then spends 7 bitcoins on day 30, what is his basis in those 7 bitcoins? The existence of the “block-chain” and the use of virtual wallets should simplify this determination. As stated previously, each bitcoin transaction is recorded and preserved for review in a public registry called the block-chain. Reference to the block-chain, and reference to the daily historical pricing of bitcoin, should permit a taxpayer to keep track of the dates he purchased or acquired bitcoin, as well as the price of the purchase. Further, using multiple virtual wallets should allow a bitcoin holder to segregate bitcoin purchases and thus avoid mixing bitcoin with different bases.

However, issues remain. Assume, for example, that a taxpayer maintains a different virtual wallet for each bitcoin purchase. By segregating bitcoin in this manner, a bitcoin holder could potentially pick and choose which bitcoin he chooses to spend (most likely the bitcoin with the highest basis), thereby limiting his or her gain or creating a tax-beneficial loss. Along those same lines, assume a bitcoin holder does not segregate each bitcoin purchase into different virtual wallets. Instead, all bitcoins, some with different bases, are deposited into the same wallet. When a portion of those bitcoins is spent, how can the taxpayer determine which bitcoins, with which basis, were disposed of?

There are a number of approaches the IRS could take with this question. For instance, the IRS could apply a Last in First Out (LIFO) or First in First Out (FIFO) methodology. Taking one of these approaches, i.e. arbitrarily determining which bitcoin was spent based on when it was acquired by the taxpayer, would ease the administrative burden on all parties, but could also unfairly, and adversely, impact taxpayers. For instance, in the example above, under the FIFO method, the taxpayer’s basis would be 525 dollars (7 of the last 10 bitcoins the taxpayer acquired at 75 dollars each). However, overall, the taxpayer’s basis in his bitcoins is, arguably, 95 dollars per bitcoin (30 bitcoins purchased for $2,850) and thus the basis in 7 bitcoins would be 665 dollars. In that circumstance, application of the FIFO method would increase the taxpayer’s gain (or decrease his loss). On the other hand, if the taxpayer were permitted to pick and choose which bitcoin were spent, the taxpayer could manipulate the transaction to ensure the bitcoins with the highest basis (and thus lowest realized gain or greatest loss realized) were utilized.

These issues are not new. Similar issues have arisen when taxpayers have held different blocks of the same stock, i.e. shares of Microsoft purchased on different days and for different prices. Under current law, so long as a taxpayer can specifically identify the shares he or she wishes to sell, the taxpayer is permitted to pick and choose which shares to sell. See Treas. Reg. § 1.1012-1(c). If the taxpayer is unable to make a specific designation of shares to sell, the IRS applies the FIFO method (the first shares purchased are deemed to be the first shares sold). Similarly, if sold inventory cannot be specifically identified, the FIFO method is applied, but the IRC allows some room for sellers of inventory to elect LIFO treatment, or an averaging of costs across the entire quantity of inventory.

The IRS takes a different tack with regard to allocating basis to partnership interests. Specifically, the Code requires the taxpayer acquiring partnership interests at varying times to pool the bases of all partnership interests and allocate the basis to the different interests based on their respective fair market values. So if a taxpayer buys a 5 percent interest for 1,000 dollars and later buys a 3 percent interest for 400 dollars (the value of the partnership having decreased) the taxpayer is assumed to have a basis of 1,400 dollars in his eight percent interest. If the taxpayer then sells half his partnership interest (4 percent), a basis of 700 dollars (half of the total basis) is attributed to the sale. See Rev. Rul. 84-53.

For a bitcoin speculator or investor, the rules applicable to stock seem to be the most applicable, and may provide a hint as to how the IRS may apply ordering rules to dispositions of bitcoin acquired at different times and for different prices. If the IRS does adopt this approach, taxpayers would be wise to organize their bitcoin in a manner allowing for quick and easily verifiable determinations of the basis of specific groups of acquired bitcoin, which would allow the taxpayer to efficiently identify the bitcoin providing for the most tax beneficial result and provide any backup evidence requested by the IRS.

We have every confidence that the bitcoin community will step into this breach and develop simple and elegant applications designed to allow bitcoin users to track their bases in their bitcoins for tax reporting purposes, including applications permitting full compliance with any ordering rules adopted by the IRS.

V. Other Issues

Thus far we have focused on the potential tax treatment of basic and fundamental transactions involving bitcoin. However, the tax issues raised by bitcoin do not stop there.

a. FBAR Obligations

Notice 2014-21 makes no mention of the Bank Secrecy Act and its application to virtual currencies such as bitcoin, but we would be remiss to similarly ignore it. Under the Bank Secrecy Act, US persons (including corporations, partnerships, other business entities, and trusts) that have signatory authority over, or a beneficial interest in, a foreign financial account that reaches $10,000 in value at any time during the year must report such interest to FinCEN. This reporting obligation is known as the Foreign Bank Account Report obligation, or FBAR for short. Failure to make the required disclosure can give rise to significant civil penalties and, in some circumstances, criminal liability. Our past articles, such as those here, here, and here, have focused extensively on US taxpayer’s FBAR requirements and the tough stance taken by the IRS toward taxpayers that fail to make the required disclosures.

In light of this requirement, what if a US person’s bitcoin is maintained on a computer server located abroad? Alternatively, what if a US person living abroad maintains his bitcoin on his personal computer? If the value of the bitcoin exceeds $10,000 during the year, must the bitcoin owner report the existence of the account to FinCEN? Current FBAR regulations do not address the treatment of bitcoin or other virtual currency, but strong arguments can be made that an FBAR reporting obligation is not imposed on bitcoin accounts held abroad.

This is primarily due to the definition of “reportable accounts” set forth in 31 CFR § 1010.350. Under that regulation, the definition of “reportable accounts” covers bank accounts, securities accounts, and “other financial accounts,” which in turn includes accounts with persons in the business of accepting deposits as a financial agency, insurance or annuity accounts with a cash value, or accounts with brokers or dealers in futures or options contracts. A reserve of bitcoin would not seem to fall into any of those categories. More ominously, however, the final category of reportable accounts is described as an account with an “other investment fund,” with no elaboration as to what may constitute an “other investment fund.” Additionally, the IRS has imposed FBAR penalties for failure to report offshore, online gambling accounts, which do not seem to fall within the scope of “other financial accounts.”

Nevertheless, based on the text of the FBAR regulations, it would appear that a reserve of bitcoin held abroad would fall outside the FBAR parameters. But it is a close question. Given that filing an FBAR is a relatively simple process, US persons holding significant stores of bitcoin abroad may wish to consider filing a protective FBAR. Moreover, the FBAR obligation is just the tip of the iceberg when it comes to US persons’ obligation to report assets held abroad. For US persons holding significant amounts of bitcoin abroad, consultation with an experienced tax professional is strongly advised.

b. Use of Bitcoin to Pay Wages

What if an employer pays his employee in bitcoin? Notice 2014-21 makes clear that the IRS will treat the payment as compensation in the form of wages. See IRS Notice 2014-21 at Q-11. Payment of wages in bitcoin will constitute ordinary income to the employee and, generally, a capital gain (to the extent there is gain) to the employer. Moreover, like any other wages paid to an employee, the payment will be subject to withholding for income tax, as well as FICA (to fund Federal social security) and FUTA (to fund Federal unemployment compensation) taxes. See IRS Notice 2014-21 at Q-11. Obligations owed to the IRS must be paid in US dollars thus requiring the employer to set aside dollars to deposit the required withholding or to liquidate bitcoin in order to generate dollars to pay the required withholding.

IRS Notice 2014-21 that independent contractors who receive payment in bitcoin, or individuals who mine bitcoin as part of a trade or business and not as an employee, are subject to self-employment tax, just as if they had received US dollars for their efforts. See Notice 2014-21 at Q-9, 10.

c. Compliance Failures

At Q-16, IRS Notice 2014-21 addresses the issue of whether a taxpayer will be subject to penalties for treating transactions inconsistently with the Notice prior to its issuance date (March 25, 2014) by stating, simply, that taxpayers may be subject to penalties for failure to comply with tax laws, including underpaying the tax due as a result of virtual currency transactions. The Notice goes on to state that penalty relief may be available upon a showing of reasonable cause.

Two things stand out about the IRS’s position here. The first is that, implicitly, the IRS is indicating that treating bitcoin transactions in a manner that is inconsistent with the Notice after March 25, 2014 will more likely give rise to penalties and that establishing reasonable cause sufficient to abate the penalties will be difficult for post-Notice issuance non-compliance. Second, the reasonable cause standard cited in the Notice is the standard that is generally applied in penalty abatement determinations. Thus, the IRS has given no indication that special (more lenient) treatment will be given to taxpayers against whom penalties are assessed simply because those penalties arise from bitcoin income or transactions.

VI. Conclusion

The issues addressed in Notice 2014-21 and this article are just a few of the vast number of tax issues raised by the wider use of bitcoin in the marketplace. For unresolved issues, taxpayers are best served by reporting any bitcoin-based income or other taxable events and to take reasonable positions regarding the taxability of those transactions. Given the uncertainty surrounding the proper treatment of every single variety of bitcoin-based income and transactions, the advice of professional and experienced tax professionals is crucial for proper reporting and avoiding future problems with the IRS.

The attorneys at Fuerst Ittleman David & Joseph have extensive experience in handling complex tax planning and reporting obligations for individuals and businesses. We will continue to monitor the regulation of bitcoin and the impact of such regulation on the tax and non-tax obligations of individuals and businesses.

You may contact us by calling 305.3560.5690 or by emailing us at contact@fuerstlaw.com

On March 24th, Israel’s most reputable exchange entered the booming Vietnamese market.

Israel & Bitcoin: Fertile Ground

Bit2C Ltd, one of Israel’s largest bitcoin exchanges, was born only one year ago.  When Co-founder and CEO Eli Bejerano was introduced to bitcoin, he saw potential for it immediately.  Initially, he wanted to create a news site for bitcoiners, but written in Hebrew, since most of the information on the innovation was in English.  However, his idea quickly transformed from a bitcoin news site to a bitcoin exchange, where Israelites could buy and sell the cryptocurrency:

“We noticed that Israelis needed to take their currency and [transfer it] into dollars and send it abroad,” Eli explains. So, he teamed up with Haddar Macdasi, now Bit2C’s Chief Technological Officer, and created a real-live exchange: “We have our own market based on supply and demand here in Israel.”

By Eli’s estimate, Israel is one of today’s biggest bitcoin communities in the world. Israel hosts the world’s “biggest or second-biggest” meetup group with over 200 businesses accepting the currency. The country currently boasts over 100 start-ups centered around Bitcoin technology:  “You can buy almost everything with bitcoin; restaurants, computer shops, barbers, bakeries, garages,” Eli explains.

Israel offers a fertile ground for the flourishing of bitcoin since its populace is interested and innovative in both finance and technology: “Israelis,” says Eli, “they like tech and they like finance. There’s a big and respectable community [here] around bitcoin.”

Yet the environment is not exactly ‘warm’ to the innovation. The Bank of Israel recently issued a statement warning about bitcoin; from the Israeli bitcoin community’s point of view, they figure that Israel will follow suit with the United States’ decisions on the currency. Recently, the USA issued an announcement that Bitcoin would be taxed like a capital gain: “Some see this as good news, some see it as bad,” Eli reflects. “Even if people want to do what the law offers to do, it’s going to be very hard to track everything with bitcoin.”

Even given the potential obstacles, Bit2C has been very successful in the past year, mostly due to their safe and secure bitcoin storage process: “our technology is very unique, because not a lot of exchanges around the world use cold storage. We use cold storage for 95% of [our] bitcoins, so even if it gets hacked, no one can access [them]. We can never get ‘Goxed.’”

This very attribute has garnered the company massive global attention; however, Eli and his team decided to focus on the incredible Vietnamese market for their first international launch.

Vietnam’s Potential

The idea to expand into Vietnam was developed over a bitcoin-purchased beer in an Israeli bar. Eli’s friend, Dominik, a German bitcoiner, understood the opportunity for bitcoin in Vietnam, as his wife is Vietnamese. Both men saw the opportunity to implement Eli’s coveted technology in Vietnam and overcome the language barrier by using Dominik’s unique connection: “The main problem is the language barrier. We will supply the technology, and Bitcoin Vietnam Co. Ltd will supply the presence. [When] they have a site in place that communicates in Vietnamese and trades bitcoin [using our technology], it will be a great success.”

Bit2C’s stress-tested and proven technology comes at a dire time for Vietnam. The country is a quickly-expanding market, with over 80 million people suffering from the effects of inflation: “a big percentage of [Vietnamese people] h

ave money, but don’t know where to put it,” Eli explains. “Real estate is [expensive] there, and the price of living is very high [due to] inflation.” Adopting bitcoin allows Vietnamese people to retain the value of their money.

Furthermore, using bitcoin saves an incredible amount on remittances; this is of massive importance because the Vietnamese population overseas is “over 4 million people, [making it] a top 10 country in the remittance market with more than 10.6 billion dollars a year in incoming transactions,” Dominik explains. “It really is a pain in the ass for many Vietnamese people to bring and send money home to their families. Bitcoin will change this dramatically.” Eli adds that the importance of having this technology in the Vietnamese language will make this easier for the people to adopt.

The Beginning for Vietnam

Bitcoin Vietnam Co Ltd. began operations after the famous Bitcoin Bar Beer Discussion and just signed the formal contract with Bit2C on March 24th. According to their joint press release, “Bitcoin Vietnam Co Ltd. will enable bitcoin users in Vietnam to buy and sell an unlimited amount of bitcoin.” It is assumed that after their beer, Dominik spent 6 months working with local Vietnamese to find and create the company. Nguyen Tran Bao Phuong was made CEO of Bitcoin Vietnam Co. Ltd, and “strongly believes” that this strategic partnership will “set a milestone in the … development of Vietnam’s… bitcoin economy. Vietnam is aiming to become a technological hub in the region, and we believe that… adoption… will play a key role in bringing Vietnam’s economic

 development to the next world.”

The company will actively comply with “all applicable rules and regulations” regarding Bitcoin in Vietnam, using “high standards” of Know Your Client and Anti-Money Laundering measures to “prevent illicit usage of the company’s services.” Through their partnership with established Bit2C, the Vietnamese exchange understands the need to actively comply with strict security measures and co-operate with government authorities.

Bitcoin Vietnam Co Ltd. and Bit2c Ltd.’s exchange will be called VBTC and will officially offer access to reliable and secure state-of-the-art solutions regarding bitcoin. Although Vietnam’s media reports claim the State Bank of Vietnam “opposes” bitcoin, the technology has never been prohibited in the country. The usage and understanding of Bitcoin in Vietnam is in its early days, but the “community and interest is expanding at a rapid pace.”

Already, a handful of companies and brick-and-mortar stores accept Bitcoin for products and services. The Vietnamese bitcoin community is forming a Bitcoin Vietnam Foundation to educate the public, regulating authorities and professionals on the merits and uses of bitcoin.  The foundation will hold the first nationwide Bitcoin Conference on May 23rd, 2014, a date specifically selected to follow the traditional and well-established Banking Vietnam 2014 conference, which is focused on more traditional forms of currency.

This development is huge news for the bitcoin community. As Andreas Antonopoulos says, even if this is a fad for the 1 billion of us with bank accounts, this is incredibly life-changing for the “other 6 billion. Focus on the other 6.5 billion.” This is where the true world-changing potential lies.

Vietnamese bitcoiners can expect to be able to access the exchange in late April.  Eli and his team are doing incredible work. Stay tuned.

For more information, please contact:

 

Contact details:

Nguyen Tran Bao Phuong; Chief Executive Officer

Bitcoin Vietnam Co., Ltd.

129F/123/52A Bến Vân Đồn

Phường 8, Quận 4

Thành phố Hồ Chí Minh

info@bitcoinvietnam.com.vn

 

Eli Bejerano; Chief Executive Officer

Bit2c Ltd.

Tel Aviv, Israel

eli@bit2c.co.il

A recent article in Forbes caused a stir. The piece was entitle “A Guide to South Africa’s Economic Bubble and Coming Crisis”. The article lays out the economic case that current South African economic growth is illusory: fuelled by ‘hot money’ and a resulting credit bubble that is ready to pop.

It is argued that a global economic environment of low interest rates has resulted in the necessary economic distortions to drive this massive credit bubble.

Interest rates should represent the price of savings in an economy. People either save or spend their earnings. What isn’t spent is saved. Those savings are held in a bank or savings institution. The bank then offers those savings to borrowers who need capital to build businesses and fuel real economic growth.

When savings are low, interest rates are high: as borrowers compete for the limited savings. If savings are plentiful, interest rates are low: as borrowers compete for a relatively large pool of funds. So interest rates are a function of the amount of savings in the economy and the demand for them. This is the usual case in an economy with a sound monetary unit of account.

When there is a central bank this can become very distorted, very quickly. By printing money the central bank can fool the economy into believing more savings are available than actually exist. This sends all kinds of incorrect signals to the marketplace. Interest rates go unnaturally low as the market judges there to be plenty of savings available for investment.

However, these are not real savings, just printed money. So the end result is simply inflation. Prices rise as the fake savings flow through the economy. This money can cause asset inflation in unpredictable sectors of the economy, as the economy receives false signals about savings.

According to Forbes this is where the South African economy finds itself.

Forbes argues that major global players like the US printed too much of their own currencies, in a quest to keep interest rates lower than they otherwise would be. The economy received the false signal of excess savings. The price of savings (interest rates) dipped to unnatural lows: all very predictable according to theory.

Investors all over the world have borrowed this ‘cheap money’. In search of high returns they have sent it into emerging markets like South Africa.

South African Government bonds in particular have been the recipients, providing plenty of cheap borrowing for the S. African Government. They have spent this borrowed money on infrastructure projects. Government never spends money efficiently, as it has no profit motive.

The South African Government has gone into debt. Yet the output from this debt spending has provided no real economic growth. This should always be expected of government spending.

In the years following 2008 interest rates across the South African economy decreased substantially, in a cascading effect. The banks now had an excess of ‘cheap money’ for everyone. They started predatory lending practices, similar to the subprime mortgage lending practices of the US, pre-economic crisis.

The predatory lending unique to South Africa has its own flavour. It has been uniquely aggressive. The borrowed funds found their way into the housing market, as is so often the case. Real estate prices rise and there is a wealth effect that has everyone feeling high for a while. Of course, it is only inflation fuelled asset appreciation and there is no increase in the real underlying value of the assets themselves.

Forbes argues that the entire economy is now dependent on ‘cheap money’: a vicious addiction. Like heroin, it takes ever-increasing dosages to have the same effect and the need is eternal. Of course, interest rates cannot stay low forever. The ‘cheap money’ will become expensive again.

As printed money flows globally, seeking increasing returns, it distorts economies. This is exactly how the Iceland story played out. Forbes argues the same is happening in emerging markets like South Africa at the moment. It is all playing out in a perverse Déjà Vu.

The laws of economics, like the laws of physics, are immutable. Savings cannot be faked. They are the denominated evidence of human sacrifice. When we save we are forgoing present consumption so that future generations can live better.

Savings are the ultimate representation of what it means to be human: they separate us from all other mammals. The idea that you can print human sacrifice at no cost is ludicrous. That is only inflation, and you should only expect the social ills that come with debasement.

The most pressing problem evangelical bitcoiners and libertarians face is one of communication. Occasionally on purpose, but more often by accident, they erect four walls and create a barrier between their world and the rest of the world. They struggle to project their glorious message beyond a four-sided prison. In order to engage the audience, they must learn to communicate directly via a medium the audience can relate to and understand. In short, they must learn how to break the fourth wall.

The idea of the fourth wall traces its roots back to Ancient Greece, the birthplace of dramatic theatre. A formal construction of the concept didn’t exist until 1758, however, when Denis Diderot, a French Enlightenment philosopher most famous for his role as co-editor of the Encyclopédie alongside Jean le Rond d’Alembert, published his Discourse on Dramatic Poetry. In the ensuing nineteenth century, “breaking” the fourth wall became a trope in realist theatre.

Shakespeare shattered the fourth wall time and time again, most notably in Richard III. In the 1995 film adaptation of the same name, Ian McKellan stars as the eponymous power-hungry king and breaks the fourth wall with panache. As Ferris Bueller, Matthew Broderick playfully talks directly to the audience. In the cultural phenomenon that is House of Cards, the fourth wall gets repeatedly upended by Kevin Spacey’s Frank Underwood.

As a palpable manifestation of liberty, Bitcoin is the sledgehammer that can break through liberty’s fourth wall and tear it down—in two revolutionary ways.

First, Bitcoin is not a monologue, a soliloquy, or an aside. Instead, it’s a direct communication with the audience. It’s money—something everyone uses, interacts with, and relates to. Despite being an exclusively digital technology, there’s a certain tangible quality about it. Perhaps that’s because, in addition to reading about it or thinking about it, you can actually use it and do stuff with it. Philosophical treatises on rights theory are no longer needed to explain the greatness of liberty. All you need to do is send someone bitcoin.

There’s a universal law that, upon using bitcoin for the first time, you exude effervescence and joy. It’s just the way the world works. Suddenly, you’re all agog to see it in action again and again. In an instant, doubters of decentralization, free exchange, and liberal ideas in general are immediately swayed.

Second, Bitcoin breaks barriers by virtue of its appeal to broader audiences. As a digital currency aware of no political boundaries, bitcoin unites the globe. The unbanked and semi-banked of the world will finally be initiated into the world economy, unleashing the full power of exchange, trade, and the division of labor. By reducing reliance on credit (scores), the impending application of smart property will empower the poor, the youth, and even third-world farmers caught in a quagmire of ineffectual policy and Western self-righteousness.

Recently, detractors of Bitcoin have seethed about problems of privilege that afflict the nascent crypto-currency. It’s true that Bitcoin’s neutral protocol can help quell considerations of race, gender, sexuality, class, and wealth. It erases the problems of traditional banking and financing by eliminating the need for trust. It doesn’t care who you are or where you came from.

But only if you know about it.

That’s where the privilege problem comes in. Right now, Bitcoin’s audience is narrow and small, made up mostly of well-off males who are (highly) computer-literate. While there’s no privilege-perpetuating flaw in the protocol itself, there is an awareness gap that divides the “knows” from the “don’t-knows.” And it’s the “don’t knows”—women, the poor, the unbanked, the third-world—who have the most to gain from Bitcoin. Because of the nature of the network effect, however, the current privileged Bitcoin class has no incentive to keep its secret.

Libertarians and non-libertarian Bitcoin enthusiasts must be careful not to subsume themselves within a dramatic box. They have access to the greatest tool ever to break the fourth wall and connect with the public on a visceral level. Yet Bitcoin merely equips us with the ability to break the fourth wall. We have to make it happen through dedicated vigilance and conscious effort. Outreach will shrink and ultimately abolish the awareness gap, guaranteeing that everyone can enjoy the magnanimity of Bitcoin. From there, Bitcoin can demonstrate and explain to people across the world the true beneficence of human liberty.

At its core, the fourth wall encloses the drama, preventing it from seeping out and spilling onto the audience. The tidy delineation permits the audience to observe the action without becoming a part of it. As such, it also prevents any direct, potentially beneficial interaction between the actors and the audience from taking place.

In the theatre of life, libertarians often find themselves reading from a stilted script. Bitcoin invigorates the narrative with a refreshingly real and accessible element. Money is something everybody can relate to. If spread with care and attention, Bitcoin can break liberty’s self-imposed fourth wall, demonstrating to the world that freedom is much more than a quaint matinée. It’s the main event, one in which everyone can participate.

Austin, Texas is weird and at the Texas Bitcoin Conference, Bitcoin got a little weird. People from all over the world converged in Austin this past week to join in on the latest in the cryptosphere. The Conference was held at Circuit of the Americas, a race track appropriate for the Bitcoin world’s fast-paced nature. Mike Snow, the event organizer, made sure the conference was big just like Texas and he did a job well done. Speakers included Ravi Iyengar, Jeffrey Tucker, Andreas Antonopoulos, Anthony Gallippi, Dan Larimer and so many more too awesome to name.

The Conference was set with many firsts, the first bitcoin concert (bitcoincert), the first Lamborghini bought with bitcoins was at the conference and I took sight of the first bitcoin ATM in the United States located at HandleBar.

The Conference was divided into different subjects with general discussions, a track focused on women and the three main tracks: the merchant track, technical track and meta track.

Mainstreet

Topics in the general segment included everything from an Introduction to Bitcoin to Ethereum. This was great because there were a lot of new faces at the event, some of which were new to Bitcoin.

One of my favorite presentations was done by James D’Angelo who compared the roller coaster of bitcoins’ volatility to his adventures in Africa; it was one of the more unique presentations. James has been all over the world working in different wildlife parks, but as he explained, what was different about Africa is that all the animals can kill you. James suggested that in the future we will look back to today as the fun times because bitcoin will be about as boring as a fiat currency.

Women

The Texas Bitcoin Conference set itself apart from the others by offering a focus on women in the field. Technology and finance are notoriously male dominated fields so when CryptoWomen took the stage they identified the need for women in Bitcoin. Since only 6% of the Bitcoin community is represented by women this track was much needed. Esther Tung led the panel with Catheryne Nicholson, Stephanie Murphy, Tatiana Moroz and Marni Melrose who each had unique viewpoints. I would like to see the women in Bitcoin topic at more events.

Merchant

Of course Charlie Lee and Anthony Gallippi were there representing the payment processing side of things, but there were others talking about the benefits of accepting bitcoin. Remittance payments played a part in the Latin America panel and others and how it would affect businesses like Western Union. The fact that people can send money instantaneously and then go to a Bitcoin ATM and convert that into cash is also going to be game changing since there are little to no fees.

Technical

On the technical side of the event, some minds were blown. Maidsafe.net set a goal of changing the world through a decentralized internet platform that would eliminate data centers and servers. “Maidsafe is doing for data what bitcoin is doing for trade,” as Nick Lambert said. Maidsafe will make data more secure by sending only pieces of information to the network where only you have access.

Other technical topics included the future of mining panel, Stephen Sprague’s talk on trusted computing and Kristov Atlas’s interesting discussion on how to have financial privacy with bitcoin.

Meta

Andreas Antonopoulos talked about currencies as a “cultural artifact” and why there will be millions of AltCoins. A currency’s value is not created at issuance anymore but by people giving it value and value can be given to anything as Andreas explained just as children in primary school give value in trading marbles or rubber bands. Andreas is not only incredibly knowledgeable about Bitcoin, he is also funny; I don’t want to steal his jokes so go watch his presentation and the others.

  

Access to the presentations from the conference can be purchased for $50 at the following link:

https://vimeo.com/ondemand/texasbitcoinconference

Everyone is concerned about the security of their bitcoins, and we are constantly reading stories of one or another persons getting their bitcoins stolen. Of course, following bitcoin best practices should reduce your chances of being victimized. Advice such as is described at: http://bitcoinsecurity101.com/getting-started/ is a good start.

One big step forward in the improvement of bitcoin security is a little known, rarely used feature called “multi-signature”. The bitcoin core reference libraries support multi-signature capabilities and I expect to see a significant uptake in the usage of this important feature. Let’s explain what multi-signature is all about.

Just like the name implies, a multi-signature transaction requires more than one signature. Let’s say that Bella has some bitcoins and needs to pay Murray. In a regular Bitcoin transaction Bella will simply use her wallet to enter one of Murray’s Bitcoin addresses and “send” the bitcoin. Murray would see the new bitcoin in his wallet and that’s the end of the story. In a multi-signature transaction Bella would still be sending bitcoin to Murray, however in order for Murray to actually receive the bitcoin, a third party, Gail, would also have to sign the transaction. Note that this requirement for a third party, an arbitrator, also greatly improves the security of the bitcoins in your wallet. Even if a nasty party found the private key for Bella, he still couldn’t spend the bitcoin without also knowing Gail’s private key, a much less likely event.

By the way, a multi-signature address always begins with the number 3, and looks like: 34CRZpt8j81rgh9QhzuBepqPi4cBQSjhjr. This lets you quickly visually scan the address and verify that it is indeed a multi-signature transaction.

Using multi-signature features will let you organize secure payments in a variety of creative ways. Some of the types of transactions enabled by multi-signature are an escrow service where a trusted 3rd party holds the money until all are satisfied or a chargeback service so consumers have recourse in case products are not delivered.

To quote from information on the bitcoin.org site describing multi-signature capabilities:

“Bitcoin includes a multi-signature feature that allows a transaction to require the signature of more than one private key to be spent. It is currently only usable for technical users but a greater availability for this feature can be expected in the future. Multi-signature can, for example, allow an organization to give access to its treasury to its members while only allowing a withdrawal if 3 of 5 members sign the transaction. It can also allow future online wallets to share a multi-signature address with their users, so that a thief would need to compromise both your computer and the online wallet servers in order to steal your funds.”

When reading descriptions of multi-signature features you will typically see statements such as “m of n signatures” are required, and so on. In a concrete example, we can say that 2 of 3 people in a transaction would be needed for the spending of the bitcoins. Alternately 7 of 11 members might be needed. The point is that there are a total of “n” people (or entities) involved in a transaction. Of the total population “n”, “m”, usually a lessor number, must sign off. It’s a little confusing at first but makes a great deal of sense. Some subset of all the people involved must sign the transaction. This prevents one person from having the ability to steal bitcoins and ensure that some percentage of people agree to whatever transaction is taking place.

There is a good, more technical article, about multi-signature on BitcoinMagazine at: Multisig: The Future of Bitcoin by Vitalik Buterin. Multi-signature wallet capabilities are just beginning to fill the Bitcoin ecosystem and we can look forward to many new innovative wallets that will make the creation and usage of multi-signature transactions simple. There are a few multi-signature capable wallets, such as BitGo, Bitrated and the core reference Bitcoin-QT. Usage of multi-signature is still new and somewhat novel, so beware. However multi-signature transactions promise to greatly improve the security of Bitcoin, and I’m very much looking forward to lots of user friendly implementations.

Don’t forget to check out BitcoinInPlainEnglish.com

Even though I was unable to find time to travel all the way to the U.S., I had the pleasure of watching Coinsummit’s live stream. Though the conference was focused on panels, there were a few company presentations. Only a couple really caught my attention in any meaningful way. One of these was Atlas ATS.

Their new platform, Atlas 2.0, is a Financial Information Exchange (FIX) protocol digital asset exchange claiming to be the first to announce options on Bitcoin. The exchange platform is ‘Wall Street grade’, and, besides options, it brings a high level of sophistication: trading major alt-coins, an array of advanced native order types for FIX API clients, derivative products, multi-sig transaction wallet, and a larger selection of advanced order types for clients using the FIX interface.

The Atlas 2.0 platform has been launched in Hong Kong and North America, where it has established the digital currency exchanges. The company is keen for the market to know that it has been deployed on a global, secure, and high precision private network. This network is exclusively managed under the Digital Currency Initiative (DCI), a division of Perseus Telecom.

Perseus is a private global high precision network provider for financial trading, gaming, e-commerce and multi-media. Customers include top tier market makers, banks, exchanges and Fortune 500 companies.

Perseus makes connecting to Atlas ATS simple, through a physical connection at any global location. Dr. Jock Percy, Chief Executive of Perseus, says they are “pleased to respond in tandem with Atlas ATS to the strong demand for diversified digital currency trading products accessible from any data centre in the world.”

He goes on to add that “Both companies are truly able to translate real asset class risk, reliability and latency concerns and to utilize this expert knowledge for the digital currency trading ecosystem.”

Shawn Sloves, Chief Executive at Atlas ATS notes that “Atlas ATS is pleased to expand (their) product offering to Options for our sophisticated global trading market participants.” He goes on to note that the company now offers “two types of option contracts, ‘Calls’ and ‘Puts’, which confer upon the owner the right to buy and sell, respectively, the underlying crypto-currency at a set ‘strike’ price on a given ‘expiration’ date.”

The absence of options trading for cryptocurrency is often lamented. Let’s hope this company can live up to its promise and deliver a viable platform. It would benefit the ecosystem greatly.

Atlas 2.0 supports three major alt-coins providing more products to trade and digital currency options for Bitcoin and Litecoin. Fees on options trades follow the maker/taker model. The rebate earned when adding liquidity is 0.1% and the fee for removing liquidity is 0.3%. Advanced order types are available via FIX API.

The platform supports trailing stop, stop limit, market, reserves, discretionary, and mid-point peg orders. Additional order types will be made available to website and Web API users in the next major platform upgrade.

Most importantly, the platform provides a new multi-sig wallet service for Improved Security. This multi-sig, read-only wallet with cold storage, is coin agnostic, supporting over 180 alt-coins.

The company will be adding additional alt coins over the next few weeks. They will also be expediting payment and banking services to create more options for funding trading accounts.

Atlas seems dedicated to providing a secure, state-of-the-art technology exchange platform for transacting digital currency. The services they promise to deliver, embarrassingly absent from the space until now, are exciting.

The company clearly has visions of being an industry leader in operating a trading venue and providing innovative products and services. If they are successful the benefit to the global trading community would be immense.

Competition from technology-driven markets increases overall market volumes and improves performance, providing benefits to all participants.

The Federal Reserve Bank of St. Louis recently held a “Dialog with the Fed” on bitcoin basics. The events are “designed to address the key economic and financial issues of the day and to provide the opportunity to ask questions of Fed experts.”

The discussions, which began in the fall of 2011, are held at the St. Louis Fed and its branches, and are free and open to the public. All discussions and presentations are archived.

While the event was broadcast, video is not up yet. However, the slide deck is, and it’s surprisingly funny and insightful. It goes through some basic elements of bitcoin, a sort of “Explain it to me like I’m 5” for central bankers.

Slide 6 describes Bitcoin’s source code size as about 17 MB (500 phonebooks), “About the size of a typical bill coming out of D.C. lately?” And it shows a touch of self-awareness. Under “Common Complaints,” the author writes “We hate banks… and we especially hate central banks.”

The deck describes bitcoin as a “Low-cost banking available to anyone in the world,” a “digital cash supply free of political manipulation,” and “a stroke of genius—a monetary system governed by a computer algorithm.”

And how funny that the Fed gets the Mt Gox debacle better than most journalists. “The wallets were ‘stolen’ – not Bitcoin’s fault.” Hear, hear.

Tackling the issue of “intrinsic value,” which the deck points out bitcoin doesn’t have, one slide asks, “What determines the market exchange rate between two intrinsically useless objects?” Welcome to currency, and life. No value is intrinsic.

As for how the Fed will deal with bitcoin, the deck acknowledges that “enforcing an outright ban is close to impossible.” Bitcoin adoption “will force traditional institutions to adapt or die.” And the most promising bit was close to the end, “Well-run central banks should welcome the emerging competition.” Indeed.

In a stunning reversal of intent, the IRS today issued a statement admitting they got it wrong.

“After further review, and speaking to our consulting organization led by new Treasury Secretary Jack Lew, we’ve decided that bitcoin acts more like a currency after all.” This was greeted with celebration at multiple companies which have been taking a harsh stance on the IRS’s previous declarations.

Overstock CEO Patrick Byrne issued a statement from a “Freedom Rally” that “Although the IRS has been used as a dangerous weapon against the Libertarian movement and has repeatedly shown hostile actions without legal recourse for Americans, “Once in a while they get one right.”

Agents in Police jackets labeled with IRS were seen taking several leaders from the peaceful rally into custody. When asked about the actions, two agents who declined to reveal their names as they were not authorized to speak to the press only admitted, “Hey we just do what we’re told.”

When asked to comment about the change in the IRS stance, former IRS leader “Lois Lerner” refused to answer questions and again invoked her Fifth Amendment right against self-incrimination.

Jack Lew admitted he had some influence in the decision and had just needed more time since his new role to head Treasury Department has just begun. “I just finished hanging my portrait of Barack Obama in my office and the new paint in the office renovation hasn’t even dried. I think the fumes of the wet paint might have led to the premature decision to treat the currency only as property.” The Treasury Secretary left open the possibility that they may change their mind again. “Never say Never,” he was quoted as saying when asked if this decision would be final.

The division of government known as FinCEN left open the possibility that they too might declare an official stance of how they intend to view bitcoin. According to Director Jennifer Shasky Calvery,  “We still don’t know what to call it. Sometimes we say it’s a Virtual currency, but we’ve been told it’s more like a Digital currency. Sometimes we call it a Cyber Currency – then other times we mention it is a Crypto Currency. Our official stance will be decided once we have a four square block drawn in chalk in the board room and release the chicken to decide which block to rest in = Whatever the chicken decides, we’ll do. Because of the four options, the usual method of Paper, Rock Scissors wouldn’t have worked,” she admitted.

There is still no word whether the Commodity Futures Trading Commission has declared bitcoin a commodity or currency. The Acting Chief Economist Sayee Srinivasan declared, “We still see ourselves in charge of the blockchain. We have a saying here – ‘If you can mine it, we can regulate it.’ So it is clearly our office responsibility to make that claim, and we clearly see ourselves in charge of it, no matter what the IRS says.” Although a SWAT team of IRS enforcement officers was standing in attendance during our interview, there are still some negotiations taking place between agencies. He would neither confirm nor deny that negotiations between federal agencies would ultimately be decided by “Indian Leg Wrestle”.

“One thing is for sure is that for this week probably it will remain a property. At least until Thursday when the final round of ‘Negotiation matches’ are scheduled to conclude,” he was quoted on the topic. When alerted of the IRS announcement of the reversal today, he smiled and told us any announcements before Thursday would not be the final word. “Since bitcoin hasn’t existed in our books until this year, we’ve got to settle things the old fashioned way, two out of three.  We are much more civilized since the dueling days of Alexander Hamilton and Aaron Burr.”

 

iPhone users, did you know that you can legally gain access to an iOS Bitcoin Wallet?

Love Will, LLC develops applications and provides services for the Cycle of Goodness, or C.O.G cooperative.

Among one of these apps is an innovative wallet by the name of Pheeva.

This is made possible through Apple’s enterprise software solutions reserved to companies like Love Will, LLC.

But it’s more than a way to get a Bitcoin wallet, it’s a way to work with a like-minded group towards a good cause and reap benefits.

Here’s how it works: Once you join and become a legal member of C.O.G., a registered state agency based in Kentucky, USA, you gain access to apps, including Pheeva, the iOS Bitcoin wallet, as well as the Google Chrome extension. There are more apps on the way.

“The purpose of the cooperative”, says Lafe Taylor, president of C.O.G., “is to provide members with the best applications and services in the bitcoin marketplace as well as offer them opportunities to share in the benefits of group economics through patronage points and refunds.”

Patronage points are the token by which members earn patronage. Patronage point allocation is determined by the board of directors, and can change from time to time to satisfy the needs of the Cooperative. Currently patronage points are awarded for referring others to join the Coop. All members receive 1 patronage point for joining the cooperative. If everyone chips in, everybody benefits.

Like many millions, Lafe Taylor likes the freedom behind bitcoin and the opportunity to disrupt the concept of money.

“We really desire to give back”, says Lafe.” Once I understood how bitcoin could revolutionize money for impoverished people,” he adds, “I was really excited about Bitcoin.”

You can check them out online at http://cogcoop.com or http://pheeva.com.

Wu Zhengfu, a top-level official in the People’s Bank of China, has made a public announcement that April Fools day jokes are now officially banned in the country. A formal statement, now released on the PBoC website, states that “at this stage, all public informational and media institutions must not make statements of fraudulent comedy, directly or indirectly, on the day of April 1, nor act as a platform for individuals to write such statements, nor hyperlink to such statements, nor use April 1 as the day for whimsical announcements”. According to Zhengfu, the People’s Bank of China does not consider April fools’ day a threat to China’s cultural system, but it does cause risks of potentially destabilizing the government’s ability to effectively communicate its intent through blogs and news outlets.

“The concern is that it interferes with our attempts to explain to the public what is allowed and what is not,” Zhengfu says. “Just a few days ago, we were planning to announce on April 1 that we were going to ban Bitcoin. But we realized that the fact that the entire internet would treat it as a joke would have made it impossible for us to effectively do so. Now, we have to delay the Chinese Bitcoin community’s demise to what is essentially an American tax day.” On the positive side, however, Zhengfu notes that the CEO of Bitcoin Kal-El Al Gore has banned China, and hopes that the unfortuante timing decision by Gore will, at least for the time being, convince the Chinese and Bitcoin media that Gore’s move was a joke, giving the People’s Bank of China sufficient breathing room to convert its bitcoin reserves into doge.

Additionally, Zhengfu hopes that the elimination of April Fools day will improve the state of Chinese culture. “For too many years in the Western world, and increasingly the Chinese online sphere as well, there has been a consistent decline in the quality of jokes made on this day. What initially was, at least in part, actually good humor, has since declined into increasingly stupid announcements, poorly thought out jabs that have already been made the other 364 days of the year, and utterly predictable trolls. Hopefully Chinese citizens will find a more productive means of expressing themselves, and we will have more high quality and joyful humor for everyone.”

Bobby Lee, CEO of BTCChina, has taken the opportunity to express his disappointment at the continue disorganization and shenanigans of the Chinese state. “For over two years now my brother Charlie and I have been expertly positioning ourselves to deliver a credible Chinese, and cryptocurrency-based, alternative to the New World Order and the Rothschild family. You may recall that two years ago Coinbase was infilitrated by Fred Ehrsam, an agent from Goldman Sachs, and Charlie has been trying very hard to act as a triple-agent inside the organization and report to the Chinese government and myself on Fred’s attempts to centralize and subvert Coinbase and the Bitcoin ecosystem for the benefit of London and New York-based financial elites. Now, the sheer inability of the Chinese governmment to deliver a single accurate statement on the state of Bitcoin in China is a major reason why our plans have been delayed for so long. Arguably, the only reason we have been able to survive the regulatory uncertainty around Bitcoin at all is simply the fact that Charlie had the forethought to create Litecoin as an alternative.”

Additionally, Lee notes, the ruling made by the PBoC is very ambiguous, a strategy which is typical of the Chinese government. “Does ‘public informational and media institutions’ include ordinary citizens?” Lee asks, “or is it just specific to formal companies?” Furthermore, Lee points out that the PBoC is a regulatory agency specific to financial insitutions, so it may be interpreted that the statement applied only to banks, payment institutions and perhaps Bitcoin exchanges. And, finally, is “April 1” just “April 1, 2014” or does it apply to future days entitled “April 1” as well? Lee is currently in talks with senior-level officials in the PBoC about these concerns, and will hopefully soon receive guidance on whether or not BTCChina is affected. If the exchange is covered by the guidelines, and if the comments expressed by Lee are genuine and part of an April Fools joke by himself (as opposed to being fake comments created as part of an April Fools joke by Bitcoin Magazine, or real comments about an actual new new world order on the part of Bobby and Charlie), Lee says, “then I am so screwed. Unless, of course, the PBoC banning April Fools jokes is part of the joke.”

Matt Mellon, lead spokesman for the original New World Order, declined to comment.