December.2014 CryptoBiz Magazine, Issue.07 by CryptoBiz Magazine

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CONTENTS

Smart Contracts and Chains of Distributed Ownership

Will the Real Crypto-Currency User Please Stand Up?

by DOM STEIL

by GARY BODDINGTON

8 2015: The Year of the Token by MANIE EAGAR

Letter from the Editor

Mastercard is Upside Down Down Under

Expert Advisory Board . CryptoBiz Magazine Page.2 December.2014

. .

by VALERIAN BENNETT

Bitcoin Merchant Directory

Bitcoin Service Directory . CryptoCoin Social

. .

Bitcoin Empowers You to Create Impact Anywhere

. .

by ILYA BROTZKY

Talking to the Architect of the Providence Project . By CHRIS BATES

19 21

. .

continued on page.6

Issue.07 December.2014 Published by CRYPTOBIZ MEDIA, a division of CRYPTOBIZ GROUP

I AM SOSHI… Bitcoin is finally being noticed by some big players in various global markets.

Editor-In-Chief SOSHI

It’s not surprising, but it’s exciting to see Bitcoin, which is usually consid-

Chief Operations Advisor TRENT NELLIS trent@cryptobizmagazine.com

thing significant, is garnering a new respect and understanding from major

Chief Financial Advisor BARRY MORGAN Chief Technical & Media Advisor JAY ADDISON

ered very alternative by the mainstream—and not likely to amount to anycorporations. This issue explores a few of the ways Bitcoin impacts transactions, in a variety of markets.

Art Director VANESSA KING

Last month, at the Money20/20 conference, bankers and regulators real-

COVER DESIGN Jay Addison

ized the potential value in Bitcoin, and opened up to the concept that the

CONTRIBUTING WRITERS Chris Anderson, C h r i s B a t e s , Va l e r i a n B e n n e t t , G a r y Boddington, Ilya Brotzky, Manie Eagar, Gibson Gibz, Niall Maye, Bitcoin Rush, Dom Steil, Patricia Tree

“next big thing” might lie in securitization, and the ease of use of digital fi-

IN THE US: NEW JERSEY Josh Gold Josh@cryptobizmagazine.com

Apple Pay made waves with their tokenization concept—an alternative pay-

IN THE US: SACRAMENTO CA Brandon Johnson Brandon@cryptobizmagazine.com

it. Of course, this is great news for the crypto-community. If Apple introduc-

IN NEW ZEALAND: AUCKLAND Belinda Too Belinda@cryptobizmagazine.com

CRYPTOBIZ MAGAZINE PH3507 1111 West Pender St Vancouver BC Canada V6E 2B4

nance systems.

ment method so powerful and packed with security features, they patented es a new digital payment method, its reach will be so great that the general public will begin to understand—and trust—digital currency, and its benefits. MasterCard has weighed in on Bitcoin, and is trying to exert government-level control in Australia. They obviously see a future for crypto-currency, and they want part of it.

TEL 1 844 CRYPTO1 (1 844 279 7861)

International charities are getting on board as well. Bitcoin makes it easy for

www.cryptobizmagazine.com

anyone, anywhere to make charitable donations, without the fees charged

CryptoBiz Magazine assumes no responsibility for unsolicited material. Opinions expressed herein are those of the authors and advertisers and do necessarily reflect those of CRYPTOBIZ GROUP, editors, advisors or staff. Readers are encoura ged to thoroughly investigate and consult with a crypto financial advisor before embarking on any investment, speculation or financial opportunities. CryptoBiz Magazine makes no warranties or guarantees and we assume no liability regarding advertisements or editorial content or any claims that may arise from them. The contents of CryptoBiz Magazine are Copyright © 2014, all rights reserved. CryptoBiz Magazine may not be reproduced in whole or in part without the expressed written permission of CRYPTOBIZ GROUP. subscriptions@cryptobizmagazine.com for a FREE subscription to CryptoBiz Magazine

by credit card companies. Music-lovers will be pleased to discover a new music blockchain from the BitShares Music Foundation. Among other things, it’s a way for new artists to fund their budding careers, and a way for listeners to assist them. These are just a few of the stories that make up our final issue of 2014. Throughout the year, Bitcoin and crypto-currency—both as a concept and a reality—have grown stronger within the mainstream financial community. We at CryptoBiz Magazine wish you a happy and safe holiday season. We’re looking forward to what 2015 brings… Here’s to a new year, full of Bitcoin po-

Receive our monthly editions delivered to you in the digital format of your choice.

tential, and new ways for “this Bitcoin thing” to take over the world!

Enjoy! —S

December.2014 Page.3 CryptoBiz Magazine

E-MAIL contact@cryptobizmagazine.com

Yes,

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CONTENTS

Worldâ&#x20AC;&#x2122;s First Blockchain ID

continued from page.2

by CHRIS ANDERSON

Why Everyone Should Run a 50-Watt Bitcoin Miner .

by SOUMITRA MANDHATA

Want More Women @ Your Bitcoin Meetup? . Stop Acting Like @$$holes

by PATRICIA TREE

Musical Shares + Sterling Coin .

CryptoBiz Magazine Page.6 December.2014

by BITCOIN RUSH

The Crypto-Currency Scene in Rural Ireland

by NIALL MAYE

Github Bitcoin Glossary . Bitcoin in Africa . by GIBSON GIBZ

. .

EXPERT ADVISORY BOARD KRISTOV ATLAS

BRANDEN PETERSEN

KRISTOV ATLAS is a network se-

BRANDEN PETERSEN is the

curity and privacy researcher who studies crypto-currencies. He is the author of Anonymous Bitcoin: How to Keep Your Ƀ All to Yourself, a practical guide to maximizing financial privacy with Bitcoin. Kristov is also a correspondent for the World Crypto Network, appearing regularly on the weekly roundtable show The Bitcoin Group, and host of Dark News, a show about un-censorship technologies.

founding Executive Director a n d C h a i r m a n o f t h e B o a rd of yesbitcoin. Along with this work, he serves on the Financial St a n d a rd s Wo r k i n g G ro u p at Th e B i tco i n Foundation. Elected to the Minnesota House of Representatives in 2010 and the Minnesota State Senate in 2012, Petersen currently represents the people of Senate District 35 in Northwest Anoka County. His legislative accomplishments in education policy reform as well as citizen data privacy protections are among the notable items in his body of work as the youngest member of the State Senate. Along with his work in the public sector, Petersen has also been delivering strategic communications solutions for an array of nonprofit and corporate clients as a Senior Counselor at Ainsley Shea Communications in St. Paul, MN.

LISA CHENG

MICHAEL PATRYN MICHAEL PATRYN has been work ing with digital currencies since 2002, in the capacity of financial consultant, market maker, and exchanger. As an Angel Investor, Michael has actively invested with, and supported over twenty private companies within the digital currency space. Michael works with numerous non-profit organizations, such as the World BJJ Federation, Vancouver Bitcoin Cooperative, and the Lifeboat Foundation. He provides a wealth of experience and knowledge, and access to the wide network he established within the digital currency space. Michael’s primary objective is to work with the community to build a future where digital currencies, protected private wealth, and innovation are able to thrive.

PIOTR PIASECKI, BSc MSc PIOTR PIASECKI i s a C h i e f

S c i e n t i s t a t P rova b l e I n c , a Vancouver-based software development startup. Since discovering Bitcoin in 2011, he became a reputable member of the Bitcoin community under the nickname “ThePiachu.” Piotr wrote his Master’s thesis on the subject of Bitcoin security in Technical University of Lodz, in Poland. He is also a moderator of Bitcoin.StackExchange. com, /r/Bitcoin subreddit, runs a number of Bitcoin-focused websites, such as Vanity Pool and TestNet Faucet, as well as writes a blog on various crypto-currencies.

December.2014 Page.7 CryptoBiz Magazine

LISA CHENG is the co-founder of Distributed.buzz and the CEO of the Vanbex Group. She is the force behind the popular news aggregation site BitcoinRegime. com and a behind the scenes advocate of Bitcoin 2.0 and blockchain technology. She comes from an accomplished background after having worked at Fortune 500 companies and technology startups involved with Big Data, algorithmic trading, and enterprise systems. Lisa’s time is now focused on consulting and planning for new cryptocurrency projects after having worked for the Mastercoin Foundation in leading the Business Development effort. She is located in Vancouver, British Columbia, Canada and you can reach her via Twitter @lisacheng.

TOKENIZATION WAS A HOT TOPIC AT THE recent Money 2020 Conference in Las Vegas, thanks to the Apple Pay announcement, and the increasing awareness of ‘this Bitcoin thing,’ as the attending bankers and regulators were calling Bitcoin projects. The first question, of course, is now that Apple has patented their version of it, what are tokens and what is “tokenization”? The wiki explanation reads as follows: “Tokenization is the process of replacing sensitive data with unique identification symbols that retain all the essential information about the data without compromising its security.

CryptoBiz Magazine Page.8 December.2014

“The concept of tokenization, as adopted by the industry today, has existed since the first currency systems emerged centuries ago as a means to reduce risk in handling high value financial instruments by replacing them with surrogate equivalents. In the physical world, coin tokens have a long history of use replacing the financial instrument of minted coins and bank notes. In more recent history, subway tokens and casino chips found adoption for their respective ecosystems to replace physical currency and cash handling risks such as theft.” Antiquated payment systems are being challenged by the raft of new alternative digital and crypto-currency payment systems—Apple Pay on the one end and the bitcoin blockchain on the other.

TOKENIZATION IN ALTERNATIVE PAYMENT SYSTEMS

Building an alternate payments ecosystem requires a number of entities working together in order to deliver near field communication (NFC) or other technology based payment services to the end users. One of the issues is the interoperability between the players and to resolve this issue the role of trusted service manager (TSM) is proposed to establish a technical link between mobile network operators (MNO) and providers of services, so that these entities can work together. Tokenization can play a role in mediating such services. An example here is the use of the Kenyan M-Pesa token that converts money to ‘airtime’ and back to a financial value at point

2015: THE YEAR OF THE TOKEN by MANIE EAGAR, CO-FOUNDER AND CHAIR OF THE DIGITAL FINANCE INSTITUTE

of purchase or transfer between transacting parties on the Safaricom/Vodafone. For Brian Kelly from CNBC, “The concept of a “tokenization,” or a one-time card number that does not transmit personal data, is a similar concept to the Bitcoin blockchain. Certainly, technology purists will argue that the blockchain technology at the heart of Bitcoin is superior, but to the consumer, the difference is indistinguishable. (Why Bitcoin could get a boost from Apple Pay). The Bitcoin blockchain more than adequately addresses the tokenization aspect of transactions. Kelly argues that if Bitcoin applications could follow the same strategy of Google’s Android as opposed to Apple’s closed ecosystem approach the whole market could become an opportunity.

CryptoBiz Magazine Page.10 December.2014

The consumer does not care what technology lies behind the payment applications that they apply as long as it is secure, frictionless and accessible. Of course Apple is leveraging its brand and that is one hurdle that Bitcoin has not yet overcome—to instill a high level of confidence and demand from the merchant and consumer alike with positive brand recognition. Kelly continues: “Offering a product that is open source and virtually free is how Android became the top mobile operating system in the world. Digital currencies should borrow from Google’s play book in order to compete with Apple. “The open-source nature of digital currencies gives them a major competitive edge as the best technology can be immediately integrated without the need to navigate a corporate culture. This gives digital currencies a first mover advantage as consumers begin to embrace a digital payment network. Android wa s a b l e to g a i n m a r ke t share by offering apps that Apple had yet to approve and therefore opened itself to the early adoption of game changing tech.” Even the CEO of Visa has announced recently that tokens are their new network revenue stream. Charles Scharf declared that “not only is tokenization ‘the single biggest

change that’s been made in the payment networks easily over the past 15 or 20 years and maybe longer,’ but he spoke about how it enables Visa to control the data and to potentially charge a lot more for it” (quoted in pymnts.com). “Tokenization has opened up this whole world for us to be able to use digital devices to be a meaningful part of the payments flow in a way that (those payments) wouldn’t have in the past,” Scharf told attendees at the Bank of America Merrill Lynch 2014 Banking & Financial Services Conference. “Those of us that participate in the token infrastructure can make decisions on who you want to give access to, whether you want to charge for it and things like that. So it’s hugely meaningful to our ability to open up new channels and to make sure there’s clarity in terms of who controls the payment information. We put a rate schedule out there for tokenization. We said we’re waving everything through the end of 2015. We want people to adopt tokenization. We think it thus creates a meaningful set of opportunities that would be difficult for us to participate without something like tokenization.”

LOOKING FOR THE NEXT BIG THINGS? BRING ON THE TOKEN ECONOMY

On my speaking rounds I often get asked what is the next big thing and where will the new initiatives and startups come from in the cryptocurrency space? I believe the answer lies in securitization and ease of use of the digital finance systems currently under development and in decentralized tokenized apps.

In the words of David Johnson, founder of the DApps Fund which has helped with MaidSafe, API Network, Swarm, Storj, Rivetz and Factom, the “DApps Fund I is building the future of Decentralized Applications. DApps are based on a token-economy utilizing a

block chain to incentivize development and adoption.” Attending the Factom presentation at Money 2020 CEO Paul Snow referred to their white paper where they explain h ow “ i n to d ay ’s g l o b a l economy trust is in rare supply. This lack of trust requires the devotion of a tremendous amount of resources to audit and verify records—reducing global efficiency, return on investment, and prosperity.”

The Distributed Apps sector has been particularly active of late drawing a significant portion of VC funding. This sectors bears watching closely in the coming year.

“Moreover, incidents such as the 2010 United States foreclosure crisis demonstrate that in addition to being inefficient, the current processes are also terribly inaccurate and prone to failure. Factom removes the need for blind trust by providing the world with the very first precise, verifiable, and immutable audit trail.”

Ultimately, the goal, they said, is to win over government regulators, who they hope will come to see blockchain-embedded databases as a powerful way to compel transparency in finance and other business sectors.

Reference: The Digital Finance Institute recently launched as a global center of excellence to advance digital finance policy and regulation, innovation and inclusion. Its mandate is to support international fintech innovation with balanced regulation that addresses financial inclusion globally, and to draw more women into the fintech space. “With the evolution of the Internet of Things and Bitcoin for example, fintech is developing at an incredible pace globally and it is important that we start balancing innovation and regulation to ensure that economic development in this area can thrive without overly burdensome regulation and without causing more of a financial inclusion problem around the world,” says Christine Duhaime, co-founder of the Digital Finance Institute (DFI) and a prominent regulatory and counter-terrorist financing lawyer in Canada. Twitter: @DFInstitute —S

CryptoBiz Magazine

MANIE EAGAR, CEO of Idaeon; Director of the Bitcoin Alliance of Canada, and co-founder and Chairman of the Digital Finance Institute, is a global investment and mergers and acquisitions advisor, and marketing and business development executive with over 30 years of driving new wealth creation, business growth and strategic innovation. The past two years he has focused on deal shaping and making in the new world of digital value inter-exchange, mobile media delivery platforms and digital finance 2.0 futures, inspired by the Bitcoin protocol phenomenon.

December.2014 Page.11

In an interview with the Wall Street Journal Paul Snow and Peter Kirby explained that banks are not the only institutions that might be interested in such a service. They believe Factom could make the job of auditing public companies easier for accounting firms and thus reduce the compliance costs for such companies. Factom could also be used to keep track of different stages of a supply chain or a series of business processes, or it could capture in “provable” form the ever-changing portfolio of reserve assets for any financial company that’s required to back its operations with reserves.

MASTERCARD IS UPSIDE DOWN DOWN UNDER by VALERIAN BENNETT

On November 27, 2014, global payment processor MasterCard sent a letter to the Australian Senate Economics Committee, as part of that government’s “Inquiry into Digital Currency.” MasterCard claims to operate the world’s fastest payment processing network, in more than 210 countries and territories. Yet, this $102 billion corporation is actively soliciting the Australian government to “level the playing field” between it, and the open-source project known as Bitcoin. The main thrust of MasterCard’s argument is that all payment systems should be shoe-horned into the same regulatory framework to ensure “consumer protection.” Considering the checkered past of MasterCard on the issue of consumer protection, this stance is baffling. Last year, MasterCard was party to the largest antitrust settlement in history. The $5.7 billion payoff for price fixing and harming consumers was criticized by Wal-Mart as being too lenient. Let that sink in… even Wal-Mart thinks MasterCard’s anti-competitive practices go too far. In the MasterCard world-view, tying identity to every transaction is what guarantees consumer protection. If you know the who, what, when, and where of a transaction then you can assess its validity, minimize risk, and offer the ultimate protection to the consumer. Voilà! Still, we are talking about a mechanical process. A financial transaction is nothing more than a human invention. And, what man-made creation in all history of recorded times has been deemed so perfect that it has made the search for improvement a fruitless exercise?

One of the sub-sections of their submission is entitled, “Anti-Money Laundering and Counter-Terrorist Financing / Anonymity / Facilitating Trade in Illegal Goods and Services.” This title gets to the critical core of what the legacy financial regime sees in blockchain technology. It tars individuals seeking anonymity with the same brush as terrorists and drug cartels. By that thinking, if I value personal privacy then I must be a criminal. The MasterCard proposal goes on to suggest, “… all transactions go through regulated and transparent administrators subject to supervision by Australia authorities.” Considering the black market in Australia is seven times the entire size of Bitcoin’s value and rising at an alarming rate, it would seem switching to a public ledger system like the blockchain would actually be an improvement over the status quo for Australian authorities. The obvious problem with this transparent approach is that MasterCard would be locked out of its duopolistic control of all that consumer data. And, if the traffic on its payment network moves over to a public interchange then its very existence is threatened. The company just increased its dividend by 45% and expanded a stock buyback program to nearly $4 billion. From their point of view, why mess with a good thing? The great irony is that the main differentiator between the competing Visa network and MasterCard is, unlike Visa, MasterCard is a peer-to-peer network. Yes, the fundamental structure of the Bitcoin network and the MasterCard network are identical! In its own press materials, MasterCard espouses the virtues of peer-topeer technology: reliability, speed, and security. So if the technology at the base of Bitcoin and MasterCard are essentially the same, then what exactly is MasterCard proposing to the Australian government? Control. Not by the Aussies, but by MasterCard. Priceless. —S

This is a huge benefit of using Bitcoin. As a merchant, I can verify receipt of a secure payment. As a consumer, I can have the comfort of knowing that once my payment is made then my relationship with that merchant is over. I have left nothing behind for anyone to steal. No more Target and Home Depot style breaches, ever.

VALERIAN BENNETT is founder of TheProtocol.TV, a premi-

um video network dedicated to covering the global decentralization movement. Mr. Bennett is a veteran television producer/ director/editor and an award-winning documentary filmmaker living in Los Angeles. His new short documentary film, “Bitcoin: Buenos Aires” is available online.

CryptoBiz Magazine

I am not suggesting that one of the above methods is better than the other. The most important thing as a consumer is to have choice. This is not something that should be mandated by a private corporation and enforced by a government. If I want to have a relationship with a merchant and I wish to trust them with my vital information, then that should be my choice.

December.2014 Page.13

So, let’s consider the opposite of the MasterCard world-view. What if removing identity within every transaction is what guarantees consumer protection? What if, when hackers stole 40 million debit/credit card numbers and 70 million personal records from Target last year, that information could have instantly been rendered worthless because it was not tied to identity? What if the same could be said when hackers made off with 56 million card numbers in the Home Depot breach just months ago?

Or should it? According to MasterCard, the answer is no.

SMART CONTRACTS AND CHAINS OF DISTRIBUTED OWNERSHIP by DOMINIC STEIL BLOCKCHAINS AND SIDECHAINS: decentralized and distributed store of value and transfer networks that consist of replicated, unalterable, and time-stamped transaction ledgers. SMART CONTRACT: a legally enforceable agreement written in computer code made by competent parties, to perform or not perform a certain act. Contracts may be express or implied, bilateral or unilateral, executory or executed, and void, voidable, unenforceable, or valid. The contract is executed on the blockchain based upon met or unmet inputs.

To be able to use this blockchain technology, you have to buy a unit of the network e.g. a bitcoin. There are only so many of these bitcoin

This concept effectively could bring everyone and everything onto the same financial grid to negotiate and authorize trade: 

You could authorize the transfer of title and a time stamped key to your secondary home.



You could create an escrow smart contract on the blockchain that executes once both parties have fulfilled their promises in the bilateral agreement.



You could buy or sell financial instruments and have same day affirmation.

Not only does this augment p2p exchange, but also m2m or machine to machine. Autonomous vehicles communicating for road space, your refrigerator communicating with your solar panel for energy storage, your hard drive negotiating data storage space with another computer. It is a layer of value transfer without the need for a processor, an irrefutable layer of ownership without the need for an agent, a secure layer of storage without the need for a physical vault. The challenging part of this next stage is creating a UX that allows someone to build the bridge between the language of a legal contract

CryptoBiz Magazine

A new proposal by Blockstream, pegged sidechains, creates an internetwork of blockchains that are able to transverse to and from one another. This creates a fluid interoperable network of blockchains that have their own properties, rules, and units which can be pegged and transferred back and forth from the Bitcoin blockchain and other sidechains. It creates a complete new form of verifying and transferring ownership of assets, commodities, currency, and value in a distributed, unalterable, globally accessible network. Take any existing trust based business model that can be decentralized, apply this 10x blockchain technology and it will be decentralized (Johnston’s Law).

By buying units of the network, you’re buying a globally transferable credit. You can program these credits into smart contracts which effectively let you determine when to allocate the units to other parties based upon met or unmet inputs. In doing so, you eliminate counterparty risk and can alternate between an internetwork of transaction ledgers without the need for a trusted third party.

December.2014 Page.15

Everyone who has been following the development of Bitcoin now understands that this is something much more profound then a new way to transfer money to the other side of the world in ten seconds. We are now moving into the infrastructure that will enable the creation of a blockchain for any type of asset or organization. We know that the blockchain is a true computational advancement and it will be the foundation for a whole new ecosystem of financial technology.

units for the exponential number of people and things that will be using the network. This creates scarcity, value, and a number of network effects that further increase the liquidity of the bitcoin blockchain.

and the language of a developer. It needs to be consumable by the general audience. Easier to implement and use than going through a specialized agent and trusting that they are going to not make any mistakes. For the consumer, the lexicon used in the contract model has to be simple enough to understand but detailed enough to cover all of the possible outcomes. They will take time to implement, but the combination of smart contracts and side chains will undoubtedly bring us into a new age of distributed trust and ownership. We want to have a secure protocol that lets us move value from one chain to another but the Bitcoin blockchain wasn’t intended to scale or be used for anything other than bitcoin transactions. The problem is it is too risky to make a hard fork to the Bitcoin source code that is not backward compatible.

CryptoBiz Magazine Page.16 December.2014

The sidechain proposal is an SVP proof, a proof that shows the path of an asset and verifies that each transaction in its history in the sidechain was valid. We know that some amount of hashing power will move the coin from the bitcoin blockchain to the sidechain. It is not feasible to provide a full proof in the entire history of the blockchain to bring that coin back to the bitcoin blockchain. When you run a full node, your node checks every single block. Your node checks the height from block 332,000 all the way down to the genesis block making sure that it is first linking the entire train and making sure every transaction is valid. With an SVP, it checks depth in the blockchain. If it has been 10 blocks since the transaction took place, we have 10 blocks of trust versus the entire block chain of trust or 322,000 blocks of trust. When you move something from a sidechain back to bitcoin blockchain the problem is that the move requires a proof of hashing power to verify the transactions that happened in the sidechains were valid. The coin is held in stasis until there is proof that it should come back to the bitcoin blockchain. If the pool is hacked or 51% attack takes place on the sidechain, it could permanently destroy the bitcoins that were moved to that sidechain.

IS MERGE-MINING A VALID SOLUTION? With merge-mining the same hashing power that keeps bitcoin secure, keeps the sidechain secure. The mining part is zero different, you just have to setup a full node and download the entire blockchain of the sidechain. Namecoin is an alternative decentralized domain name system that reuses the bitcoin blockchain for hashing its chain. The same hashing power that keeps bitcoin secure, keeps Namecoin secure. The incentive for merge-mining is the miners get to mine both coins. In fact 3/4 of the bitcoin hashing power is also mining Namecoin. So say all of these SHA 256 based cryptocurrency sidechains start emerging. You realize there are an unlimited number of chains that you can mine at the same time. Any sidechain that uses a SHA 256 merge mining protocol. The only additional overhead is additional data storage to keep the entire blockchain of each sidechain. So in theory you can build a miner that has every single blockchain downloaded to it, and this thing would be an absolute crypto-machine, mining like 2500 different blockchains. This merge-mining is allowing you to use the SHA 256 to record and verify because it uses the same work. You could mine thousands of chains but there is a maintenance cost for merge-mining; setting up a node for each blockchain. You can mine all of these different sidechains and this is great but ultimately the big issue is that merge-mining leads to further centralization. These sidechains need honest miners with lots of hashing power running full nodes to secure the network. The security is in the mining, its the backbone of the technology. How the mining process is organized. If merge-mining isn’t a long term solution to achieve scalability, fluid interchangeability, and security for user created assets, then what is? TREECHAINS A new proposal, treechains, would take the block and divide it up into levels of binary branches. So what is this effectively doing and why does it secure the mining? The process is bringing specialization and decentralization to the transaction recording and verification process. Instead of linearly recording and verifying each block, you can split the block up to be worked on at different levels.

You sign and timestamp transactions a few levels down, not even knowing what they mean and if they are valid, but your signature verifies that they existed at the point in time. You act as a notary and some other miner for whom the transaction is significant to can come back and act as the verifier.

hands in a way that you can validate the data structure that is a map of who held the asset.

The transaction is proven to have existed because of your signature validating its existence at the previous point in time. This then creates a new form of trust that validates the transaction path of a coin from when it left the original blockchain and when it was brought back.

In conclusion, these proposal are ways to augment the protocols ability to tackle the problems of scalability, fluid interchangeability, security, decentralization, scripting, and unification all in different ways.

By going through the path that the coin took and verifying that all of the transactions were valid, it verifies that the asset is valid and it is brought back to the bitcoin blockchain. This is a system where there is a root parent blockchain. Right now we have a linear where another follows another that follows that forms a chain of blocks. Now this proposal is saying that miners can work on different parts of the block and everyone is contributing at random. So we have this huge tree structure.

So what does this all lead to? You can let miners work on different parts of the block simultaneously and effectively determine if it has a valid transaction history.

Whether its Ethereum creating their own new blockchain, Counterparty creating tokenized assets, sidechains creating a two way peg, treechains specializing the mining process; it comes down to making something that works but doesn’t completely compromise the existing Bitcoin network. It is now about making the most effective way to create a scalable internetwork of p2p, b2b, m2m decentralized asset ledgers. —S

At the first level down you would have two branches—left and right—and you could only mine one of them. The mining difficulty is 1/2 of that at the top level.

December.2014 Page.17

Let’s go one more level down. We are now at 4 branches—left-left, left-right, right-left, and right-right—each with a difficulty 1/4 of that at the top level. Now the levels we can go down are unlimited, and the difficulties get lower and lower. There is a distribution within the data structure as opposed to a distribution of nodes in pools. Not all branches need to be mined right away, just recorded.

So what is this effectively doing and why does it secure the mining? The miner is basically publishing the transaction and the validation can be retrieved in a merkel tree. A merkel tree is simply describing a path of coins as they changed

DOM STEIL is an entrepreneur from

the Silicon Valley. He is well-versed in a variety of technological fields and has experience as a business analyst at the international enterprise level. For more information, visit his blog at www.dominicsteil.wordpress.com. Dom also accepts Bitcoin tips to:

1FiYresjQP7GV9EUxr9fudWm3Xz7WC2VMC

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When is something confirmed? It is not absolute. The transaction publisher doesn’t move value from one block to another, the miner comes back to the transaction and the mining mechanism now can be specialized to recording without verifying and announcing. In theory, you could solo mine a branch that is 40 levels down with a 336MH/S USB Stick miner.

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coindesk.com

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This is a list of merchants, and their websites, that accept bitcoins for their services. If you know companies that are now accepting bitcoins and who youâ&#x20AC;&#x2122;d like to see added to this list, please contact us at directories@cryptobizmagazine.com. Additionally, let us know if you find that any of these companies has stopped accepting bitcoins, or if you have any difficulty using bitcoins with them.

CRYPTOCOIN SOCIAL

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@BitcoinAnalyst

@Jesus_Cryptos

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@Winkdexer

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@BitcoinzWoman

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@TedCoine

@CasinoBitcoin

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@CoinCards

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CryptoBiz Magazine Page.26 December.2014

BITCOIN CHARITY

BITCOIN EMPOWERS YOU TO CREATE IMPACT ANYWHERE by ILYA BROTZKY

UNITED WAY. RED CROSS. WIKIPEDIA. MOZILLA. These are just four of the thousands of non-profits who are accepting Bitcoin in order to increase their exposure and attract donations from all over the world. Sites like BitGive have become hubs for donors to use the cryptocurrency to express their desires to help others in a transparent and direct way. Traditionally, non-profits and charities have had to battle against consumer fears that a large amount of their donation would be spent on operational overhead, causing for a lower rate of engagement and donation. Bitcoin helps solve this problem. With Bitcoin, anyone can show their support in a fraction of a second and be confident that credit card companies are not taking a significant percentage of their donation. When expanded across a large amount of money, 3% becomes a very big number.

Imagine walking by a billboard that has a NFC chip in it and be able to tap your phone or watch to make a purchase or donation. Since charities and social businesses only have a few seconds of potential donors attention to make a connection in order to drive engagement and donations the ability to have them process the transaction on the spot and see their impact on the other side of the world, or in their own communities, is profound. Finally the power of bitcoin creates the possibility for billions of people who are not able to open a traditional bank account be able to receive financial support from strangers in other parts of the world. The next 2 billion internet users will be coming online before 2020 and all of them are potential bitcoin users, no matter their credit history or lack thereof. Creating these connections give every person on the planet the power to positively impact a fellow human without any restriction or governmental constraint.

FINALLY, the power of Bitcoin

creates possibilities for billions of people—people who aren’t

able to open traditional bank

accounts—to receive financial

support, from strangers in other parts of the world.

The bitcoin community has also made it easy for you to donate to charity by lending your computer power through mining for charity, a mining pool that divides their earnings into thirds, two of which go to youth charities and one that stays with the miner. There is an excess capacity of willingness to help others in the world and the biggest reason why people don’t is that it’s simply too difficult, too complicated.

THIS YEAR YOU CAN HELP VANCOUVER’S HOMELESS. Donate—even if it’s a small amount, it all adds up—at tickett.co, and help make the holidays a bit warmer this year.

ILYA BROTZKY is the founder of tickett.co, a platform for digitally donating directly to a member of Vancouver’s homeless community. Tickett empowers Vancouver’s most at risk community members to share their stories online and receive funding and support through a community of engaged citizens. Previously, Ilya spent 4 years living in Brazil where he was a 2 time startup co-founder, helping raise multiple seed rounds and source deals worth over $500,000.

CryptoBiz Magazine

Going forward, as tools like mobile and wearables grow the barriers to take actions on decisions will get easier and easier. As such, the amount of work it takes a user to make a donation to a charitable cause will decrease and Bitcoin is in a unique position to take advantage of this wave.

Now the challenge is creating the right tools and social movements to inform and empower those who are wanting to make a difference and don’t know how or where to start. —S

December.2014 Page.27

Another advantage of donating with Bitcoin is being able to send small amount of BTC, showing your support while not breaking the bank. Microdonations are increasingly popular and the ability to break your bitcoin down into potentially millions of parts allows for anyone to donate even the smallest amount.

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TALKING TO THE ARCHITECT OF THE PROVIDENCE PROJECT By CHRIS BATES

s blockchain technology moves beyond simple peer-to-peer currency transfer, to fully decentralized, autonomous organizations, the Providence project has emerged as one of the most promising initiatives within the digital property landscape. Genomicist, coder, eccentric, tycoon; Jared Mimms, the founder of Providence was inspired by his exceptional understanding of genome theory to start coding smart contracts.

As Mimms expanded the scope of the project, his scope expanded from smart contracts to an entire ecosystem. One of the goals is to empower individuals to be able to start businesses, then find capital without violating laws due to ignorance and inability to afford legal counsel. In addition to this, another goal is to provide intrinsic value to the market by having affiliations with small stock exchanges, allowing exchange of cryptocurrency for stocks in real companies. Another part of the project is to develop a currency exchange to add the element of multiple-denomination fiat and digital reserves to bolster the ecosystem. Mimms wanted to make sure that the larger vision could be realized, and this meant making sure that digital currencies and stocks can be transitioned into multiple fiat currencies. Some digital currency purists avoid incorporating fiat into their processes, but Providence plans to have global reach and wants to avoid shutting out markets.

Providence will allow people to create their own self sustaining enterprises limited by their own creativity and salesmanship. We have already built an alpha version of our technologies in a test suite called Peercover. Providence is a pathway from alternative exchange, to globalized small securities market, to reputation engine, to P2P insurance, to contract credit, to gestalten contract client. LeadDynamo is an internalized sales tool on my other thread Omega Genomics. It allows me to email blast every published M.D., Ph.D., and researcher simultaneously about a new product launch. Omega Genomics shares the Providence strategy in the build-out of tools prior to a gestalten result. Quite a mouthful I know but we have done this once already and have the chops to shoot straight through. Everything leading up the contract client (Paladin, Pecunia, Pilgrim, Peercover, Pier, LeadDynamo) we consider tools. The end result, the Providence platform, visually and technically portrays entire user controlled enterprises. Although we launched many of these concepts first in our trials, first doesn’t mean best. We use a series of concepts including entropic causation and entropic resolution as well as advanced political defensive realism to make competition work in our favor. HOW WILL THESE TOOLS HELP USERS TAKE CONTROL OF THEIR FINANCES:

I began coding young. Knowing the discipline would increase in ease, I didn’t get too deep. I received extensive exposure to P2P technologies in extracurricular computing courses. Later, I sought mentorship. Mentored by traders in La Jolla California, I started trading Forex and options in high school as my senior project. I also did basic bioinformatics.

This means anyone can raise funds, anyone can invest capital, and the system enables regulatory streamlined open investment. Raising capital and investment is only one small part of the story. I don’t want to spoil it for everyone but I will say Providence places enterprising contracts in line with life and produces equity in life for everyone using the platform.

I went to liberal arts school at Davidson College & swapped over to University of California, San Diego and took my technical stack with ease, inventing genome interpretation script approval guidelines and submission protocol for regulatory bodies. I am here to ensure decentralized genome interpretation. I’m also here to make sure anyone can economically enterprise.

Read more, directly from the Providence initiative. —S

To get a better understanding of the project, I was able to talk directly to Mimms about his plans for Providence.

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TELL US ABOUT YOURSELF AND YOUR EDUCATIONAL/WORK BACKGROUND:

Users, or partners as we like to say, control all their funds client side across platforms, have access to a publicly auditable and cryptographically verifiable API, have access to both physical and virtual assets. We call users partners because we are enabling “partners in life.” Partners in life is a new paradigm meaning anything you do, any value you create in our economy will produce continuous equity you can later sell or reap dividends on. We have cut time of direct public offering dramatically. We are publicly launching clients over the course of a year on an open decentralized API.

December.2014 Page.31

Within this all comes a complex reputation system to provide decentralized and objective credit ratings. This sets the stage for a direct loan system, and additionally the possibility for peer to peer insurance coverage. Using the credit and insurance systems to bolster start-ups and empower individuals alike, Mimms hopes the Providence ecosystem can provide a decentralized solution to making access to capital fair for everyone.

WHAT TOOLS WILL PROVIDENCE GIVE USERS:

WORLDâ&#x20AC;&#x2122;S FIRST BLOCKCHAIN ID by CHRIS ANDERSON

OCTOBER 24, 2014, the Bower Room on the seventh floor of the Ace Hotel, in Shoreditch, London, I witnessed history being made, as Janina Lowisz became the first person to have her identity stored on the blockchain, then forked by Susanne Tarkowski Tempelhof, of Bitnation Governance 2.0, along with Chris Ellis of the World Crypto Network.

Chris and Susanne came up with the idea a few weeks ago on the World Crypto Network. Chris thought how could a private passport be created using nothing but readily available cryptographic tools without the need for expensive campaigns and just hack it with what is already available.

CryptoBiz Magazine Page.32 December.2014

On the ground breaking day Janina expressed her excitement and hope that many others will follow her lead. There were five witnesses (including myself) of the proceedings as well as Janina, Susanne and Chris. Susanne made everyone feel welcome by providing an array of snacks and bubbly to celebrate the occasion. The following apparatus is needed for creating the blockchain ID:

1. Two laptops, one for Chris Ellis the organiz-

er in this case and the other the new world citizen, Janina the new world citizen

2. Webcam 3. PGP Software 4. Printer 5. Laminator 6. A cool-looking world citizen passport design

Chris started the procedure by noting the last block height (which was 326810) and Merkle

root to prove that the event took place at that very moment and no time prior. The ID was also date and time stamped 2014 10 24 at 1828 UTC. Then Chris downloaded it, and created a cryptographic hash. This cryptographic hash was uploaded to the blockchain via cryptograffiti.info, though there are other websites available for this. A three dimensional barcode called a QR code was put on the ID linking Janina to her Keybase.io account where she created her PGP (Pretty Good Privacy, encryption/decryption program) key. This worldâ&#x20AC;&#x2122;s first blockchain ID document was saved and given a PGP signature so if someone tried to tamper with it evidence of this would be shown on a data base. If someone tried to alter the image it would no longer match the cryptographic hash. Chris used his own PGP signature, which is linked directly to his online reputation. Once that was done and the Merkle root was put in a hash of the image document as well as a hash of the PGP signature were taken and uploaded to the blockchain via the CryptoGraffiti website. So in total three hashes were uploaded: a hash of Janina full size, a hash of the ID document and a hash of the PGP signature. Then finally the IP address of the Ace Hotel was put in as Chris wanted to obscure the identity of Janina so she is not tracked everywhere she goes. By uploading to the blockchain the IP address of this commercial venue that is promoted on numerous websites and other media the exact location of unprecedented event was pinpointed. The IP address will be on the blockchain because anyone downloading the qt bitcoin wallet will have

This project is on github, is totally open source, and open for peer review as well as step-by-step instructions. Chris stated he did not take part in the blockchain ID card for profit.

Susanne fell in love the idea instantly when she discussed it with Chris and she hopes that people globally will follow in Janina Lowisz footsteps and declare their independence on the open source decentralized ledger that is Bitcoin. —S

CryptoBiz Magazine

He shows great humility and says ‘He just wants to see the world a better place.’

Susanne Tarkowski Tempelhof spoke about how the process of creating blockchain ID has been designed by Chris Ellis to be as affordable as possible. Therefore people in developing nations can utilize this process, not just those in high tech areas of the world.

December.2014 Page.33

a small file in their application folder called ‘the debug log file.’ The debug log file detects transactions by collecting the IP address of the first node that seeds it.

CryptoBiz Magazine Page.34 December.2014

WILL THE REAL CRYPTO-CURRENCY USER PLEASE STAND UP? by GARY BODDINGTON

When was the last time you were in a conversation, in a pub, at a hockey game, at a dinner, or standing around a BBQ, and someone said something like, “Wow, I used crypto currency today, it was awesome.” Not lately,…..nor me! Being connected to the startup community in Vancouver, and being around seriously smart tech people in this space, I have been party to countless conversations about the technical genius of the protocol, and the infinite possibilities that loom so tantalizingly on the horizon, most of which fly right over the top of my non-technical mind—but when the crowd evens out to tech and non tech, cryp-

to becomes like the relative in jail that no one wants to talk about. Like the tech people are suspicious of the non tech people, because if you start to mix a user case in to the discussion it begets some questions around adoption which can’t be answered, like, how many success stories do you know, or how many users need this and will pay for it? And anyway what is Crypto Currency. A type of currency, a commodity, a wallet, a smart contract, all of these, some of these…what is it intended to be? With no internationally agreed principles, rules and recommendations that govern the formation of a single nomenclature for

the industry—who knows what we are referring too? There is a lot of information to read and listen to, stemming from very broad community of journalists that have covered this space since day 1 and have “grown up” with the concepts of the industry, to the seemingly endless proliferation of new “crypto” events worldwide. The subjects all fall into similar categories like the glacial pace of progress in global regulatory framework, or industry news and snippets of the latest tech spin on the original blockchain, or revealing the latest large VC and marquee name investors stepping up and placing big bets on eager and ambitious new crypto plays, and stories regaling or commiserating the early stage crypto startups pivoting radically or earning the contemporary startup badge of honor by failing fast. There is wild speculation on whether Bitcoin has value beyond its current price point, banter on the likeness of Bitcoin to gold as a commodity, and layers of subjective conjecture and argument on whether Article 1, Section 8, Clause 5 of the Constitution of the United States of America renders cryptocurrency entirely illegal, or not. “Wow, I used crypto currency today, it was awesome”!

Efforts like these to organize and facilitate the global community should be applauded and are a critical step on the path to standardization (yes, for the more liberal leaning in the community, I did say standardization), without which it will be difficult to foster a vibrant and well-funded industry. This type of commendable initiative at least begins to address the fundamental building blocks of the industry and lends itself to a more structured crypto society and offers greater chances of adoption by the general public at large. However, to get to main street we need a story, a fun, exciting, interesting crypto success story, that can spread like a wild fire, a success story that engages the global consumer in a way that makes it compelling to adopt a crypto currency, reflects the benefits without calling out the technical genius that created it, and attracts the user to a system that seems so ubiquitous to seem like it should always have been there in the first place. So can the real Crypto Currency User please stand up, I think we all ready to hear, “Wow, I used crypto currency today, it was awesome.” —S

As the industry begins to mature and organize, there are new types of organizations emerging like The Digital Finance Institute which aims to be “a collaborative enterprise, bringing together stakeholders from interest

GARY BODDINGTON Silver Lining Ventures Inc, Vancouver, BC, Canada. E-mail: gary.boddington@outlook.com. LinkedIn • Twitter

CryptoBiz Magazine

What I absolutely am suggesting is that we need to make a champions in a user case. Any user case? Maybe not…but certainly a user case that can resonate with the regular person on the street, that doesn’t know the history, will not take time to read the wiki on Satoshi, could not care less about the blockchain and really just gets on with life, whether crypto currency is a part of it or not, doesn’t matter.

December.2014 Page.35

I am not suggesting there are no success stories and I am not advocating a need to address the rampant fracturing of discussions regarding the implied possibilities of crypto currency, the innovation and pace of change is concurrently inspiring and astounding. I enjoy a recent analogy by a crypto industry “veteran” likening the industry to a mansion house with a myriad of rooms of unopened doors and behind the, yet to be opened doors, lays more and more treasures and promises of riches.

groups, academia and the public and private sectors to be the bedrock for global emerging efforts in crypto currency.” In a recent press release by Christine Duhaime, the co-founder of the Digital Finance Institute (DFI) and a prominent regulatory and counter terrorist financing lawyer in Canada, she said “With the evolution of the Internet of Things and Bitcoin for example, Fintech is developing at an incredible pace globally and it is important that we start balancing innovation and regulation to ensure that economic development in this area can thrive without overly burdensome regulation and without causing more of a financial inclusion problem around the world.”

WHY EVERYONE SHOULD RUN A 50-WATT BITCOIN MINER by SOUMITRA MANDHATA

The pie chart below, showing hash rate distribution between various pools, should cause some relief for anyone interested in such things. The biggest pool is at 25% of network hash rate, which means there is very little chance of an attack on the network. This is arguably a much better scenario than 6 months ago, when Ghash.io reached almost 51% of network hash rate. Now that we are in a better position, we should reflect back at why we were in a position where network was very vulnerable. In my opinion, it all goes back to miner’s incentive, which is profit or earning more bitcoins. Mining on big pools improves your chances of finding a block and thus earning more bitcoins. This attracts short-term profit seekers to big pools to the point where honest bitcoiners have pull their mining power from such pool & take a hit on their payouts to protect the network. Some pools also stop registrations to protect the network but others don’t as they are running a business & not concerned with the network until it starts to hurt their profits/image.

CryptoBiz Magazine Page.36 December.2014

I think that if we keep running our network on five to ten big pools then we will keep repeating this cycle ev-

ery time there is a price rise (which is inevitable) and new people entering the mining scene for quick profit. So I propose a very simple solution to this problem, which not only decentralizes the network but also the cost of running it. I propose that every person who is willing to spend some money for a noble cause run a 50 – 100 watt miner in their home. Now that seems absurd when you see it as you running a miner that will never get ROI. So I have worked up some numbers to convince you.

The highest power rates for US are 0.38 cents/ KWh (Hawaii) & lowest are almost 0.09 cents/KWh (Washington). Similarly, Highest & lowest rates for EU are 0.30 cents/KWh (Denmark) & 0.08 cents/ KWh (Bulgaria). Below is a table showing what these rates will cost you for running a 50 watt/60GH bitcoin miner. Now, that seems pretty low to me for keeping the bitcoin network decentralized. It is a small cost for keeping the keys of your money in your own hands, being your own bank. If you are still not convinced then have a look at the image below (created by @ Phneep). The point is that decentralization depends on lots of people doing small things. I hope you are convinced now that Blockchain is just a guide (like Morpheus), it shows us the path how we can run a decentralized network, but it is you (Neo) who has to walk that path by taking responsibility of keeping it decentralized. —S

PLACE OF RESIDENCE

LOWEST MONTHLY COST

HIGHEST MONTHLY COST

United States

3.24 Dollars

13.68 Dollars

European Union

2.88 Euros

10.8 Euros

SOUMITRA MANDHATA, @sambiohazard, is a Bitcoin Enthusiast interested in mining, decentralization & social and moral aspects of Bitcoin, and believes decentralization is the soul of Bitcoin, community the guide.

2008—BITCOIN

HISTORY OF THE BLOCKCHAIN

2015—YOUR NAME HERE

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WANT MORE WOMEN @ YOUR BITCOIN MEETUP?

STOP ACTING LIKE @$$HOLES by PATRICIA TREE

Now that I have your attention, not everyone in Bitcoin is an asshole. And not every asshole is in Bitcoin. To be honest, there are lots of other dudes in Bitcoin that aren’t assholes yet it’s rare for any females to be involved on any level let alone a deep technical level that verges on understanding what the Blockchain really is. The feedback I get from a lot of female friends who have attended a Bitcoin meetup or conference is that there are not enough women involved. And if Bitcoin is supposed to gain mainstream adoption—we have to involve the other half of the population (some would argue this is the better half). To this I say—if you like money, you will like Bitcoin; if you like privacy, you will like Bitcoin; and if you like freedom, you will like Bitcoin. It sounds dumb but it’s true—women and men are interested in the same things. Using these three simple concepts, it is a way to start a conversation with the opposite sex. And because they are mutually interesting, topics like these will draw more attendance from local females to your Bitcoin meetup. And if used correctly, these concepts can also be used for personal gain.

To get around this, have a simple explanation available for those who ask. And if they don’t ask, still point them towards a couple resources that can give a quick Bitcoin 101 Introductory lesson. Personally, I like to pull up a short video on my phone right then and there, my current preference is the video by TwoBitIdiot.

If you’re looking for a reason to actually follow-through on what’s being said here, listen to this: Bitcoin might be a speck on mankind’s history of technology unless you do something about it. Mainstream adoption requires mainstream acceptance—women, children, grandmas, and even the homeless guy outside, deserve to know about Bitcoin and understand it. Otherwise it will be remembered as an invention created a small group of cyberpunks who made this thing called Bitcoin which lived and died within a small group, albeit maybe larger in number when it died. So close that laptop, log off your Steam game, and put down your Android. Be available to welcome discussion about Bitcoin and be receptive to new people attending your local Crypto meetup for the first, or first several times. The goal is to get new people, especially females to understand and be interested enough to come back— even better, to participate. If you’re planning a local Bitcoin meetup, host an event and draw interest from people who may not be the most tech aware but represent a growing and curious audience. The best thing that could happen is more attendees, and even more females. The worst thing that could happen is well, no attendees or the continued ongoing division of those who understand Bitcoin, and the rest of the world who doesn’t. As long as we don’t allow ignorance about Bitcoin to occur, we can avoid the kinds of statements like what got your attention in the first place—Men in Bitcoin are assholes and women don’t understand Bitcoin at all. —S

CryptoBiz Magazine

Basically just remember to chill out on the <geektalk> and be inclusive. People like to be invited to participate, it’s human psychology where being invited results in a higher likelihood of participation amongst males and females. After all, it’s in everyones best interests to be more inclusive to those outside and new to Bitcoin because their ongoing participation in this new and budding industry, can lead

I know most of you Bitcoin-heads spend a lot of time talking, coding, planning for a future where Bitcoin will be used to control governments, write contracts, or cure disease. The problem is that without more people in Bitcoin who come from diverse backgrounds, and yes—different genders, then all of this talk will simply remain as just that, Talk.

December.2014 Page.39

The challenge many of you face to successfully execute this plan, is the language of Bitcoin. Yes, it’s the mention of Giga hashes, Merkle trees, Asic miner, or Dorian Nakamoto that can leave many outsiders confused—including many females.

to more transaction volume in Bitcoin itself. And guess what, more Bitcoins being used everyday signifies a strong and growing economy worthy of investment.

CryptoBiz Magazine Page.40 December.2014

BITCOIN RUSH MUSICAL SHARES + STERLING COIN by BITCOIN RUSH

I would like to point your attention towards BitsharesMusicFoundation.org, which has just launched the Crypto Currencies’ first dedicated Bitshares Music Blockchain. Here is a cutting edge P2P technology, taking your artistic career to another level. Their blockchain is used to power various music and media websites, operating similar to iTunes. PeerTracks.com has jumped on board already! With them you can create your own coin and sell it to your fans—a tempting investment into your own artistic career, generating capital into your pockets, incentivizing your fans to promote your music all over the world: all your fans can now financially benefit by sharing your music on all social media net-

works, blogs, forums etc. The crypto evolution is opening up a wide range of new possibilities and all it takes is stepping into a budding economy, which creates new jobs and gives financial power back to the people. What a great example to realize how much more is possible through programmable trust, eradicating third party intermediaries and taking advantage of instant transmission of funds. For the crypto-currency enthusiasts, focused on music and music production, this revolutionary concept is definitely very exciting. Crypto-currencies will boost up music commerce by having the advantage of small payments for downloadable content. Jump on board! Participation is key!

I would also like to mention Sterling Coin. They are based in the UK and they just launched their digital currency this past September: a digital currency used to pay for goods and services. They made it clear from the beginning, that Sterling Coin is a decentralized financial system that is not controlled by a corporation, bank, or government.

ed out strong and it will be very exciting to see how Sterling Coin will manage their increasing merchant and consumer adaption, becoming a key player among many other promising developments. Their successful start was impressive. Will Sterling Coin become another bright star in the Crypto Evolution? Check them out at sterlingcoin.org.uk

Their coming was rapid, supporting Mac, Linux and Windows in one stroke, plus a paper wallet and tipping wallet. Sterling Coin has its own official mining pool, supported exclusively by Sterling Coin itself. Their strong development team has received the highest possible Proof of Developer ratings, giving Sterling Coin merchants and consumers confidence. They start-

Ladies and gentlemen, please stay tuned for weekly updates. Friday’s at 5pm PST. Bitcoin Rush playlist, and once a month, please look out for another Bitcoin Rush article here at the amazing CryptoBiz Magazine. Eyes open, no fear. —S

December.2014 Page.41 about cryptographic technological developments to the community. He produces weekly crypto news shows introducing all types of crypto related businesses and innovations. His broadcasts include The Open Minute, a great platform for the community to participate live in the show. Please support Bitcoin Rush on Twitter @Bitcoin_Rush

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BITCOIN RUSH started out in March of 2014 forming Crypto News Media for the purpose of bringing knowledge

THE CRYPTO-CURRENCY SCENE IN RURAL IRELAND by NIALL MAYE

CryptoBiz Magazine Page.42 December.2014

This article is very relevant to the global crypto scene as it shows an example of what I’m pretty sure is happening in the background in nearly every nook and corner of the world. I’ve been involved myself in Bitcoin from I first noticed them at three pounds, I’ll always remember that day I came across them and my subsequent first ever investment. I almost instantly saw the bigger picture of what this could do to the global financial system, the insight I had that day I have slowly watched evolve into a reality. I immediately wanted to be a part of this at the beginning as I believed as I still believe now that whoever lays the foundations in their region had a chance to change the part of the world they live in. Every day in Ireland I had been listening to stories of hard working people and their families being fired out of their homes, with everything they had worked for stolen from under their feet. The majority of these people felt powerless as they were programmed by the system to abide by the laws and accept what was happening. These same people were under that severe a pressure to provide food, pay bills, and heat their families while trying to keep the roof over their heads, that they were oblivious to all the law changes that were happening daily that was enslaving them, more and more. The banks and government were at this time seen as the pillars of society and what they decided was best for the country, the people just conceded without looking into the finer detail of what was really happening, which was a deeper enslavement of debt and obedience to the hierarchy. The sad thing is that most people I encounter still have their hope of a lifeline out of the forced austerity here coming from the banks. The Irish people who are renowned around the world for the fight in them seem to have lost hope in any other way out, and once you lose hope you lose your fight. It stands out to me that Ireland was the first country to be picked off by the

IMF and ECB, and I don’t believe the strategy was anything other than orchestrated. This brings me to the crypto-currency scene here. When I just realized the potential that Bitcoin brought to the common man in becoming his own bank, I began to what can only be compared to as a form of evangelism. Everyone I got talking to I wanted to explain this once in a century opportunity, but no one seemed interested or could understand it, they had this misconception that bank money was backed by gold and that something that had been created out of the unknown is just a scam or a Ponzi scheme. It didn’t deter me I just kept reading and educating myself about Bitcoin, the Blockchain and the sidechains. I joined up to LocalBitcoins hoping to make connections, but the few I did encounter there were greedy people with no interest in the future of Bitcoin only how much money they could make out of it before the fad disappeared. I did meet one man on there that was different to the few I encountered; he had a passion like me that wasn’t motivated by greed or profit. We got talking about projects and within a few weeks we had the first community based forums for the Irish and UK crypto community live. Since no one who lived around me was on the same wavelength I began networking with like-minded people online. This lead me to where I am now, a board member of two foundations working globally with some of the most creative intelligent people I have ever met, creating a Bitcoin related ecosystem North and South of Ireland with plans to educate, promote and protect the name and protocol of Bitcoin here all at the same time. My most fascinating encounter happened just a few weeks ago. I run a Facebook page promoting Bitcoin and the forums and through it I got in contact with two guys who seemed to be on the same wavelength as well. They have been working on Bitcoin related projects for three years now and wanted me to

This is just one example of what is happening in the background of one small area of Ireland by two guys and one of their wives. I have had many other experiences just none quite as outstanding, but the way I see it, this journey is really just beginning. I have some meetings this week with some fascinating people coming from highly credible backgrounds to talk about the future of Bitcoin here in the North and South of Ireland. Similar encounters to this are happening in all nooks and corners of the world and this is all going to unite and ignite into a new global financial system in a new world order that consists without borders, real soon. The future is bright, the future is crypto! â&#x20AC;&#x201D;S

CryptoBiz Magazine

In my greatest of expectations nothing could have prepared me for what the next three or four hours had in store. What is going on here? While I had been thinking it was happening in a big way all around the world, little did I know that within my own country in a border town with a population of 37,816 in 2011 there was people who had been working away for years on Bitcoin related projects, coming from backgrounds such as J P Morgan, HMRC and Barclays Bank. These guys had not only been educating the public as best they could but they had also incorporated crypto-currency lessons and teaching the kids coding in the private school which consists of just twenty five pupils. One of the kids who was only seventeen had even created his own crypto-coin under the teachers direction, for this all to

have been going own under my nose while I felt it was all happening everywhere else was astounding and intrigued me beyond comprehension. For over three and a half hours the conversation continued and what I was hearing was fascinating, they had created dozens of platforms all with passion. Though not for themselves, the passion they had was to create a fairer and equal world not just in economic terms but in global sociological terms from education to equal distribution of wealth and reaching the unbanked.

December.2014 Page.43

meet up with them to show me what they were at. I jumped at the chance and organized the day and time and that was me on the two and a half hour drive into the unknown. We met up at a private school in a town called Dundalk in the South of Ireland; I was greeted at the door and brought up some stairs. The first door that was opened contained a room full of miners humming away flat out. The next door was a computer room and the next room was where we sat to chat. Davidâ&#x20AC;&#x2122;s wife made us all some coffee and treated me to her delicious homemade cheese scones.

GITHUB BITCOIN GLOSSARY Some unusual terms are used in Bitcoin documentation and discussions about tx or coinbase, or words like scriptPubKey fly around, without reference or context. Help is here! This glossary will help you understand the exact meaning of all Bitcoin-related terminology—both words and phrases.

0-CONFIRMATION (ZERO-CONFIRMATION)

See Unconfirmed Transaction and Confirmation Number.

51% ATTACK

CryptoBiz Magazine Page.44 December.2014

Also known as >50% attack or a double spend attack. An attacker can make a payment, wait till the merchant accepts some number of confirmations and provides the service, then starts mining a parallel chain of blocks starting with a block before the transaction. This parallel blockchain then includes another transaction that spends the same outputs on some other address. When the parallel chain becomes more difficult, it is considered a main chain by all nodes and the original transaction becomes invalid. Having more than a half of total hashrate guarantees possibility to overtake chain of any length, hence the name of an attack (strictly speaking, it is “more than 50%,” not 51%). Also, even 40% of hashrate allows making a double spend, but the chances are less than 100% and diminish exponentially with the number of confirmations that the merchant requires.

This attack is considered theoretical as owning more than 50% of hashrate might be much more expensive than any gain from a double spend. Another variant of an attack is to disrupt the network by mining empty blocks, censoring all transactions. An attack can be mitigated by blacklisting blocks that most “honest” miners consider abnormal. Under normal conditions, miners and mining pools do not censor blocks and transactions as it may diminish trust in Bitcoin and thus their own investments. 51% attack is also mitigated by using checkpoints that prevent reorganization past the certain block.

ADDRESS

Bitcoin address is a Base58Check representation of a Hash160 of a public key with a version byte 0x00 which maps to a prefix “1.” Typically represented as text (ex. 1CBtcGivXmHQ8ZqdPgeMfcpQNJrqTrSAcG) or as a QR code. A more recent variant of an address is a P2SH address: a hash of a spending script with a version byte 0x05 which maps to a prefix “3” (ex. 3NukJ6fYZJ5Kk8bPjycAnruZkE5Q7UW7i8). Another variant of an address is not a hash, but a raw private key representation (e.g.5KQntKuhYWSRXNqp2yhdXzjekYAR7US3MT1715Mbv5CyUKV6hVe). It is rarely used, only for importing/exporting private keys or printing them on paper wallets.

ALTCOIN

A clone of the protocol with some modifications. Altcoins usually have rules incompatible with Bitcoin and have their own genesis blocks. Most notable altcoins are Litecoin (uses faster block confirmation time and scrypt as a proof-of-work) and Namecoin (has a special key-value storage). In theory, an

altcoin can be started from an existing Bitcoin blockchain if someone wants to support a different set of rules (although, there was no such example to date). See also Fork.

ASIC

Stands for “application-specific integrated circuit.” In other words, a chip designed to perform a narrow set of tasks (compared to CPU or GPU that perform a wide range of functions). ASIC typically refers to specialized mining chips or the whole machines built on these chips. Some ASIC manufacturers: Avalon, ASICMiner, Butterfly Labs (BFL) and Cointerra.

ASICMINER

A Chinese manufacturer that makes custom mining hardware, sells shares for bitcoins, pays dividends from on-site mining and also ships actual hardware to customers.

BASE58

A compact human-readable encoding for binary data invented by Satoshi Nakamoto to make more user-friendly addresses. It consists of alphanumeric characters, but does not allow “0,” “O,” “I,” “l” characters that look the same in some fonts and could be used to create visually identical looking addresses. Lowercase “o” and “1” are allowed.

BASE58CHECK

A variant of Base58 encoding that appends first 4 bytes of Hash256 of the encoded data to that data before converting to Base58. It is used in addresses to detect typing errors.

BIP

Bitcoin Improvement Proposals. RFC-like documents modeled after PEPs (Python Enhancement Proposals) discussing different aspects of the protocol and software. Most interesting BIPs describe hard fork changes in the core protocol that require a super-majority of Bitcoin users (or, in some cases, only miners) to agree on the change and accept it in an organized manner.

BITCOIN

Refers to a protocol, network or a unit of currency. As a protocol, Bitcoin is a set of rules that every client must follow to accept transactions and have its own transactions accepted by other clients. Also includes a message protocol that allows nodes to connect to each other and exchange transactions and blocks. As a network, Bitcoin is all the computers that follow the same rules and exchange transactions and blocks between each other. As a unit, one Bitcoin (BTC, XBT) is defined as 100 million satoshis, the smallest units available in the current transaction format. Bitcoin is not capitalized when speaking about the amount: “I received 0.4 bitcoins.”

GITHUB BITCOIN GLOSSARY BITCOIN CORE

New name of BitcoinQT since release of version 0.9 on March 19, 2014. Not to confuse with CoreBitcoin, an Objective-C implementation published in August 2013. See also Bitcore, a JavaScript implementation for Node.js by Bitpay.

BITCOINJ

A Java implementation of a full Bitcoin node by Mike Hearn. Also includes SPV implementation among other features.

BITCOINJS

A JavaScript toolkit. Allows signing transactions and performing several elliptic curve operations. Used on brainwallet.org.

BITCOINQT

Bitcoin implementation based on original code by Satoshi Nakamoto. Includes a graphical interface for Windows, OS X and Linux (using QT) and a command-line executable bitcoind that is typically used on servers. It is considered a reference implementation as it’s the most used full node implementation, especially among miners. Other implementations must be bug-for-bug compatible with it to avoid being forked. BitcoinQT uses OpenSSL for its ECDSA operations which has its own quirks that became a part of the standard (e.g. non-canonically encoded public keys are accepted by OpenSSL without an error, so other implementations must do the same).

BITCOIND

Original implementation of Bitcoin with a command line interface. Currently a part of BitcoinQT project. “D” stands for “daemon” per UNIX tradition to name processes running in background. See also BitcoinQT.

A Bitcoin utilities library in Ruby by Julian Langschaedel. Used in production on Coinbase.com.

BLOCKCHAIN

A public ledger of all confirmed transactions in a form of a tree of all valid blocks (including orphans). Most of the time, “blockchain” means the main chain, a single most difficult chain of blocks. Blockchain is updated by mining blocks with new transactions. Unconfirmed transactions are not part of the blockchain. If some clients disagree on which chain is main or which blocks are valid, a fork happens.

BLOCKCHAIN.INFO

A web service running a Bitcoin node and displaying statistics and raw data of all the transactions and blocks. It also provides a web wallet functionality with lightweight clients for Android, iOS and OS X.

BRAIN WALLET

Brain wallet is the concept of storing private keys as a memorable phrase without any digital or paper trace. Either a single key is used for a single address, or a deterministic wallet derived from a single key. If done properly, a brain wallet greatly reduces the risk of theft because it is completely deniable: no one could say which or how much bitcoins you own as there are no actual wallet files to be found anywhere. However, it is the most error-prone method as one can simply forget the secret phrase, or make it so simple that someone is able to brute force and steal all the funds. Additional risks are added by a complex wallet software. E.g. BitcoinQT always sends change amount to a new address. If a private key is imported temporarily to spend 1% of the funds and then the wallet is deleted, the remaining 99% is lost forever as they are moved as a change to a completely new address. This has already happened to a number of people.

BRAINWALLET.ORG

U t i l i t y b a s e d o n b i tco i n j s to c ra f t t ra n s a c t i o n s by hand, convert private keys to addresses and work with a brain wallet.

BITCORE

BTC

A Bitcoin toolkit by BitPay written in JavaScript. More complete than Bitcoinjs.

The most popular informal currency code for 1 Bitcoin (defined as 100,000,000 Satoshis). See also XBT.

BLOCK

CASASCIUS COINS

A data structure that consists of a block header and a merkle tree of transactions. Each block (except for genesis block) references one previous block thus forming a tree called the blockchain. Block can be thought of as a group of transactions with a timestamp and a proof-of-work attached.

BLOCK HEADER

BLOCK HEIGHT

A sequence number of a block in the blockchain. Height 0 refers to the genesis block. Several blocks may share the same height (see Orphan), but only one of them belongs to the main chain. Block height is used in Lock time.

CHANGE

Informal name for a portion of a transaction output that is returned to a sender as a “change” after spending that output. Since transaction outputs cannot be partially spent, one can spend 1 BTC out of 3 BTC output only by creating two new outputs: a “payment” output with 1 BTC sent to a payee address, and a “change” output with remaining 2 BTC (minus transaction fees) sent to the payer’s addresses. BitcoinQT always uses a new address from a key pool for better privacy. Blockchain.info sends to a default address in the wallet.

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A data structure containing a previous block hash, a hash of a merkle tree of transactions, a timestamp, a difficulty and a nonce.

Physical collectible coins produced by Mike Caldwell. Each coin contains a private key under a tamper-evident hologram. The name “Casascius” is formed from a phrase “call a spade a spade,” as a response to the name of Bitcoin itself.

December.2014 Page.45

BITCOIN-RUBY

CONTINUED

GITHUB BITCOIN GLOSSARY A common mistake when working with a paper wallet or a brain wallet is to make a change transaction to a different address and then accidentally delete it. E.g. when importing a private key in a temporary BitcoinQT wallet, making a transaction and then deleting the temporary wallet.

CHECKPOINT

A hash of a block before which the BitcoinQT client downloads blocks without verifying digital signatures for performance reasons. A checkpoint usually refers to a very deep block (at least several days old) when it’s clear to everyone that the block is accepted by the overwhelming majority of users and reorganization will not happen past that point. It also helps to protect most of the history from a 51% attack. Since checkpoints affect how the main chain is determined, they are part of the protocol and must be recognized by alternative clients (although, the risk of reorganization past the checkpoint would be incredibly low).

CLIENT See Node.

COIN

An informal term that means either 1 bitcoin, or an unspent transaction output that can be spent.

CryptoBiz Magazine Page.46 December.2014

COINBASE

An input script of a transaction that generates new bitcoins, or the name of that transaction itself (“coinbase transaction”). Coinbase transaction doesn’t spend any existing transactions, but contains exactly one input which may contain any data in its script. Genesis block transactions contain a reference to The Times article from January 3rd, 2009 to prove that more blocks were not created before that date. Some mining pools put their names in the coinbase transactions (so everyone can estimate how much hashrate each pool produces). Coinbase is also used to vote on a protocol change (e.g. P2SH). Miners vote by putting some agreed-upon marker in the coinbase to see how many support the change. If a majority of miners support it and expect non-mining users to accept it, then they simply start enforcing the new rule. The minority should either continue with a forked blockchain (thus producing an altcoin) or accept the new rule.

COINBASE.COM

US-based Bitcoin/USD exchange and web wallet service.

COLORED COIN

A concept of adding a special meaning to certain transaction outputs. This could be used to create a tradable commodity on top of Bitcoin protocol. For instance, a company may create 1 million shares and declare a single transaction output containing 10 BTC (1B satoshis) as a source of these shares. Then some or all of these bitcoins can be moved to other addresses, sold, or exchanged. During a voting process or a dividend distribution, share owners can prove ownership by simply signing a particular message by the private keys associated with addresses holding bitcoins derived from the initial source.

CONTINUED

COLD STORAGE

A collective term for various security measures to reduce the risk of remote access to the private keys. It could be a normal computer disconnected from the Internet, or a dedicated hardware wallet, or a USB stick with a wallet file, or a paper wallet.

COMPACTSIZE

Original name of a variable-length integer format used in transaction and block serialization. Also known as “Satoshi’s encoding.” It uses 1, 3, 5 or 9 bytes to represent any 64bit unsigned integer. Values lower than 253 are represented with 1 byte. Bytes 253, 254 and 255 indicate 16-, 32- or 64-bit integers that follow. Smaller numbers can be presented differently. In bitcoin-ruby it is called “var_int,” in Bitcoinj it is VarInt. BitcoinQT also has even more compact representation called VarInt, which are not compatible with CompactSize and used in block storage.

CONFIRMED TRANSACTION

Transaction that has been included in the blockchain. Probability of transaction being rejected is measured in a number of confirmations. See Confirmation Number.

CONFIRMATION NUMBER

Confirmation number is a measure of probability that transaction could be rejected from the main chain. “Zero confirmations” means that transaction is unconfirmed (not in any block yet). One confirmation means that the transaction is included in the latest block in the main chain. Two confirmations means the transaction is included in the block right before the latest one. And so on. Probability of transaction being reversed (“double spent”) diminishes exponentially with more blocks added “on top” of it.

DIFFICULTY

Difficulty is a measure of how difficult it is to find a new block compared to the easiest it can ever be. By definition, it is a maximum target divided by the current target. Difficulty is used in two Bitcoin rules: 1) every block must meet difficulty target to ensure 10 minute interval between blocks and 2) transactions are considered confirmed only when belonging to a main chain, which is the one with the biggest cumulative difficulty of all blocks. As of September 5, 2013, the difficulty is 86,933,018 and grows by 20 – 30% every two weeks. See also Target.

DENIAL OF SERVICE

A form of attack on the network. Bitcoin nodes punish certain behavior of other nodes by banning their IP addresses for 24 hours to avoid DoS. Also, some theoretical attacks like 51% attack may be used for network-wide DoS.

DEPTH

Depth refers to a place in the blockchain. A transaction with 6 confirmations can also be called “6 blocks deep.”

DETERMINISTIC WALLET

A collective term for different ways to generate a sequence of private keys and/or public keys. Deterministic wallet does not need a Key Pool. The simplest form of a deterministic wallet is

GITHUB BITCOIN GLOSSARY based on hashing a secret string concatenated with a key number. For each number the resulting hash is used as a private key (public key is derived from it). More complex schemes uses elliptic curve arithmetic to derive sequences of public and private keys separately, which allows the generation of new addresses for every payment request without storing private keys on a web server. More information on Bitcoin Wiki. See also Wallet.

DOS

See Denial of Service.

DOUBLE SPEND

A fraudulent attempt to spend the same transaction output twice. There are two major ways to perform a double spend: reverting an unconfirmed transaction by making another one which has a higher chance of being included in a block (only works with merchants accepting zero-confirmation transactions) or by mining a parallel blockchain with a second transaction, to overtake the chain where the first transaction was included. The Bitcoin proof-of-work scheme makes it incredibly difficult to double spend transactions included in the blockchain. The deeper transaction is recorded in the blockchain, the more expensive it is to “reverse” it. See also 51% attack.

DUST

A transaction output that is smaller than the typical fee required to spend it. This is not a strict part of the protocol, as any amount more than zero is valid. BitcoinQT refuses to mine or relay “dust” transactions to avoid uselessly increasing the size of unspent transaction outputs (UTXO) index. See also UTXO.

CONTINUED

FEE

See Transaction Fee.

FORK

Refers either to a fork of a source code (see Altcoin) or, more often, to a split of the blockchain when two different parts of the network see different main chains. In a sense, fork occurs every time two blocks of the same height are created at the same time. Both blocks always have the different hashes (and therefore different difficulty), so when a node sees both of them, it will always choose the most difficult one. However, before both blocks arrive at a majority of nodes, two parts of the network will see different blocks as tips of the main chain. Fork or hard fork also refer to a change of the protocol that may lead to a split of the network (by design or because of a bug). On March 11, 2013, a smaller half of the network running version 0.7 of bitcoind, could not include a large (>900 Kb) block at height 225430, created by a miner running version 0.8 or newer. The block could not be included because of the bug in v0.7 which was fixed in v0.8. Since the majority of computing power did not have a problem, it continued to build a chain on top of a problematic block. When the issue was noticed, majority of 0.8 miners agreed to abandon 24 blocks incompatible with 0.7 miners and mine on top of 0.7 chain. Except for one double spend experiment against OKPay, all transactions during the fork were properly included in both sides of the blockchain.

FULL NODE

ELLIPTIC CURVE ARITHMETIC

GENESIS BLOCK

ECDSA

EXTRA NONCE

A number placed in coinbase script and incremented by a miner each time the nonce 32-bit integer overflows. It is not necessary to continue mining when nonce overflows, one can also change the merkle tree of transactions or change a public key used for collecting a block reward. See also nonce.

The very first block in the blockchain with hard-coded contents and an all-zero reference to a previous block. Genesis block was released on 3rd of January, 2009 with a newspaper quote in its coinbase: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks” as a proof that there are no secretly pre-mined blocks to overtake the blockchain in the future. The message ironically refers to a reason for Bitcoin existence: a constant inflation of money supply by governments and banks.

HALVING

Refers to reducing reward every 210,000 blocks (approximately every 4 years). Since the genesis block to a block 209,999 in December 2012 the reward was 50 BTC. By 2016 it will be 25 BTC, then 12.5 BTC and so on, until it’s only 1 satoshi around 2140, after which point no more bitcoins will ever be created. Due to reward halving, the total supply of bitcoins is limited: only about 2100 trillion satoshis will ever be created.

HARD FORK

Some people use the term hard fork to stress that changing Bitcoin protocol requires overwhelming majority to agree

CryptoBiz Magazine

A set of mathematical operations defined as a group of points on a 2D elliptic curve. Bitcoin protocol uses predefined curve secp256k1. Here’s the simplest possible explanation of the operations: you can add and subtract points and multiply them by an integer. Dividing by an integer is computationally infeasible (otherwise cryptographic signatures won’t work). The private key is a 256-bit integer and the public key is a product of a predefined point G (“generator”) by that integer: A = G * a. Associativity law allows implementing interesting cryptographic schemes like Diffie-Hellman key exchange (ECDH): two parties with private keys a and b may exchange their public keys A and B to compute a shared secret point C: C = A * b = B * a because (G * a) * b == (G * b) * a. Then this point C can be used as an AES encryption key to protect their communication channel.

December.2014 Page.47

Stands for Elliptic Curve Digital Signature Algorithm. Used to verify transaction ownership when making a transfer of bitcoins. See Signature.

A node which implements all of Bitcoin protocol and does not require trusting any external service to validate transactions. It is able to download and validate the entire blockchain. All full nodes implement the same peer-to-peer messaging protocol to exchange transactions and blocks, but that is not a requirement. A full node may receive and validate data using any protocol and from any source. However, the highest security is achieved by being able to communicate as fast as possible with as many nodes as possible.

GITHUB BITCOIN GLOSSARY with it, or some noticeable part of the economy will continue with original blockchain following the old rules. See Fork and Soft Fork.

INPUT

See Transaction Input.

HASH FUNCTION

KEY

Bitcoin protocol mostly uses two cryptographic hash functions: SHA-256 and RIPEMD-160. First one is almost exclusively used in the two round hashing (Hash256), while the latter one is only used in computing an address (see also Hash160). In addition to Hash256 and Hash160, scripts may also use SHA1, SHA-256 and RIPEMD-160.

Could mean an ECDSA public or private key, or AES symmetric encryption key. AES is not used in the protocol itself (only to encrypt the ECDSA keys and other sensitive data), so usually the word key means an ECDSA key. When talking about keys, people usually mean private keys as public key can always be derived from a private one. See also Private Key and Public Key.

HASH, HASH256

KEY POOL

When not speaking about arbitrary hash functions, Hash refers to two rounds of SHA-256. That is, you would compute an SHA-256 hash of your data and then an SHA-256 hash of that hash. It is used in block header hashing, transaction hashing, making a merkle tree of transactions, or computing a checksum of an address. Known as BTCHash256() in CoreBitcoin, Hash() in BitcoinQT. It is also available in scripts as OP_HASH256.

HASH160

SHA-256 hashed with RIPEMD-160. It is used to produce an address because it makes a smaller hash (20 bytes vs 32 bytes) than SHA-256, but still uses SHA-256 internally for security. BTCHash160() in CoreBitcoin, Hash160() in BitcoinQT. It is also available in scripts as OP_HASH160.

TO HASH

To compute a hash function of some data. If hash function is not mentioned explicitly, it is the one defined by the context. For instance, â&#x20AC;&#x153;to hash a transactionâ&#x20AC;? means to compute Hash256 of binary representation of a transaction.

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HASHRATE

A measure of mining hardware performance expressed in hashes per second. As of September 5, the hash rate of all Bitcoin mining nodes combined is around 647,000 Gh/s. For comparison, AMD Radeon graphics cards produce from 200 to 800 Mh/s depending on model.

HASH TYPE (HASHTYPE)

A single byte, appended to a transaction signature in the transaction input, which describes how the transaction should be hashed in order to verify that signature. There are three types affecting outputs: ALL (default), SINGLE, NONE and one optional modifier ANYONECANPAY affecting the inputs (can be combined with either of the first three). ALL requires all outputs to be hashed (thus, all outputs are signed). SINGLE clears all output scripts but the one with the same index as the input in question. NONE clears all outputs thus allowing changing them at will. ANYONECANPAY removes all inputs except the current one (allows anyone to contribute independently). The actual behavior is more subtle than this overview, you should check the actual source code for more comments.

HEIGHT

See Block Height.

Some wallet applications that create new private keys randomly keep a pool of unused pre-generated keys (BitcoinQT keeps 100 keys by default). When a new key is needed for change address or a new payment request, the application provides the oldest key from the pool and replaces it with a fresh one. The purpose of the pool is to ensure that recently used keys are always backed up on external storage. Without a key pool you could create a new key, receive a payment on its address and then have your hard disk die before backing up this key. A key pool guarantees that this key was already backed up several days before being used. Deterministic wallets do not use a key pool because they only need to back up a single secret key.

LIGHTWEIGHT CLIENT

Comparing to a full node, lightweight node does not store the whole blockchain and thus cannot fully verify any transaction. There are two kinds of lightweight nodes: those fully trusting an external service to determine wallet balance and validity of transactions (e.g. blockchain.info) and the apps implementing Simplified Payment Verification (SPV). SPV clients do not need to trust any particular service, but are more vulnerable to a 51% attack than full nodes. See Simplified Payment Verification.

LOCK TIME (LOCKTIME)

A 32-bit field in a transaction that means either a block height at which the transaction becomes valid, or a UNIX timestamp. Zero means transaction is valid in any block. A number less than 500,000,000 is interpreted as a block number (the limit will be hit after year 11,000), otherwise a timestamp.

MAINNET

Main Bitcoin network and its blockchain. The term is mostly used in comparison to testnet.

MAIN CHAIN

A part of the blockchain which a node considers the most difficult (see difficulty). All nodes store all valid blocks, including orphans, and recompute the total difficulty when receiving another block. If the newly arrived block or blocks do not extend existing main chain, but create another one from some previous block, it is called reorganization.

MERKLE TREE

Merkle tree is an abstract data structure that organizes a list of data items in a tree of their hashes (like in Git, Mercurial or ZFS). In Bitcoin, the merkle tree is used only to organize

GITHUB BITCOIN GLOSSARY transactions within a block (the block header contains only one hash of a tree) so that full nodes may prune fully spent transactions to save disk space. SPV clients store only block headers and validate transactions if they are provided with a list of all intermediate hashes.

MEMPOOL

A technical term for a collection of unconfirmed transactions stored by a node until they either expire or get included in the main chain. When reorganization happens, transactions from orphaned blocks either become invalid (if already included in the main chain) or moved to a pool of unconfirmed transactions. By default, bitcoind nodes throw away unconfirmed transactions after 24 hours.

MINING

A process of finding valid hashes of a block header by iterating millions of variants of block headers (using nonce and extra nonce) in order to find a hash lower than the target (see also difficulty). The process needs to determine a single global history of all transactions (grouped in blocks). Mining consumes time and electricity and nowadays the difficulty is so big, that energy-wise it’s not even profitable to mine using video graphics cards. Mining is paid for by transaction fees and by block rewards (newly generated coins, hence the term “mining”).

MINING POOL

MINER

A person, a software or a hardware that performs mining.

MIXING

A process of exchanging coins with other persons in order to increase privacy of one’s history. Sometimes it is associated with money laundering, but strictly speaking it is orthogonal to laundering. In traditional banking, a bank protects customer’s privacy by hiding transactions from all third parties. In Bitcoin any merchant may do a statistical analysis of one’s entire payment history and determine, for instance, how many bitcoins one owns. While it’s still possible to implement KYC (Know Your Customer) rules on a level of every merchant, mixing allows you to separate information about one’s history between the merchants.

M-OF-N MULTI-SIGNATURE TRANSACTION

A transaction that can be spent using M signatures when N public keys are required (M is less or equal to N). Multi-signature transactions that only contain one OP_CHECKMULTISIG opcode and N is 3, 2 or 1 are considered standard.

NODE

Node, or client, is a computer on the network that speaks Bitcoin message protocol (exchanging transactions and blocks). There are full nodes that are capable of validating the entire blockchain and lightweight nodes, with reduced functionality. Wallet applications that speak to a server are not considered nodes.

NONCE

Stands for “number used once.” A 32-bit number in a block header which is iterated during a search for proof-of-work. Each time the nonce is changed, the hash of the block header is recalculated. If nonce overflows before valid proof-of-work is found, an extra nonce is incremented and placed in the coinbase script. Alternatively, one may change a merkle tree of transactions or a timestamp.

NON-STANDARD TRANSACTION

Any valid transaction that is not standard. Non-standard transactions are not relayed or mined by default BitcoinQT nodes, but are relayed and mined on testnet. However, if anyone puts such transaction in a block, it will be accepted by all nodes. In practice it means that unusual transactions will take more time to get included in the blockchain. If some kind of non-standard transaction becomes useful and popular, it may get named standard and adopted by users (like it). See also Standard Transaction.

OPCODE

8-bit code of a script operation. Codes from 0x01 to 0x4B (decimal 75) are interpreted as a length of data to be pushed on the stack of the interpreter (data bytes follow the opcode). Other codes either do something interesting, are disabled and cause transaction verification to fail, or do nothing (reserved for future use). See also Script.

ORPHAN, ORPHANED BLOCK

A valid block that is no longer a part of a main chain. Usually happens when two or more blocks of the same height are produced at the same time. When one of them becomes a part of the main chain, others are considered “orphaned.” Orphans also may happen when the blockchain is forked due to an attack (see 51% attack) or a bug. Then a chain of several blocks may become abandoned. Usually a transaction is included in all blocks of the same height, so its confirmation is not delayed and there is no double spend. See also Fork.

OUTPUT

See Transaction Output.

CryptoBiz Magazine

Most important reasons for mixing are: 1) receiving a salary as a single big monthly payment and then spending it in small transactions (“café sees thousands of dollars when you pay just $4”); and 2) making a single payment and revealing connection of many small private spendings (“car dealer sees how much you are addicted to coffee”). In both cases your employer, a café and a car dealer may comply with KYC/AML laws and report your identity and transferred

amounts, but neither of them need to know about each other. Mixing bitcoins after receiving a salary and mixing them before making a big payment solves this privacy problem.

December.2014 Page.49

A service that allows separate owners of mining hardware to split the reward proportionally to submitted work. Since probability of finding a valid block hash is proportional to miner’s hashrate, small individual miners may work for months before finding a big per-block reward. Mining pools allow more steady stream of smaller income. Pool owner determines the block contents and distributes ranges of nonce values between its workers. Normally, mining pools are centralized. P2Pool is a fully decentralized pool.

CONTINUED

GITHUB BITCOIN GLOSSARY P2SH

contain public keys or addresses in the output scripts and signatures in the input scripts.

PAY-TO-SCRIPT HASH

REFERENCE IMPLEMENTATION

See Pay-to-Script Hash.

A type of script and address that allows sending bitcoins to arbitrary complex scripts using a compact hash of that script. This allows payer to pay much smaller transaction fees and not wait long for a non-standard transaction to get included in the blockchain. Then the actual script matching the hash must be provided by the payee when redeeming the funds. P2SH addresses are encoded in Base58Check just like regular public keys and start with number “3.”

BitcoinQT (or bitcoind) is the most used full node implementation, so it is considered a reference for other implementations. If an alternative implementation is not compatible with BitcoinQT it may be forked, that is, it will not see the same main chain as the rest of the network running BitcoinQT.

RELAYING TRANSACTIONS

A form of cold storage where a private key for Bitcoin address is printed on a piece of paper (with or without encryption) and then all traces of the key are removed from the computer where it was generated. To redeem bitcoins, a key must be imported in the wallet application so it can sign a transaction. See also Casascius Coins.

Connected Bitcoin nodes relay new transactions between each other on best-effort basis in order to send them to the mining nodes. Some transactions may not be relayed by all nodes. E.g. non-standard transactions, or transactions without a minimum fee. Bitcoin message protocol is not the only way to send the transaction. One may also send it directly to a miner, or mine it yourself, or send it directly to the payee and make them relay it or mine it.

PROOF-OF-WORK (POW)

REORG, REORGANIZATION

PAPER WALLET

A number that is provably hard to compute. That is, it takes measurable amount of time and/or computational power (energy) to produce. In Bitcoin it is a hash of a block header. A block is considered valid only if its hash is lower than the current target (roughly, starts with a certain amount of zero bits). Each block refers to a previous block thus accumulating previous proof-of-work and forming a blockchain.

CryptoBiz Magazine Page.50 December.2014

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Proof-of-work is not the only requirement, but it’s an important one to make sure that it is economically infeasible to produce an alternative history of transactions with the same accumulated work. Each client can independently consider the most difficult chain of valid blocks as the “true” history of transactions, without need to trust any source that provides the blocks. Note that owning a very large amount of computational power does not override other rules enforced by every client. Illformed blocks or blocks containing invalid transactions are rejected no matter how difficult they were to produce.

PRIVATE KEY (PRIVKEY)

A 256-bit number used in ECDSA algorithm to create transaction signatures in order to prove ownership of a certain quantity of bitcoins. Can also be used in arbitrary elliptic curve arithmetic operations. Private keys are stored within wallet applications and are usually encrypted with a pass phrase. Private keys may be completely random (see Key Pool) or generated from a single secret number (“seed”). See also Deterministic Wallet.

PUBLIC KEY (PUBKEY)

A 2D point on an elliptic curve secp256k1 that is produced by multiplying a predefined “generator” point by a private key. Usually it is represented by a pair of 256-bit numbers (“uncompressed public key”), but can also be compressed to just one 256-bit number (at the slight expense of CPU time to decode an uncompressed number). A special hash of a public key is called address. Typical Bitcoin transactions

An event in the node when one or more blocks in the main chain become orphaned. Usually, newly received blocks extend the existing main chain. Sometimes (4 – 6 times a week) a couple of blocks of the same height are produced almost simultaneously, and for a short period of time, some nodes may see one block as a tip of the main chain which will be eventually replaced by a more difficult block(s). Each transaction in the orphaned blocks either become invalid (if already included in the main chain block) or become unconfirmed and moved to the mempool. In case of a major bug or a 51% attack, reorganization may involve reorganizing more than one block.

REWARD

Amount of newly generated bitcoins that a miner may claim in a new block. The first transaction in the block allows miner to claim currently allowed reward as well as all transaction fees from all transactions in the block. Reward is halved every 210,000 blocks, approximately every 4 years. As of September 5, 2013, the reward is 25 BTC (the first halving occurred in December 2012). For security reasons, rewards cannot be spent before 100 blocks are built on top of the current block.

SATOSHI

The first name of Bitcoin’s creator Satoshi Nakamoto and also the name of the smallest unit used in transactions. 1 bitcoin (BTC) is equal to 100 million satoshis.

SATOSHI NAKAMOTO

The pseudonym of the author of the initial Bitcoin imple mentation. There are many speculations on who and how many people worked on Bitcoin, of which nationality or age, but no one has any evidence to say anything definitive on the matter.

SCRIPT

A compact turing-incomplete programming language used in transaction inputs and outputs. Scripts are interpreted by a Forth-like stack machine: each operation manipulates data on the stack. Most scripts follow the standard pattern

GITHUB BITCOIN GLOSSARY and verify the digital signature provided in the transaction input against a public key provided in the previous transaction’s output. Both signatures and public keys are provided using scripts. Scripts may contain complex conditions, but can never change the amount being transferred. Amount is stored in a separate field in a transaction output.

SCRIPTSIG

Original name in bitcoind for a transaction input script. Typically, input scripts contain signatures to prove ownership of bitcoins sent by a previous transaction.

SCRIPTPUBKEY

Original name in bitcoind for a transaction output script. Typically, output scripts contain public keys (or their hashes; see Address) that allow only owner of a corresponding private key to redeem the bitcoins in the output.

SEQUENCE

A 32-bit unsigned integer in a transaction input used to replace older version of a transaction by a newer one. Only used when locktime is not zero. Transaction is not considered valid until the sequence number is 0xFFFFFFFF. By default, the sequence is 0xFFFFFFFF.

SIGNATURE

A sequence of bytes that proves that a piece of data is acknowledged by a person holding a certain public key. Bitcoin uses ECDSA for signing transactions. Amounts of bitcoins are sent through a chain of transactions: from one to another. Every transaction must provide a signature matching a public key defined in the previous transaction. This way, only the proper owner of a secret private key, associated with a given public key, can spend bitcoins further.

A scheme to validate transactions without storing the whole blockchain (only block headers) and without trusting any external service. Every transaction must be present with all its parent and sibling hashes in a merkle tree up to the root. SPV client trusts the most difficult chain of block headers and can validate if the transaction indeed belongs to a certain block header. Since SPV does not validate all transactions, a 51% attack may not only cause a double spend (like with full nodes), but also make a completely invalid payment with bitcoins created from nowhere. However, this kind of attack is very costly and probably more expensive than a product in question. Bitcoinj library implements SPV functionality.

SECRET KEY

SOFT FORK

Sometimes the soft fork refers to an important change of software behavior that is not a hard fork (e.g. changing mining fee policy). See also Hard Fork and Fork.

Incorrect peer-to-peer messages (like sending invalid transactions) may be considered a denial of service attack (see DoS). Valid transactions sending very tiny amounts and/or having low mining fees are called Dust by some people. The protocol itself does not define which transactions are not worth relaying or mining, it’s a decision of every individual node. Any valid transaction in the blockchain must be accepted by the node if it wishes to accept the remaining blocks, so transaction censorship only means increased confirmation delays. Individual payees may also blacklist certain addresses (refuse to accept payments from some addresses), but that’s too easy to work around using mixing.

SPENT OUTPUT

A transaction output can be spent only once: when another valid transaction makes a reference to this output from its own input. When another transaction attempts to spend the same output, it will be rejected by the nodes already seeing the first transaction. Blockchain as a proof-of-work scheme allows every node to agree on which transaction was indeed the first one. The whole transaction is considered spent when all its outputs are spent.

SPLIT

A split of a blockchain. See Fork.

SPV

See Simplified Payment Verification.

STANDARD TRANSACTION

Some transactions are considered standard, meaning they are relayed and mined by most nodes. More complex transactions could be buggy or cause DoS attacks on the network, so they are considered non-standard and not relayed or mined by most nodes. Both standard and non-standard transactions are valid and once included in the blockchain, will be recognized by all nodes. Standard transactions are: 1) sending to a public key; 2) sending to an address; 3) sending to a P2SH address; 4) sending to M-of-N multi-signature transaction where N is 3 or less.

TARGET

A 256-bit number that puts an upper limit for a block header hash to be valid. The lower the target is, the higher the difficulty to find a valid hash. The maximum (easiest) target is 0x00000000FFFF0000000000000000000000000000000000000000000000000000. The difficulty and the target are adjusted every 2016 blocks (approx. 2 weeks) to keep interval between the blocks close to 10 minutes.

TESTNET

A set of parameters used for testing a Bitcoin network. Testnet is like mainnet, but has a different genesis block (it was reset several times, the latest testnet is testnet3). Testnet uses a slightly different address format to avoid confusion with main Bitcoin addresses and all nodes relaying and mining non-standard transactions.

TESTNET3

The latest version of testnet with another genesis block.

CryptoBiz Magazine

Either the Private Key or an encryption key used in encrypted wallets. Bitcoin protocol does not use encryption anywhere, so secret key typically means a private key used for signing transactions.

SPAM

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SIMPLIFIED PAYMENT VERIFICATION (SPV)

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GITHUB BITCOIN GLOSSARY TIMESTAMP

UNIX timestamp is a standard representation of time as a number of seconds since January 1st, 1970, GMT. Usually stored in a 32-bit signed integer.

TRANSACTION

A chunk of binary data that describes how bitcoins are moved from one owner to another. Transactions are stored in the blockchain. Every transaction (except for coinbase transactions) has a reference to one or more previous transactions (inputs) and one or more rules on how to spend these bitcoins further (outputs). See Transaction Input and Transaction Output.

TRANSACTION FEE

Also known as “miners’ fee,” an amount that an author of transaction pays to a miner who will include the transaction in a block. The fee is expressed as the difference between the sum of all input amounts and a sum of all output amounts. Unlike traditional payment systems, miners do not explicitly require fees and most miners allow free transactions. All miners are competing between each other for the fees and all transactions are competing for a place in a block. There are soft rules encoded in most clients that define minimum fees per kilobyte to relay or mine a transaction (mostly to prevent DoS and spam). Typically, the fee affects the priority of a transaction. As of September 5, 2013 average fees are below 1 BTC per block. See also Reward.

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TRANSACTION INPUT

A part of a transaction that contains a reference to a previous transaction’s output and a script that can prove ownership of that output. The script usually contains a signature and is called scriptSig. Inputs spend previous outputs completely. So if one needs to pay only a portion of some previous output, the transaction should include extra change output that sends the remaining portion back to its owner (on the same or different address). Coinbase transactions contain only one input with a zeroed reference to a previous transaction and arbitrary data in place of script.

TRANSACTION OUTPUT

An output contains an amount to be sent and a script that allows further spending. The script typically contains a public key (or an address, a hash of a public key) and a signature verification opcode. Only an owner of a corresponding private key is able to create another transaction that sends that amount on to someone else. In every transaction, the sum of output amounts must be equal or less than the sum of all input amounts. See also Change.

See Transaction.

TXIN

away, find it in the blockchain, or include it in the blockchain itself (if it’s a miner). See also Confirmation Number.

UTXO SET

A collection of Unspent Transaction Outputs. Typically used in discussions on optimizing an ever-growing index of transaction outputs that are not yet spent. The index is important to efficiently validate newly created transactions. Even if the rate of the new transactions remains constant, the time required to locate and verify unspent outputs grows. Possible technical solutions include more efficient indexing algorithms and more performant hardware. BitcoinQT, for example, keeps only an index of outputs matching user’s keys and scans the entire blockchain when validating other transactions. A developer of one web wallet service mentioned that they maintain the entire index of UTXO and its size was around 100GB when the blockchain itself was only 8GB. Some people seek social methods to solve the problem. For instance, by refusing to relay or mine transactions that are considered dust (containing outputs smaller than a transaction fee required to mine/relay them).

VARINT

This term may cause confusion as it means different things in different Bitcoin implementations. See CompactSize.

WALLET

An application or a service that keeps private keys for signing transactions. Wallet does not keep bitcoins themselves (they are recorded in blockchain). “Storing bitcoins” usually means storing the keys.

WEB WALLET

A web service providing wallet functionality: ability to store, send and receive bitcoins. User has to trust counter-party to keep their bitcoins securely and ready to redeem at any time. It is very easy to build your own web wallet, so most of them were prone to hacks or outright fraud. The most secure and respected web wallet is Blockchain.info. Online exchanges also provide wallet functionality, so they can also be considered web wallets. It is not recommended to store large amounts of bitcoins in a web wallet.

XBT

Informal currency code for 1 Bitcoin (defined as 100,000,000 Satoshis). Some people proposed using it for 0.01 Bitcoin to avoid confusion with BTC. There were rumors that Bloomberg tests XBT as a ticker for 1 Bitcoin, but currently there is only ticker XBTFUND for SecondMarket’s Bitcoin Investment Trust. See also BTC. —S

See Transaction Input.

TXOUT

See Transaction Output.

UNCONFIRMED TRANSACTION

Transaction that is not included in any block. Also known as “0-confirmation” transaction. Unconfirmed transactions are relayed by the nodes and stay in their mempools. An unconfirmed transaction stays in the pool until the node decides to throw it

CONTINUED

GITHUB bitcoin Glossary by OLEG ANDREEV (oleganza@gmail.com). Twitter: @oleganza. Send your Bitcoin tips to:

1CBtcGivXmHQ8ZqdPgeMfcpQNJrqTrSAcG.

THE EVOLUTION OF TRANSACTION SOLUTIONS

Bitcoin offers merchants transaction fees that are much lower than other payment solutions With the excitement of all the various cryptocurrencies currently in the space, what in in thethe future of what sometimes sometimesisisunder-discussed under-discussedisistheir theirrole role future transactions. As merchants learnlearn aboutabout the benefits of accepting cryptoof transactions. As merchants the benefits of accepting currencies like Bitcoin, skepticism will be will met be by met the numerous advancryptocurrencies like Bitcoin, skepticism by the numerous tages of using type protocol for payment. advantages of this using thisoftype of protocol for payment. At BitPay we currently have 30,000 merchants, including higher profile clients like Gyft, TigerDirect and the NBA’s Sacramento Kings. While these forward thinking companies immediately saw the benefit of Bitcoin and were quick to jump aboard, the mainstream acceptance of Bitcoin also requires our smaller merchants that sell specialized items or services. Once skepticism and misinformation is quelled, the facts of Bitcoin as a payment method become crystal clear to many merchants. Through or or less of their transaction amount (deThrough BitPay BitPaymerchants merchantspay pay1%1% less of their transaction amount pending on volume) as aasprocessing fee which is significantly less than (depending on volume) a processing fee which is significantly less payment processing options. It’sP2P the nature P2P nature the Bitcoin other payment processing options. It’s the of theofBitcoin netthan other network enables extremely payment processing option. It’s work thatthat enables this this extremely low low payment processing option. It’s also also important to realize Bitcoin is still infancyand andother otherpayment payment important to realize thatthat Bitcoin is still in initsitsinfancy options have had 50 plus years to build their network and infrastructure. Bitcoin has hasbeen beenaround aroundsince since2009 2009and and those years Bitcoin in in those fivefive years thethe useruser exexperience merchants customers become drastically easier. perience forfor merchants andand customers has has become drastically easier. This Thiscontinue will continue to improve asopen the open source platform develops. will to improve as the source platform develops.

SPECIAL ADVERTISING FEATURE

An analogy I quite often make is to the music industry in the early 2000s. Napster forced record labels to change their business model to one that Napster forced record labels to change their business model to one that is more in line with what the consumers wanted. Some advantages that is more has in line withwhat whathappened the consumers wanted. include Some advantages that Bitcoin over with Napster the existence continued of a global marketplace, venture capital investments and Bitcoin has over what happened with Napster include the existence of a development of the protocol. The switch to digital was something that was global marketplace, continuedresistance developconfusing and scary venture for manycapital musicinvestments fans and theand immediate slowlyoffaded away andThe business as iTunes and Google ment the protocol. switchopportunities to digital wassuch something that was conMusic came to make buying digital music easier and the preferred way fusing and scary for many music fans and thenow immediate slowly to purchase a song. Bitcoin is controversial becauseresistance it’s challenging something been the same for a very time. It’s important faded awaythat andhas business opportunities suchlong as iTunes andmore Google Music to realize that, like any other technology, it becomes more mature and came to make buying digital music easier and the preferred way to pureasier to use over time. chase a song. Bitcoin is controversial now because it’s challenging someSome of the smartest and most successful entrepreneurs in the world thing that has been the same for a very long time. It’s more important to are embracing Bitcoin. realize that, like any technology, it becomes more maturedrastically and easThese individuals seeother the long term potential in how it could reduce payment costs as well as the global reach it has. BitPay has ier to use over time. continued to bring credibility, excellent support and development of the platform to the community and successful that has resulted in beinginthe Some of the smartest and most entrepreneurs themarket world leader for Bitcoin Payment Processing. We also hope to continue to grow are embracing Bitcoin. and Amsterdam as well as a new location for our continuously growing These individuals see the long term potential in how it could drastical-

What’s important is for other Bitcoin companies in the space to contribute development time to ensure the protocol can grow properly. At BitPay, Bitcoin Core Coredeveloper developerJeff JeffGarzik Garzik a member of our andconwe Bitcoin is aismember of our teamteam and we continue to contribute to platform the platform through projects as Bitcore. tinue to contribute to the through projects suchsuch as Bitcore. One startups grow able One our biggest hopes as other of ourofbiggest hopes is asisother startups grow thatthat theythey willwill be be able to to expand their development teams to contribute to Bitcoin. expand their development teams to contribute to Bitcoin.

ly reduce payment costs as well as the global reach it has. BitPay has

Bitcoinusers userscurrently currently have various reasons useprotocol; the protocol; Bitcoin have various reasons to usetothe includincluding technological, political, financial and economic. As merchant ing technological, political, financial and economic. As merchant acacceptance grows education subject grows, ceptance grows andand education on on thethe subject grows, the the useruser basebase will will diversify platform become easier to use. aren’t close diversify andand the the platform will will become easier to use. WeWe aren’t close to to widespread acceptability in same the same vein as a credit card, it is widespread acceptability in the vein as a credit card, but it isbut somesomething thatBitcoin the Bitcoin community is currently developing. thing that the community is currently developing.

ue to grow globally with new offices in San Francisco, New York City,

continued to bring credibility, excellent support and development of the platform to the community and that has resulted in being the market leader for Bitcoin Payment Processing. We also hope to contin-

Argentina and Amsterdam as well as aACCEPT new location for our continuously BITCOIN growing Atlanta office.

www.bitpay.com

BITCOIN IN AFRICA CryptoBiz Magazine Page.54 December.2014

by GIBSON GIBZ

Africa is a gray area as far as Bitcoin is concerned. Aside from that, there’s a lot going on in the Bitcoin space, and a noticeable opportunity for business and investment.

The largest percentage of smartphones sold in Africa have been sold in the last seven years. These are smartphones that middle- and lower-class citizens can afford.

Internationally, Bitcoin is moving from early adopters to the early majority right now, but—it goes without saying—the infrastructure required to make Bitcoin mainstream is still a long way out. It’s no different in Africa.

Thanks to the open-source nature of the Android platform, cheaper versions of these phones have been making their way to Africa. This is the reason more than 82% of the African smartphone market belongs to the Android.

Most Bitcoin startups are based in America; a lot of progress has been made in Asia; and, though a lot of gains have been made in South Africa, and a lot of progress is being experienced in Kenya and Ghana, we haven’t even scratched the surface of mainstreaming Bitcoin adoption in Africa.

For a long time, smartphones were available, but accessibility—due to cost—was an issue. The reason being that, over the years, governments imposed an excessively high tax, in a bid to raise the capital required to sustain government operations. If mobile users can be incentivized, this will go a long way in boosting Smartphone uptake.

All that aside, huge challenges lie ahead. Following are just a few of the challenges that Bitcoin will face in Africa, and how Bitcoin will change the socioeconomic landscape here.

SMARTPHONE PENETRATION

The Nokia 1100 is by far the most popular phone in Africa, or something similar. A large number of Africans can attest to having owned this phone, or to, at the very least, using one—it was affordable and very simple to use. If you live in Kenya, you’re able to manage your bank account from this phone if you’re registered with an M-pesa account. Simplicity and ease of use is crucial to Bitcoin adoption, and use, in Africa.

With the declining cost of acquiring smartphones, it’s a matter of time before smart devices in use reach the critical mass to allow a functional bitcoin ecosystem to sustain itself, the current trajectory is very encouraging.

ACCESS TO THE INTERNET

It goes without saying Internet is the Best thing that has happened to Africa as far as tech is concern. Today the internet is in most if not all recognized universities in Kenya and across Africa alike. Thanks to the internet Africa has leap-frogged the first world countries a great deal, we don’t have to wire the continent with copper wired telephone lines across the continent, we have jumped straight to wireless

technology, defying the rules of evolution. Similar to Blockchain what it means is Africa will jump the phase of credit and debit cards and straight to Mobile money. It has happened in Kenya and footprints of this chronological events are very visible across Africa. but there is something to be concern about. It is the cost of accessing internet services and the quality of the service. A simple case scenario is a friend of mine Skype in from Detroit, and as we chat along I can’t help but ask why the feed is so shaky, he goes ahead and confirms that he is driving to a meeting In some instances getting to talk over a cellphone when in a moving bus in Africa can be a problem. I can’t help but think how good the quality of the internet could be if you can Skype when driving .He does not complain about my feed but I am accessing the internet from the very few hot-spots in Nairobi where bandwidth is never a problem, but it becomes a problem when the public cannot access the same internet quality, and if they can then the cost is very discouraging even to the middle-class given this is a country where 60% of the inhabitants live on less than a dollar a day, and compared to the rest of Africa we are fairly ahead. Quality cheap internet access in Africa will go a long way in boosting Mainstream bitcoin adoption across the continent.

LITERACY LEVELS

90% of the students in campus across Africa own a smartphone, and are very excited on the thought of being able to send money just as easy as sending a text. So far Bitsoko has organized three bitcoin meetups At Kenyatta university and the number in attendance is always higher than the last one. The Bitcoin news is spreading very fast, and the thirst for more information is growing fast. We have had to set up a temporary blog where students can find out more about bitcoin, when our next meetup will be and how to use the Bitsoko App.

INNOVATION, LEGISLATION AND GOVERNANCE

Bitsoko, which is a bitcoin wallet built for Africa and by Africans is a startup based in Kenya that is planning to change all that. Bitsoko is working on a model where communities in remote locations in Africa can put their projects online and crowd fund their projects, e.g., water projects for communities, and farming inputs, among others. Well-wishers from across the globe can contribute to the project of their choosing without need for government involvement. This means managing crisis such as the recent Ebola outbreak will be a manageable affair. Government and regulatory legislation will only impede the growth of bitcoin, attempts to control and limit use of bitcoin will lead to bitcoin ecosystem moving to countries where legislation is most friendly to the bitcoin ecosystem and as usual technology will follow the path of least resistance. Everything said and done Africa stands to benefit most from this disruptive technology because of the amount of money being sent back home as remittance and Investments moreover Remittance and money transfer is a billion dollar industry. And It is important to secure the whole process from bureaucracy and over-regulation, this should be the focus of African legislators.

YOUNG BITCOIN ECOSYSTEM, AND LITTLE INFRASTRUCTURE

Blockchain as a system of trust is really the future of everything, and for the first time Africa as a whole has a threshold in innovation and this is an opportunity for Africa to innovate with the world, and not wait for solutions from elsewhere. I stand corrected but the number of innovation related startups across Africa has been on the rise and Africa is breeding more home grown talent. —S

WEBSITE: Bitsoko.co.ke

CryptoBiz Magazine

Innovation is always and has been ahead of legislation, Africa is singing the same song but with a twist to it drug smuggling and terrorist financing have always been a concern. Corruption have been institutionalized in government and corporate entities and it has had a systemic reaction money sent to charity projects in Africa through government accounts are confiscated and treated as private property this money is then used to pitch communities against each other by rewarding (giving funds to friendly communities and denying other communities

The ability to send money from anywhere in the world to a starving community without the intermediary of politicians government officials and controlled relief institutions will change the very definition of Africa relief, Bitcoin’s disruptive nature comes into play.

December.2014 Page.55

Gone are the days when a Degree was the Hallmark of education, it goes without saying more and more Africans are getting degrees, and more are perusing Masters and PHD options, thanks to the very many European missions in Africa and rigorous effort from the government to first track legislation around education for both the male and female child. In Kenya it is not any different as the saying goes it is the smartest people in the room who are most excited about bitcoin. The African translation of that is “the elite in Africa who stand to benefit the most”

that are perceived as not loyal to a certain cause), we all know what happens when a politician is in charge of a project, And everyone wants a cut. It gets worse when private institutions trying to receive funds for drought relief and epidemics are discredited undermined and shut down on the pretext of duplication of duties among other reasons that are not linked to competence or failure to perform. We can bury our head in the sand and say otherwise but this things do happen, it is a problem of centralization and I have witnessed. But there is light at the end of the tunnel Bitcoin has the potential of changing all that.