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
CONTENTS
22
35
Fear & Loathing in the Crypto Sphere
How FIAT Ruined My Traveling Experience
by NIALL MAYE
by ANDREW WAGNER
40 Bitcoin Will Complement the Spate of New Financial Services Innovations by MANIE EAGAR
CryptoBiz Magazine Page.2 January.2015
Letter from the Editor
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Bitcoin Merchant Directory
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Bitcoin Service Directory . . . . . . . . . . . . . . . . . . Cryptocoin Social
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Issue.07 December.2014 Published by CRYPTOBIZ MEDIA, a division of CRYPTOBIZ GROUP Editor-In-Chief SOSHI Chief Operations Advisor TRENT NELLIS trent@cryptobizmagazine.com Chief Financial Advisor BARRY MORGAN Chief Technical & Media Advisor JAY ADDISON Art Director VANESSA KING COVER DESIGN Jay Addison CONTRIBUTING WRITERS Bitcoin Rat, Bitcoin Rush, Manie Eagar, Robert de Groot, Martin A. Hay, Ian Hervey, Kit Huynh, Joachim de Koning, Soumitra Mandhata, Niall Maye, Clive Phillips, Ron Quaranta, Dom Steil, Patricia Tree, Andrew Wagner IN THE US: NEW JERSEY Josh Gold Josh@cryptobizmagazine.com IN THE US: SACRAMENTO CA Brandon Johnson Brandon@cryptobizmagazine.com IN NEW ZEALAND: AUCKLAND Belinda Too Belinda@cryptobizmagazine.com
CRYPTOBIZ MAGAZINE PH3507 1111 West Pender St Vancouver BC Canada V6E 2B4 TEL 1 844 CRYPTO1 (1 844 279 7861)
Happy New Year, and I am sure that for Bitcoin, 2015 will certainly be a very happy new year… My goal this year is to vacation using Bitcoin as much as possible. Last year was a rather tumultuous year for Bitcoin, with the price steadily dropping—making it the worst investment currency of the year. Not only that, the community fragmented somewhat, and there was plenty of bad news reported in the mainstream media about fraudsters causing security breaches, and therefore interfering with Bitcoin’s growth and venture capital phase. Let’s put all that aside and focus on 2015 being an exciting showcase of what innovations cryptocurrencies can do. This month’s edition has excellent readings that explain how it is time for the business community to realize that virtual currencies are a disruptive force and they really need to be preparing for Bitcoin 2.0 apps. It’s no surprise really, now that big online corporates like Overstock and Microsoft are backing bitcoin, giving it much more credibility amongst the business and financial community—despite the price being the lowest it has been in a long time. Also, over 30,000 developers are working on bitcoin projects with more investment than the internet had in 1995. The right ingredients are there to
www.cryptobizmagazine.com
turn this innovative melting pot of entrepreneurs with creative ideas into a
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.
spectacular future of financial change, where cryptocurrencies provide ‘an
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App for that.’ Read about some of these up and coming apps in this issue—like the HTML5 coin, and Factom which is a security layer that could have prevented some of 2014’s notorious hacks, and the Zennet Initiative decentralised supercomputer, and even a green energy asset-backed coin that combines sustainability and cryptocurrency called GenerCoin. If we support the development of these initiatives, the entire bitcoin econocurrency will be that much closer. Enjoy! —S
January.2015 Page.3 CryptoBiz Magazine
E-MAIL contact@cryptobizmagazine.com
I AM SOSHI…
VeriCoin
50% of the Multi-pool fees will go to the VeriFund, services for VeriCoin will be paid from the VeriFund.
Proof-of-Stake Verified. Proof-of-Work Distributed. Network-Stake-Dependent Interest. www.vericoin.info/verifund.html
Donate:
VRC: VTHZfUg11wEJmSgBLUcmCKGYekuqFcGHQq
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CONTENTS
continued from page.2
Bitcoin Rush . . . . . . . . . . . . . . . . . . . . . .
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Chiralkine Systems: Chirality-Controlled Processing of Information, Exchanged Between Economic Agents
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Why You Should Mine on a P2Pool by SOUMITRA MANDHATA
Hitching on the Blockchain
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by BITCOIN RAT
Genercoin (GEC) by RON QUARANTA
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The Internet of Coins
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Github Bitcoin Glossary . . . . . . . . . . . . . . . . . . . 48 Providence Develops Decentralized Biometric Keys . . . . . . . . .
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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.
January.2015 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.
A FULL YEAR OF HTML5 by KIT HUYNH & IAN HERVEY
WHAT IS HTML5 COIN AND WHY SHOULD PEOPLE CARE ABOUT IT?
CryptoBiz Magazine Page.8 January.2015
This is a question that you’ve probably heard a lot about on exchange sites, forums and social media sites. HTML5 Coin, or H5 for short, is an online currency which inherited its payment encryption technology from Bitcoin. HTML5 Coin uses 15 rounds of scientific hashing algorithm, or X15 algo for short, which allows users to mine the coin using CPUs or GPUs.
EVOLUTION OF ALGORITHM
One of the reasons HTMLCOIN endure these days is our ability to reinvent our coin and our community. Our algorithm evolve from the common unsecured system to X15. The drastic change of algorithm enable us to focus in expanding robust community all over the world and to build necessary resources for media use. That changes brought relief from the never-ending problem of coding issues.
EXPANDING COMMUNITY
After 9 months, we flourish and bloom as a community. Our diversity made us robust & stronger. We became a global network now, compose of various nationalities, race, and personalities. Though differences exist due to diversity, our various background enable us to see different solutions in any challenges imaginable as a community. We evolve into a multiple developer community, this new strategy is contributing to our success.
MULTI-DEVELOPER MODEL
HTML5 community is now a multiple developer project which allow several individual developers to contribute to the coin growth. The multi-developer model enable the community to explore possibilities, collaborate, and share resources. Each independent developers are doing on what they are good at leading to more initiatives in spreading awareness. The multi-dev approach system will help HTML5 grow much faster and help make it a friendly development environment. The multi-developer system objectives are: to recruit new individual developer to join the community; to host communication hub for community developers to share idea and resources; and to promote new ideas or projects through HTML5 promoters.
The conventional way of developing a new cryptocurrency project is that one or two developers working on recruiting, coding and promoting a coin 24/7. Most of these one man cryptocurrency projects tend to fail halfway through their project either because they run out of budget or they run out of idea to attract more users. Thus, HTML5 coin community came up with an multiple developers approach that allow more individual developers to share a common purpose, expanding HTML5 coin community. The approach is more budget friendly as individual developers are funding and developing their own projects. Cost for funding each project is much lower as well since resources in the community is shared openly with zero charge. Multi-dev system also allow more new ideas to be generated while attracting more community members through those new ideas. For instance, Cryptoinfo has been funding a lot of HTML5 give away in the past 3 months using their own website`s budget. Although the give away cost a few million HTML5 in the beginning but the site has attracted a lot of new traffic which help increase its ads revenue. Cryptoinfo has also became a community hub for HTML5 promoters to share ideas and recruit new de-
Another benefit from multi-dev approach is that HTML5 projects can now be operated at economies of scales. In other words, individual devs focus only on what they do best and complete the work much more efficiently. Private projects between individual devs can also be pair up through community hub and support each other throughout the development. Promotional works for HTML5 projects are made simple since there are a lot of individual devs that focus on promoting HTML5 through blogs and social media.
LOCAL COMMUNITY APPROACH
HTML5 community does not limit to English speaking community but now expand to multi-lingual community from around the globe. Local community member from Indonesia, Thailand and South Africa have created their own HTML5 community hub where H5 traders discuss about HTML5 coin in their prefer languages. Most of these community hubs are on social media such as Facebook, Twitter and LinkdedIn. HTML5 Indonesian group has been the most standout community hub with 100 plus community members joined in 1 month. Indonesian Facebook group has attracted a lot of local traders who are now trading HTML5 as their main daily trading coin. Several HTML5 articles have also released in Indonesian educating new traders about HTML5 and recruit new H5 users.
VOLUME AND PRICE SPIKE
As new year is approaching, HTML5 markets have received some significant increase both in volume and price. The large amount of newly joined HTML5 traders and several new projects under development have been the main reasons for the price and volume increase. HTML5-LTC market on Cryptsy and Bleutrade have received the most volume with H5 peak price at 66 satoshi, a 50% price jump in less than 2 weeks. HTML5 peak volume of the week has been at 10 BTC 24 hours trading volume. The volume increase also come in bulk purchase which mean major investors are entering the market and are willing to purchase HTML5 at any price range that is below 100 satoshi. With the current rate of volume increase, we will soon see BTC-HTML5 market go live at 1 satoshi which has been active for three months but receive very little volume. Entering BTC-HTML5 market will open up even more trading grounds and development opportunity for HTML5 in 2015. Many good stuffs are coming this 2015 like application development (coin utility), website enhancement (image building), and social initiatives (community involvement). —S
Happy New Year to all!
January.2015 Page.9 CryptoBiz Magazine
NO MAN IS AN ISLAND
velopers. Most of Cryptoinfo site’s graphic are design by WhyWeTrance, a HTML5 coin individual graphic developer. The best part is that the graphic works are freely available from WhyWeTrance at no extra cost because he is also working toward expanding HTML5 community.
FACTOM Factom allows the blockchain to store exact records of data through cryptographic hashes with only one entry per Bitcoin block. Blockchain bloat, or increasing size of the Blockchain has been a major concern for some core developers and people in the industry. Factom solves this by using federated servers to combine hashes of all the data and create what’s called a Merkle Tree which can be used to provably authenticate the data. This allows users to use the same Blockchain they know and trust and be ensured the record of data is included into the Blockchain. Other existing implementations require one entry per document or dataset, which overtime creates bloat and may be filtered by some nodes and miners.
CryptoBiz Magazine Page.10 January.2015
The Blockchain has been gaining attention for it’s use for not only Bitcoin as a currency but as an advanced cryptographic ledger. New ideas like sidechains, proposed by Blockstream plan to create additions to the blockchain to handle other functionalities. However, dealing with a secondary system can be problematic for developers and so Factom has decided to store the Merkle Tree hashes directly into the blockchain so developers can easily query and verify data. Nevertheless, we’ve seen that the Blockchain is so much more than just a basis for a currency system, but a way to run core business functionalities like document verification in a decentralized secure ledger. Factom is sometimes referred to as a DApp, distributed application, or DAC, distributed autonomous corporation, which have been becoming increasingly more mainstream in the Bitcoin community. However, this distinction gives little insight to what Factom can actually achieve. Factom is really a layer that can be used in many real world situations as an additional safeguard to the tampering of data.
by PATRICIA TREE If a bank or government wants to verify their records, and be able to provable show that nothing has changed at a certain date, those records can be cross referenced against the Factom entry. DApps at the core are meant to provide functionality to real world scenarios utilizing the proven secure methods of cryptography and distributed consensus. Factom uses this concept to ensure tampering of data can be checked in real time, separate and secure from a traditional database. Factom is a group of developers working on open-source code lead by developer Paul Snow. Rather than just building the technology, they’ve also been reaching out to banks, governments and other entities and helping them understand how cryptographic systems like the Blockchain and Factom can make their business more secure, while not completely changing their infrastructure. The beauty of Factom is at it’s core it is an API that connects to a group of decentralized federated nodes. With just a simple API request, sending the information to be validated, the servers will take that information, generate a hash and then the Merkle Tree is committed to the blockchain. That means, if you have a large scale organization you can implement a simple secure API call and the rest is taken care of. Once you’re data is in the Blockchain you can cross reference for any changes in real-time, with another simple API call, showing the value is accurate, or not accurate to what you expect to exist. The goal with Factom is to make the Blockchain simple for almost any business that has record keeping needs, whether or not they decide to delve deeper into how the Blockchain actually works or need a simple API to integrate and know they can trust. The technical background is fascinating, but the question remains how can Factom actually be used? Through use cases of real world problems.
THE FACTOM TEAM IS RELEASING A SERIES OF USE-CASE VIDEOS, SOME OF WHICH ARE ALREADY AVAILABLE ON YOUTUBE: FACTOM USE CASE: Saving BofA $17 Billion Large Banks, like Bank of America and CitiGroup, paid huge fines due to their acquisitions of other companies mortgage divisions because they lost the chain of record for mortgages. Without this information they suffered some of the largest fines in American History. With Factom the record keeping process can be automated and if any information is missing, it can be shown in real time and be cross referenced.
FACTOM USE CASE: Unlocking $9 Trillion in Land Value FACTOM USE CASE: Protecting Sony Pictures with Blockchain Countless hacks, the most recent being Sony Pictures, have shown storing data in a centralized database opens up wide amounts of risk, exposing customer information, key business strategies, and intellectual property. With Factom all data entered into the database can be verified, and if any changes occur employees can be notified in real time. Pairing Factom with Storj allows the entire databases and files to be stored in a secure cryptographic decentralized manner, that makes hijacking access to the data vastly more difficult. Each piece of information is separated into a lockbox, meaning that data is completely separated and multi-signature capabilities allow you to increase the security for more sensitive data.
CryptoBiz Magazine
The Factom idea ties together a number of concepts discussed since the first block was mined on the
Blockchain. A decentralized ledger allowing you to verify authenticity of documents, a decentralized network that computes the necessary information to be submitted, and an internal token to drive decentralized participation in the network. Like Bitcoin the project is open-source and documented, so you can dive as deep into the processes as you want or you can stick to the higher level concepts and interact with the simple to use API. Factom aims to solve real world problems by improving security and transparency and bring practical Bitcoin technology to those inside and outside of the cryptocurrency space. Watch for the crowdsale announcement at the North American Bitcoin Conference in Miami on January 16th & 17th. —S
January.2015 Page.11
How to use Factom? With Factoids. Factoids are the internal token used for Factom. To submit a request to the API you utilize your Factoid balance as payment to use the network. This help keeps the network running and decentralized by distributing the payment to the other decentralized parties that keep the network running. Factoids will be easily available, and mean that you pay only for what you need, no subscription, no upfront fees. If you want to participate in the network you contribute for your use, thus keeping a fair and balanced economy, providing a more robust set of servers, and reducing the potential for network spam.
Land Title Records for in developing nations is a huge issue. Many records are stored in dusty books and old databases. In Latin America an estimated 70% of the land is undocumented with no official record keeping, meaning the poor have no way to prove ownership of land. The amount attributed to undocumented land is estimated at 9 trillion dollars in the developing world. Factom can use the Blockchain to digitize contracts for land titles, and unlock the value of the land in developing nations. Factom can take records out of the central databases and into the hands of the people, secured by thousands of computers.
DISTRIBUTED CONSENSUS PROTOCOLS
by DOM STEIL
CryptoBiz Magazine Page.12 January.2015
Blockchain technology is the greatest computational advancement we have seen in the past 5 years. In terms of available information, real-time market effects, network effects, sentiment, research, feedback loops for price, volume, transaction levels; there is currently nothing as open and riveting. It is a new distributed database that can potentially be the foundation for an unlimited range of decentralized applications.
HOW CAN A DECENTRALIZED DATABASE BE THAT DISRUPTIVE AND WHAT ENTERPRISE PROBLEMS DOES IT SOLVE?
The more you look at blockchain technology, the more you learn about all of the adjacent fields needed to get a full understanding of what the technology actually is. It could be learning law, cryptography, economics, finance, psychology the list goes on. It is really profound that I am reading or even rereading whitepapers now to understand or get to the bottom level of a certain blockchain application. Even reading through a piece of legislation and commenting on what cybersecurity and auditing concerns could be actually be addressed through using the blockchain.
SO BEFORE I GO ANY FURTHER, WHAT IS THE BLOCKCHAIN?
A blockchain is a timestamped transaction ledger. What this means is it is a record of a chronological series of transactions that a network of nodes distribute to each other. The first instance of a blockchain was Bitcoin. A bitcoin unit in a blockchain represents an unspent transaction output that is written to a globally distributed, replicated, undeletable, timestamped database. It simply means that anyone in the world gets the same answer when querying the system. The value in this technology is that anything can be etched into this type of ledger to create a distributed consensus proto-
col. This could be money, title, copyright, notarization, real-time triple entry accounting, data storage, stocks, votes, digital or tokenized physical assets; it’s essentially creating a distributed proof of ownership that is logically centralized and organizationally decentralized. Before the blockchain, there was no sort of computational system that enabled this. ORGANIZATIONALLY CENTRALIZED
ORGANIZATIONALLY DECENTRALIZED
Logically centralized
e.g., Paypal
Blockchains (Bitcoin)
Logically decentralized
e.g., Excel
e.g., E-mail
*Chart Source
A decentralized transaction network
A store of value
A callable global ledger
This ledger can be referred to by people and machines enabling p2p, b2b, and m2m transactions from a decentralized global distributed consensus protocol. Let’s take a look at the different Distributed Consensus Protocols:
Sidechains
Counterparty
Hyperledger
Ethereum
Eris
BITCOIN AND BLOCKSTREAM
Let’s start with Blockstream, the Bitcoin blockchain and sidechains. Blockstream is a company which aims to create pegged sidechains. This would ultimately make Bitcoin the global reserve currency of all of the other cryptochains. Sidechains would enable a way to transfer value between chains for faster confirmation times, different unit accounts and different specific use cases. The value of the coin would be transferred from the bitcoin blockchain to the sidechain creating a stasis of the original coin. The coin now on the sidechain can move to other sidechains and transverse back to the Bitcoin blockchain activating the original coin again on the Bitcoin blockchain. No separate platform, just multiple blockchains interconnected with the Bitcoin blockchain and each other.
COUNTERPARTY AND HYPERLEDGER
Counterparty and Hyperledger are both enabling users to create and issue their own assets. Counterparty is a platform and wallet built on top of the Bitcoin blockchain that enables user created assets through tokenization. Counterparty has it’s own coin called XCP. The currency is used on the platform to create assets and users can also create smart contracts on the Counterparty platform that execute through a fee of XCP. These assets are divisible and callable. This means that once tokenized, the asset can be sold in division down to 8 decimal places and called back at a certain price of XCP at a certain point in time established when the asset is originally issued. The asset can be sent from one users address to the others in many different ways such as a bet, a CFD, a dividend, an order, creating a situation where the counterparty risk is avoided.
ETHEREUM AND ERIS
Ethereum is a scripting platform that enables distributed applications and smart contracts. The Ethereum platform has its native currency, ether, which is used as a primary liquidity layer and for transaction fees to execute the code in the smart contracts. This cryptofuel
IN CONCLUSION: Asset creation built from the Bitcoin blockchain = Sidechains Asset creation built off the Bitcoin blockchain = Counterparty Asset ledger creation built on distributed nodes = Hyperledger Application and smart contract creation = Ethereum Application framework built on top of Ethereum = Eris Maybe I am still a little evangelical; it’s the foundation for a new age of computing, a shift in the paradigm for database security, the emergence of distributed consensus protocols. —S
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
CryptoBiz Magazine
Eris and Ethereum are both platforms that enable the creation of various types of decentralized distributed applications.
Eris is a framework that aims to enable the creation and effective use of server-less distributed web applications. Each application uses a distributed blockchain created on the Ethereum network as the server to achieve a shared consensus state that can be referred to. The application’s user interface is built using HTML, CSS, and javascript; essentially any sort of existing web application can be recreated on the Eris platform. A forum, a crowdfunding website, a social network, a marketplace. Within each application, Ethereum smart contract models are built and reused to manage the reputation of users and enable levels of functionality based upon the user’s activity and contributions to the application. The contracts are executed on the application’s blockchain using ether creating an organization that can function autonomously and facilitate decentralized decision making.
January.2015 Page.13
Hyperledger is an open source project that is creating a decentralized ledger platform that represents assets. It registers the ownership of the asset through a network of distributed nodes creating a callable and cryptographically secure ledger. Each asset has its own ledger. The ledger can be a public international ledger or a private ledger with a limited number of users. The main difference with Hyperledger is there is no native currency, no blockchain, and the confirmation time is a few seconds. When a message is sent over the platform, nodes relay the transaction. If 2/3 of the nodes agree upon the validity of the transaction is it confirmed. The platform allows users to engage in p2p transfers of ownership whether it be a user created currency, a financial instrument, or the rights to a physical assets.
to the platform is used in Turing-complete scripts that enable the transfer of any type of programmable asset or arbitrary consensus-based application. The logic is written in code and embedded in the platform creating a state transition system based upon met or unmet value inputs and outputs from outside data sources or other contracts. Any imaginable contract, application, organization, or protocol that can be expressed logically in code can be built on top of Ethereum.
BITCOIN MERCHANT DIRECTORY ADORMO
COINRX
EXPEDIA
adormo.com
coinrx.com
BITFARE
DISH NETWORK
bitfare.org
dish.com
expedia.com
NEW MEXICO TEA CO. nmteaco.com
JRT PROPERTY
jrt.com
JRT Property International Real Estate NEW EGG
OVERSTOCK.COM
SIMPLY TRAVEL s implytravelonline.com
newegg.com
overstock.com
This is a list of merchants, and their websites, that accept bitcoins for their products. Please contact us at directories@cryptobizmagazine.com if you know merchants who are now accepting bitcoins and who you’d like to see added to this list. Additionally, please let us know if you find that any of these merchants has stopped accepting bitcoins, or if you have any difficulty using bitcoins with them.
DECENTRALIZED CROWDFUNDING www.swarmcorp.com
BITCOIN SERVICE DIRECTORY WALLETS BLOCKCHAIN
blockchain.info
COINKITE
coinkite.com
MULTIBIT
multibit.org
COINBASE
coinbase.com
HIVEWALLET hivewallet.com
XAPO
xapo.com
EXCHANGES
BTC-E
btc-e.com
CRYPTSY
cryptsy.com
QUADRIGA CX
SWISSCEX
quadrigacx.com
swisscex.com
INDEXES BITCOIN AVERAGE
BITCOIN CHARTS
bitcoincharts.com
BITSTAMP
BRAVENEWCOIN
bravenewcoin.com
COINDESK
COINMARKETCAP
coinmarketcap.com
bitcoinaverage.com
bitstamp.com
coindesk.com
CoinMarketCAP
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 you’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.
Yes,
it’s that easy.
coinkite.com
CRYPTOCOIN SOCIAL
CryptoBiz Magazine Page.18 January.2015
@pmarca
@CryptoCoinsNews
CRYPTOCOIN SOCIAL
@MatthewRoszak
January.2015 Page.19
@BitcoinzMachine
CryptoBiz Magazine
CryptoBiz Magazine Page.20 January.2015
CRYPTOCOIN SOCIAL
@pngmarca
@tarentrout
CRYPTOCOIN SOCIAL
@GoCoinCEO
January.2015 Page.21
@CryptoCoinValue
CryptoBiz Magazine
FEAR & LOATHING IN THE CRYPTO SPHERE
CryptoBiz Magazine Page.22 January.2015
by NIALL MAYE
In the beginning crypto-currency was a community based concept—built for the people, by the people. Everyone involved supported everyone else. We were reliant on one another and on newcomers to drive adoption, welcoming them into the fold of a brighter, fairer financial world. Anyone involved in taking the power back from the one per cent, and giving it to whatever share of the ninety-nine per cent, could see the potential that crypto-currency had, right from the beginning. The information on every aspect of how to further your investment in the crypto space was openly available for all to succeed. The price started to rise and then began to soar; the future looked bright in this new ecosystem we had all just begun to explore. Then the greed set in, people were getting very rich very quick and with that the community based concept started to erode. The ecosystem that was available at these times was slowly turning into the Wild West, one wrong click and your wallet balance was gone. The wallet hacks, new scam sites popping up like the fizz in a freshly opened can of coke, only to disappear with your crypto-currency in as quick a time; not to mention the exchanges that were disappearing with their clients’ newly accumulated wealth like magic tricks.
The crypto-currency world had hit deep waters, all the hard work and evangelization from the front runners was being drowned out by the cries of Ponzi scheme or scam. Not only had we the press, governments and banking system against us, we now seemed to be at war with each other. Fear and loathing had set in on the crypto community. While the majority of early investors continued in their crusade of developing and innovation in the crypto-currency space, it was the work of the minority that the mainstream and potentially new users were hearing of. This was a hindrance to new money coming in from new people and with that a regression in terms of mainstream approval. People who could see the benefit this new concept would bring to the world who were late to the scene and were willing to take a gamble, were buying their crypto-currency placing it in a wallet only to wake up to find not only had their crypto-currency gone but their wallet provider or exchange had disappeared also. The price of crypto was starting to fall, at the same rate as the trust in it. As the price continued to subside in the first half of 2014, the press and economic pessimists’ views were starting to change. Could Bitcoin be the first tru-
ly global currency free from the restraints of the big banks and governments? Does the Blockchain hold the potential to revolutionize the financial system? It all seemed to be getting exciting again, but had the experiences from the past caused lasting damage? Only time would tell this tale.
As I write this article we are approaching Bitcoins sixth birthday which is a statement in itself, but where are we at now and how far have we come? Well we have over 500 altcoins now, mining has become an arms race and is being centralized more and more and Bitcoin was the worst investment currency of 2014.
As each month passed throughout 2014 we could see that Bitcoin was still moving along as well. The cost of this has been with some forms of centralization. This has reduced wallet hacks dramatically, exchanges have become regulated with compulsory KYC and AML attached to opening an account.
The big point is it is still here and remains the top crypto-currency. There are over thirty thousand developers working on Bitcoin related projects worldwide, with more money invested in it than in the internet in 1995. Transactions are at an all-time high and the Bitcoin Foundation has changed its direction to focus primarily on core development of the Bitcoin Protocol while promising complete transparency. The community has rooted out the majority of bad actors and has started to bond together again, with their focus more on bringing it mainstream now than what price it is on an exchange.
Fraudsters have been before the courts as well as pre-order mining companies having to comply with the law of the land or be shut down. Things were starting to take shape with the bad actors being removed and the little bit of regulation added, which should have given new investors more confidence to get involved and help us progress into the mainstream. Publicity was on our side, helped by the likes of Richard Branson, Braintree, Dell, Overstock, Newegg and just recently Microsoft. The highlight of the year for me was brought about by Bitpay and the great job they have been doing with merchant adoption as well as the publicity they have been bringing to Bitcoin with their very successful Bitcoin Bowl campaign. As an Irishman I can only dream of seeing a minted Bitcoin being tossed up at the beginning of an AllIreland final, yet with the American equivalent of Gaelic football they pulled it off and in style at that too. So why was the price still falling?
To them this is all about making dollars with no regard for the Bitcoin protocol or what it can do to change the financial world, to them this is just another stock and if it collapses they don’t mind as long as they get rich. This to me is the biggest obstacle Bitcoin has to get past to move further. Who wants to invest in something that is constantly losing value, or buy on an exchange to purchase from an online merchant only to have lost 5% of the value by the time they’ve withdrawn and get to the spending stage?
To me Bitcoin is the gold standard of all crypto-currencies as all others are but replicas with added twists. Bitcoin is the one crypto-currency that all the others can be converted to and from; this isn’t to say that some of the others haven’t a part to play in the future global crypto economy as they most definitely have. To make this happen we must unite and agree that Bitcoin is no.1, we have to make our decisions on what parts need centralization without destroying the decentralization. Stabilization of the market price must be priority project, just like the tools to buy, sell and spend Bitcoin needs to be simplified and more secure. So in the famous words of Hunter S. Thompson I give my advice, Buy the ticket, take the ride! —S
January.2015 Page.23
The one simple answer to this is greed. To me the exchange price is not a true reflection of the value of Bitcoin, but merely a looking glass into what happens when the certain Wallstreet types take control.
Crypto companies are working together now for the mutual benefit of Bitcoin, instead of trying to walk all over each other to see who’s product is first to market and succeeds the best. We all have access to the same information again; the protocol has been simplified for the non-techie user. Everything seems to be moving forward in leaps and bounds, except the price.
CryptoBiz Magazine
2008—BITCOIN
HISTORY OF THE BLOCKCHAIN
2015—YOUR NAME HERE
BITCOIN MARKETING, DONE RIGHT
LEVERAGE THE POWER OF EXPERIENCE
pr@vanbex.com www.vanbex.com
CryptoBiz Magazine Page.26 January.2015
BITCOIN RUSH ZENNET + SEMBRO + POPULAR COIN by BITCOIN RUSH
The crypto year of 2014 has passed. Many exciting developments have entered the crypto space. 2015 will not only show us what’s possible in the financial sector through decentralized cryptographic systems, but it will also enter and change the way many of us conduct our daily financial activities. Here I’d like to bring three exciting concepts to your attention. ZENNET INITIATIVE is a publicly distributed and
decentralized supercomputer. It lives in the world of distributed and decentralized blockchain applications and in the huge field of big data and high performance computing. The latter has captured the most attention. Investments
in the software market over the last few years have been experiencing noticeable growth. HPC and big data are used in countless industries, including medicine, government and marketing. Big data alone was at least a 30 billion dollar industry in 2014. The network is 100% distributed and decentralized: there is no central entity of any kind, just like Bitcoin. All software will be open source. Publishers pay providers directly, there is no middleman. Accordingly, there are no payable commissions, except for regular transaction fees, which are paid to ZenCoin miners. It’s a totally free market, all participants are free to pay
or charge any rate they want, no restrictions applied. Zennet also focuses on customizability, allowing advanced participants to control all parameters and conditions of their nodes in a versatile way. On the other hand, by making the client software implement automatic risk-reward considerations by default, simplicity and automation are made possible. It’s very interesting, please check them out at zennet.sc. SEMBRO DEVELOPMENT unveiled its dedicated Bitcoin Tax Sector: SembroTax. It’s designed for individuals and businesses, to automate all of their accounting. It’s very easy and can be set up in under ten minutes, and you never have to be concerned about recording transactions again. They have truly made it an “all-inone” solution, saving you time and money. Using their automated accounting software to protect your financial interests is another proof of the unfolding current crypto evolution: SembroTax.com
I would also like to mention the POPULAR COIN. They’ve been around for almost a year now, and continue to develop an interesting way of generating coins through participation, called “Proof of Participation.” This will allow users to participate in creating wallets, making it possible to generate Popular Coins by voting for Song of the Day, or Movie of the Week, for example. In future projects, they’re planning to integrate Live Chatting and games into the wallet, which will generate coins.
I would definitely keep my eye on Popular Coin. “Proof Of Participation” could inspire many newcomers to join the crypto-community, participating to bring decentralized financial systems to greater adaption: popularcoin.org Ladies and gentlemen, please stay tuned for weekly updates: Every Friday at 5 pm PST. Bitcoin Rush playlist
January.2015 Page.27
Popular Coin has announced their new exchange Cryptopia, offering mining, exchange, and a marketplace to buy and sell goods, and since every service is fully integrated, you can start to mine directly to the exchange, then purchase from the marketplace and/or auction house with your trade earnings.
Plus, once a month here at the amazing CryptoBiz Magazine. Eyes open, no fear. —S
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
CryptoBiz Magazine
BITCOIN RUSH started out in March of 2014 forming Crypto News Media for the purpose of bringing knowledge
CHIRALKINE SYSTEMS: CHIRALITY-CONTROLLED PROCESSING OF INFORMATION, EXCHANGED BETWEEN ECONOMIC AGENTS by MARTIN A. HAY
CryptoBiz Magazine Page.28 January.2015
A chiralkine system is an experimental new technology for processing information about economic relationships. It can be used to control the exchange of goods and services, the resourcing of community projects and community decision making. It uses no currency at all, but instead relies on smart contracts performed under the control of code based on pairwise changes in the order of two 1s and two 0s. It should integrate very well with other innovations in the field of crypto-currencies, blockchains and smart contracts. We use currencies to buy and sell things, we pay taxes and we vote without being aware that we are using a technology to code and mathematically manipulate information about our economic relationships. Remarkably, very few people know how this technology works. It is not taught in schools. Those using the technology to manage our economy—lawmakers, regulators and business managers—have rarely given it any thought, let alone contemplated encouraging innovation aimed at developing new, competing technologies. However, the financial crash, the rise of cryptocurrencies and the emergence of the block chain and smart contracts are fast changing that. The technology we are using today is ancient. It works like a pair of weighing scales. Weighing scales remain in balance until a weight is placed on one side, when they become tipped. Placing an equal weight on the other side restores them to balance, the same as if there is no weight on either side. Weighing scales can only be in balance or tipped. We could code these two states as balance (0) and tipped (1). However, this code would be useless for processing information about economic relationships. Instead we draw a distinction between the scales being tipped
to the left or to the right, just like we distinguish between left and right sides of the human body. Information about both sides of a relationship is coded and mathematically manipulated based on everyone looking at the scales from one and the same side. So instead of seeing the scales as simply in balance (0) or tipped (1), we recognize three states that can be represented in 1s and 0s as ordered pairs of numbers: tipped to the left (1, 0), in balance (0, 0) = (1, 1) and tipped to the right (0, 1). We refer to the state tipped to the left as debt or negative and the state tipped to the right as positive or credit. It matters to you whether the left or right of the scales is being used to represent your position in an economic relationship. For example, you can buy things by spending currency (right units), but you cannot sell things by spending anti-money (debt, left units). You are allowed to hold onto currency for as long as you like, but not debt. The existing technology privileges right over left. Chiralkine systems code and mathematically manipulate information about economic relationships based on four ordered objects instead of two as in a pair of weighing scales. Four ordered objects can be arranged in space in two different ways that are mirror images of one other. Think of your left and right wrists (1), thumbs (2), first fingers (3) and second fingers (4). This ability of four different objects to be ordered in two different ways is a fundamental symmetry of nature known as chirality (the ch is pronounced like a k as in chiropractor. The word chiral comes from the Greek word for hand). Whereas the existing technology can be visualized in terms of rotations of a pair of weighing scales that give rise to three numbers: (1, 0) = -1, (0, 0) = (1, 1) = 0 and (0, 1) = +1, chiralkine systems can be visualized in terms of rotations of
January.2015 Page.29
CryptoBiz Magazine
CryptoBiz Magazine Page.30 January.2015
a cube the corners of which are marked 1, 2, 3 and 4 arranged in the two mirror image tetrahedral configurations: 1, 2, 3, 4 and 1, 2, 3, 4. The rotations give rise to six chiralkine numbers each composed of two 1s and two 0s in order 1, 2, 3, 4. For example, the face of the cube bearing 1 and 2 has the chiralkine number (1, 1, 0, 0), since 1 and 2 are on the face (1) whereas 3 and 4 are not (0), because they are on the opposite face. Each of the six kinds of number can be represented by a token or coin. Chiralkine numbers possess properties that adapt them like ordered number pairs or signed integers for accounting in exchange, taxation and voting. Like a currency, they solve the double co-incidence of wants problem inherent in barter. However, unlike a currency, they can enable people to clear their offers and wants under the control of smart contracts without ever having to hold any imaginary store of value. They work like coins that stay permanently in a wallet and simply change state with each transaction. They can also enable people to separately submit their likes and dislikes in a voting campaign, and to distinguish between passive (allof-the-above) and active (none-of-the above)
abstention. Altogether they provide a complete alternative toolkit for building an economy. The key to understanding the utility of chiralkine numbers lies in recognizing that accounting is all about pairwise manipulation of 1s and 0s in ordered arrays of numbers. A currency is just a manifestation of this. When a unit of credit is transferred from one person in credit (0, 1) to another in balance (0, 0) it is as if (1, 0) is added to the account of the person in credit to afford (1, 1), and the 1s are then canceled down to (0, 0), while (0, 1) is added to the account of the person in balance. When two people both in balance (0, 0) = (1, 1) create credit and debt, their accounts go to (1, 0) for the person in debt and (0, 1) for the person in credit respectively. When a unit of credit is transferred from one person in credit (0, 1) to another in debt (1, 0) it is as if (1, 0) is added to the account of the person in credit to afford (1, 1) and the 1s are canceled down to (0, 0), and (0, 1) is added to the account of the person in debt to afford (1, 1), and the 1s are canceled down to (0, 0). In a chiralkine exchange, no payments are made. Instead of right units (credit) being exchanged for goods and services while any left units (debt) stay put, right units
are exchanged for goods and services and left units. For example, the account of a person buying a good or service will change from (1, 0, 0, 1) to (0, 1, 0, 1) while that of the person selling the good or service will change from (0, 1, 1, 0) to (1, 0, 1, 0). Imagine exchanging a bitcoin for a good or service and an anti-bitcoin, so that the buyer starts out with a bitcoin in their wallet and ends up with an anti-bitcoin. Offers and wants can be cleared by transferring ownership stepwise or in one step under smart contracts the performance of which is controlled by chiralkine accounting. The coins in each person’s wallet simply change state as they make transactions. Although a chiralkine system is more complicated than one based on two ordered numbers, it does not have the disadvantage of privileging people who go into credit over those who go into debt, and it does enable people with little or no money to create an economy through which they can clear their offers and wants. People who have no bitcoins cannot trade. They cannot initiate a cycle of exchange by creating their own bitcoin and anti-bitcoin pair.
Voting can also advantageously be conducted using chiralkine numbers. Whereas in traditional voting, each voter places one cross against the name of the most preferred option on a ballot
SUGGESTIONS FOR FURTHER READING: MONEY CREATION IN THE MODERN ECONOMY —by Michael McLeay, Amar Radia and Ryland Thomas, Bank of England Quarterly Bulletin, 2014 Q1
DAV I D E L L E R M A N ( 2 0 1 4 ) O N D O U B L E ENTRY BOOKKEEPING: THE MATHEMATICAL TREATMENT ACCOUNTING EDUCATION: AN INTERNATIONAL JOURNAL —23:5, 483-501, DOI: 10.1080/09639284.2014.949803
STATISTICAL MECHANICS OF A TIME-HOMOGENEOUS SYSTEM OF MONEY AND ANTIMONY —by Matthias Schmitt, Andreas Schacker and Dieter Braun, New Journal of Physics 16 (2014) 033024
CryptoBiz Magazine
Community projects can be resourced using a chiralkine system through the use of smart contracts in which the “community” acts as a seller, but provides goods or services to the community as a whole rather than to the buyer under the contract. Each buyer (taxpayer) can perform their side of the contract either by selling services to the “community” or to another community member. Capital can be raised in the same way, by transferring newly created shares in a venture under contracts. Projects could also be crowd-funded in this way, without using money, and non-monetary resources quickly pooled to address humanitarian disasters.
Prototypes for chiralkine systems have now been coded for exchange, taxation and voting and we are looking for schools, universities, think-tanks, economic foundations, government agencies, businesses and any other interested organizations to work with us to test and develop them. They are internet-based and very easy to use. —S
January.2015 Page.31
Any two people can initiate a cycle of exchange using a chiralkine system. All that matters is that they complete their contracts, which ensures balanced exchange with everyone else and protects their reputations as reliable partners with whom to enter into future contracts. People acquire no imaginary stores of value to hoard or lend for interest, because the contracts drive circular trade. The system offers the prospect of a world without money and without trade imbalances.
sheet, in chiralkine voting each voter effectively places four crosses on the ballot sheet, two opposite the most preferred option and two opposite the most objectionable option. In effect, the voter is placing one of three chiralkine numbers or coins against the most preferred option and one of the other three chiralkine numbers or coins against the most objectionable option. The ballot will pick up all the information that a traditional vote will pick up, but it will also pick up the views of everyone who would otherwise abstain, and it will reveal people’s negative as well as their positive views. For example, it will reveal if a majority of voters is actually opposed to the election of a candidate that receives the most votes in the traditional vote.
WHY YOU SHOULD MINE ON A P2POOL by SOUMITRA MANDAHATA In my previous article, I talked about mining decentralization. I urged everyone to run a 50watt miner in their home. In this article, I want to talk about which pool to mine on. As a person who believes in decentralization, my answer will be p2pool. Although the best thing to do is solo mine, p2pool gives you a chance to earn something as opposed to the very low odds lottery of solo mining. P2pool brings together best of both worlds. While mining on it, you are basically mining on your own computer with a wallet that has a full copy of blockchain, just like in solo mining. But in addition to that you are also running p2pool software that combines the hash rate of all miners running that software on their computer as one and thus increases the chance of finding a block.
CryptoBiz Magazine Page.32 January.2015
Next obvious question is “How is it decentralized if it combines everyone’s hash rate just like other pools.” The answer lies in how a pool combines everyone’s hash rate. A centralized pool like Antpool or Ghash.io basically allows miners to point their power towards a single URL/server which is running a bitcoin wallet that is in control of or representing pool owner on bitcoin network. That is when you see that a particular pool has 25% or 50% of network hash rate. The pool’s software keeps track of who is contributing what & how funds will be distributed to participants. This creates a central point of failure and manipulation which is the pool’s server. Although this sounds bad enough, Cloud mining is even worse where everything from software to hardware is under control of a single entity. In this case, people are only watching numbers on nice interface while real action is taking place in some far away mining farm. This is complete surrender of all responsibility and freedom of owning your financial network. When mining on p2pool, the hardware and software that accounts for everyone’s hash rate and payouts is not run by a centralized entity but by everyone who wants to contribute to p2pool. Just like blockchain is a distributed ledger, p2pool has a distributed ledger of
shares that each miner contributed towards the pool called “Sharechain.” This allows p2pool to combine the hash rate but still keep things decentralized. Anyone interested can find a great explanation of p2pool here. You should be asking yourself by now that if p2pool embodies the essence of decentralization & of bitcoin mining then why everyone is not mining there. There are two main reasons for this in my opinion.
First reason is that not everyone involved is concerned about well being of the Bitcoin network. Many people got in when price was rising to earn a quick profit. These people are in for the short term and want minimum variance & maximum profit, which is offered by big centralized pools.
Bitcoin hash rate has been dropping slowly but continuously for the past few months. All this paints a very gloomy and depressing picture for who wants to get involved in mining. But in every problem lies an opportunity. Let me show you the opportunity with a flip of a bitcoin.
Second reason is that people mining from home are trying to run as big a hash rate as they can afford. This is again because although they want to decentral-
Everyone today is running behind the token and leaving the network unattended. If we have learned anything from fiat currency, it is that control of financial network is all that matters. Dollar has lost 96% of its purchasing power but controllers of network still control everything. All we have to do is change our perception of mining as a profit generating activity to network controlling activity. Consider it as your part of service to the bitcoin financial network that gives you all the unprecedented facilities. Everyone should start running a miner on p2pool, which they can afford to buy and maintain. It doesn’t matter if it is a USB Erupter, a GH miner or a TH miner. It all adds up. I urge you to open your eyes and see that token is worthless without the decentralized network, the biggest achievement of Bitcoin protocol. Let’s fill the gap of dropping hash rate with as much decentralized donated hash rate as we can. I call upon every person who believes in decentralization to become a hash rate donator to bitcoin network and take control of it.
January.2015 Page.33
This gave cloud mining businesses a chance to sell centralized hash rate to new comers who wanted to get involved. Although these services are unraveling as cost of running & maintaining big mining farms is outrunning the income.
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.
CryptoBiz Magazine
ize and support the network, they also want to earn a profit. As difficulty rose & price dropped, these honest miners were forced to either shut down or move to same centralized pools as they were running in loss.
I recently had the honor of being flown to Dubai, in order to teach blockchain technology to Nigerian government officials. With doe eyes, I hastily embarked on my journey, having forgotten the many perils of traveling from years of static living. I expected to come home writing about tall towers and exotic experiences, but unfortunately, that is not the case. It’s now more clear to me than ever how much the world needs Bitcoin. It’s not a simple matter of fighting central banks, or promoting Internet freedom. The blockchain will make society more efficient in almost every way, and is necessary to improve quality of life around the world. Having adapted to live within the Bitcoin economy, I knew I would encounter some annoyances on my trip. I was completely flabbergasted, however, by the series of unfortunate events I was forced to endure. Allow me to enumerate the many failures of the traditional finance system.
THE REAL ALTCOINS
People criticize altcoins for flooding the market, and eroding the universal applicability of cryptocurrency by fragmenting the market. They often forget that the traditional system is worse: we have hundreds of currencies, and unlike altcoins, you are forced to use the one tied to your physical location.
CryptoBiz Magazine Page.34 January.2015
When you leave your country, all of your money becomes worthless. You will have to exchange it at a “competitive rate,” or whatever euphemism you prefer. Be careful to buy only as much as you need, because all of that cash will be worthless when you get home, so you’re going to have to pay those fees again, for anything left over. I chose a travel route with several layovers, because I am not a wealthy man. Having stopped in China, Dubai, Istanbul and Korea, I had to deal with five different currencies, plus an American dollar I managed to acquire somehow. Some exchanges refuse to handle coins, so I returned to Canada with a useless pile of change from around the world.
ATMS AND EXCHANGERS
The hassles of change would vanish in a digital cash system; instead, we’re forced to rely on physical infrastructure based on ancient technology. Despite a several-decade head-start and vastly more resources, they have failed in comparison to the efficiency of cryptocurrency, as I’ll soon vindictively demonstrate. In the cryptocurrency world, one can trade between altcoins anywhere on a mobile device. This is not the case with traditional finance, and airports are fully aware of this. There are some cities like Istanbul where ATMs are just placed too poorly (such as half-way across the airport from my flight terminal), but incompetence is not what I want to talk about. The truth is more insidious. Korea did a great job with their financial infrastructure, with English-language ATMs placed almost everywhere. Except, of course, past the airport security checkpoint, where their generosity soon dissipates. They mysteriously cannot afford ATMs in one of the most likely plac-
es for you to be stuck waiting, even though they can afford multiple exchanges in the same area. The employees there will be happy to buy back what’s left of the bundle of won you had to withdraw to avoid running out of cash. They will not, however, let you withdraw from your bank account if you do run out, as was the case for a very hungry me. With all the money they’re making this way, you’d think they could afford some decent security on their automatic teller machines. Alas, dear reader, you would be wrong. While in Istanbul, I mistakenly trusted a machine operated by a local bank there, whose reliance on traditional financial infrastructure left them open to hacking. This inevitable disaster caused me a host of problems, most involving…
MY BELOVED BANK
Upon landing in Korea, I was tired, hungry, and in a hurry to meet someone. Unfortunately, I was unable to withdraw money from the ATM in the food court upon landing. I assumed it to be a glitch or language misunderstanding, but much to my dismay, I was unable to withdraw money from any ATM anywhere after an hour of trying. Frustrated, I called my bank to ask them about it, and waited through several rounds of elevator music. “I’m trying to withdraw money from an ATM in Korea. Do you know what’s going on?” “We froze your account due to suspicious activity,” he stated as a matter of fact. “You used an ATM that was compromised, and had unusual activity on your account.” “Thanks for advanced warning,” I said dryly. “Can you unlock my account now?” “We need you to come into your bank branch and change your PIN in person. Until then we have to implement some security measures,” he replied, ignoring my counter-suggestion that we use encrypted communication. It suddenly dawned on me how annoying my short vacation in Korea was about to become. “I’m currently trapped in South Korea, so obviously I can’t do that. I need money for food and lodging, so you need to make that happen. How am I supposed to get cash?” Finally, they agreed to unlock my account for windows of 30 minutes at a time, if I call them and request it. Each time, I waited again through the elevator music, and if I did not get to an ATM in time, I would have to call back and do it again. If my phone ran out of power, I was out of luck. For at least a week I suffered this calamity of bureaucratic failure. If not for the like-minded people I met at Seoul Bitcoin, I would surely have perished from overwhelming frustration and despair. It’s good to know that almost anywhere in the world, I can find a Bitcoin ATM, change my bitcoins with a local currency, and meet some new friends along the way.
Despite the silver lining, I can’t help but still feel annoyed about how much unnecessary stress I had to go through. The travel industry will be one of the first revolutionized by cryptocurrency, and I beg any entrepreneurs reading this to hurry up. I might have to fly again, soon. —S
ANDREW WAGNER is a Bitcoin advocate, based out of Vancouver. He writes for Bitcoin Magazine, is a Project Manager at VanBex, a director at the Bitcoin Co-op and North American President of the Cryptor Foundation. He’s also the founder of CoinFest, the first decentralized decentralized currency convention.
CryptoBiz Magazine
by ANDREW WAGNER
January.2015 Page.35
HOW FIAT RUINED M Y T R AV E L I N G EXPERIENCE
HITCHING ON THE BLOCKCHAIN by BITCOIN RAT
WELCOME TO THE #BITWORLDTOUR STOP PRESS—rock band from Brighton in the UK sends out Press Release last week! Is this news?! When thousands of press releases are sent out to newspapers and media organizations every week? Yes, because this one stands out… and we’d be right to take notice.
CryptoBiz Magazine Page.36 January.2015
‘The Dead Reds’ won the Brighton music awards for best original song with ‘People Rise’ in 2013, and have for the last few months been doing something unique so far in their industry—featuring an extra band member on stage; a Bitcoin Rat. As their press release explains, ‘These cute little furry creatures are part of a rapidly growing movement which uses the power of social media to help creative artists and good causes via an innovative social media project that is being driven by its end users, harnessing their passion and creativity, to mutually support each other.’ The @BitcoinRat is the physical embodiment of the #bitworldtour concept—a decentralized, mutually reinforcing, global resource ledger which has already been harnessed for projects as diverse as ‘The Dead Reds’ rock gigs, a landmine clearance project in Africa run by the HeroRATs Charity and one plucky Rat was on-board with solo lady rower Elsa Hammond for the Great Pacific Race from Monterey last July. The key word here is decentralized. The #bitworldtour project belongs to its users. The tour’s recent and rapid global growth has been truly organic and has led to a rise in interest about how the project actually works, what are its aims; and how can people become involved? Here is the Rat’s own attempt to answer some of those questions. He looks forward to joining your project soon!
Q. HOW ARE THESE AIMS ACHIEVED? By combining every adventure of the group of traveling @BitcoinRats under the hashtag #bitworldtour a global ledger is being built which is growing daily. Photos, articles and publicity are continually being generated by each ‘Guide’ working on their own individual local projects, but benefiting from the momentum of the project as a whole. It’s a truly innovative and decentralized social media model, which has shown that it can indeed work globally. Q. HOW MANY RATS ARE THERE, AND WHO ‘OWNS’ THE RATS? There are currently nearly two dozen @BitcoinRats out in the field. The medium term aim is to increase this to 50+ by the summer of 2015 and in excess of 100 by the year end. This is a totally decentralized project; ‘ownership’ is conferred on whoever is the current guide of their Rat. They choose what they do with their own Rat and how he is utilized, and where he goes next when their own project is finished. So far this has been fully self-funded although Sponsorship will be sought for the expansion of numbers in 2015. The Project will shortly be incorporated as a ‘not for profit’ organization and a crowd funding campaign initiated in early 2015. This funding will also build a state of the art website under domain name cryptorats.com Q. IF I WOULD LIKE MY PROJECT TO HOUSE/LOOK AFTER A BITCOINRAT, HOW DO I START AND ARE THERE ANY CHARGES OR FEES TO PAY FOR A RAT? If you have the drive, enthusiasm and an individual project that would benefit from this social media initiative just contact the @BitcoinRat on twitter. There are no charges or fees involved
Q. HOW AND WHY DID THE PROJECT START?
Q. WHERE DO YOU SEE THIS GOING?
The project grew out of the @BitcoinRat character meme from twitter. Creating a fun, bitcoin-centered social media project seemed a great way to harness individual creativity and good causes whilst at the same time helping to spread bitcoin adoption globally by mutual cooperation and building on the drive and enthusiasm of each of the participants.
This project will go as far as its end users take it! There is no ‘Master Plan,’ no entry barriers and no ‘Central Control,’ it’s quite simply what it says ‘Hitching on The Blockchain’ and is there to celebrate the power of decentralized self-reinforcing networks. —S
CryptoBiz Magazine Page.38 January.2015
GENERCOIN (GEC) OR “GREEN ENERGY ASSET-BACKED COIN”
by RON QUARANTA
PARTNERSHIP PAIRS DIGITAL CURRENCY WITH RENEWABLE ENERGY New York, New York (December 22, 2014)— Digital Currency Labs (DCL), a New York based financial technology and strategic advisory firm focused on digital currencies, is pleased to announce its partnership with Arterran Renewables, a British Columbia, Canada based producer of renewable solid biofuel, to productize and market “GENERcoin,” a first of its kind asset-backed digital currency. GENERcoin (GEC), or “Green Energy Asset Backed Coin,” derives its value from solid biofuel produced using sustainable, non-food renewable sources. The biofuel serves as a direct replacement for coal, and is created using the proprietary technology of Arterran Renewables. The partnership roadmap calls for GEC to be traded,
exchanged or redeemed for biofuel, and offers those interested in renewable energy investment an efficient and cost-effective method to participate in the market. The partnership between Arterran Renewables and DCL establishes the asset-backed model as a value proposition not only for future enterprises in the renewable energy space, but also for market participants seeking tangible value in a digital, fungible form. Ron Quaranta, CEO of Digital Currency Labs notes: “We are very pleased to be partnering with Arterran in this new endeavor. A digital currency linked to a unit of a physical asset, represents the leading edge of what we consider to
at info@digitalcurrencylabs. com. ABOUT ARTERRAN RENEWABLES: Arterran Renewables is a leading biofuel producer based in British Columbia, Canada. Leveraging proprietary technology, it produces next generation renewable solid biofuels that are independently verified, direct replacements for thermal coal.
be the “Finance 2.0” and offers the best aspects of digital fungibility, transportability and liquidity to the marketplace. This joint project marks the next steps in our continuing efforts to bring first-in-class digital currency capabilities to the world of finance and markets.”
Ad d s D av i d Ti e ss e n , H e a d o f B u s i n e ss Development for Arterran: “The partnership between Arterran and DCL will establish the asset-backed model as a value proposition for those seeking opportunities in digital currency that represent true intrinsic value, as well as a model for renewable energy development for the future. The partnership between Arterran and DCL not only creates a foundation for GENERcoin to achieve its renewable energy mandate, but also firmly establishes an asset-backed model of defined value and precedence. “
This release has been prepared for informational purposes only, and is not an offer to buy or sell, or a solicitation of an offer to buy or sell, any virtual currency, security, product, service or investment in any jurisdiction. Digital Currency Labs does not hold client funds or assets, nor offers any investment advice to clients. Independent advice should be sought where appropriate. Any information and/or opinion expressed at anytime by Digital Currency Labs is current as of publication and is subject to change without notice. Past performance does not guarantee future results and you should not rely on any past performance as a guarantee of future performance. —S
CryptoBiz Magazine
Initial discussions are currently underway with institutional firms, with broad marketing to occur early in 2015. Renewable energy market participants as well as institutions interested in more information about the GENERcoin opportunity are encouraged to contact Digital Currency Labs
All media inquires should be sent by email to info@digitalcurrencylabs.com.
January.2015 Page.39
Says Lloyd Davis, CEO of Arterran Renewables: “Arterran Renewables is very enthusiastic about the potential from this partnership with DCL and the crypto-currency community. The mutual benefits that each of us can offer by creating a renewable energy asset-backed coin is game changing. Arterran believes both parties have disruptive innovation at the core of our technologies and those innovations will change the world.”
ABOUT DIGITAL CURRENCY LABS: Digital Currency Labs is a financial technology and strategic advisory company whose mission is to bridge the gap between the emerging world of digital currencies and the financial markets. DCL accomplishes this within their FinTech, Data Services, and Special Projects divisions. Current clients consist of global hedge funds and institutional investors, broker-dealers, venture capital firms and technology start-ups.
BITCOIN WILL COMPLEMENT THE SPATE OF NEW FINANCIAL SERVICES INNOVATIONS by MANIE EAGAR, CO-FOUNDER AND CHAIRMAN, DIGITAL FINANCE INSTITUTE I was interviewed in 2014 for an analysis of the cryptocur-
WHAT ABOUT REGULATION?
rency industry by a Canadian research firm Technology
When the Internal Revenue Service tried to regulate bitcoin,
Strategies International (TSI) for its report: The Future of
officials stated in March 2014 that the IRS will “treat virtu-
Virtual Currencies—Alternative Futures for Virtual Currencies
al currencies like property such as stocks, and not currency,
and Virtual Currency Technologies.
giving a potential boost to investors but imposing extensive record-keeping rules.”
The report concludes that virtual currencies are likely to be a “major disruptive force” within five years. The report rec-
Christelis said that since virtual currencies are based on a
ommends that companies that could be impacted by ‘Bitcoin
distributed network of computer systems, the government
2.0’ applications should begin “preparing themselves now.”
couldn’t regulate it easily.
“There was a strong surge in the number of virtual currency
“There’s nobody to take to court and state that he/
announcements shortly after Bitcoin’s market capitalization
she broke the law because there’s no single en-
hit $1 billion,” says Christie Christelis, president of TSI, “and
tity for running the protocol,” he said, “The only
the number of virtual currencies on the market has acceler-
way it could be regulated is through the on and
ated since then, exceeding the number of fiat currencies by
off ramps.”
June 2013.” He described this process from this exThe report notes that more than 1,700 virtual currencies
ample: If you live in Canada and you want
have been launched since January 2009. More than 700
to p u rc h a s e a b i tco i n
are considered active, but only 35 have market valuations
from Costa Rica,
of more than $1 million. Bitcoin’s current market cap is over
you could do so be-
$4.5 billion.
cause it’s decentral-
CryptoBiz Magazine Page.40 January.2015
ized and available “We will see major disruption across a broad range of in-
globally. The gov-
dustries, mostly, but not exclusively, in the financial services
ernment from the
sector.”
area you live in cannot easily regulate
TSI says that many of the “altcoins” have aimed to en-
exc h a n g e s f ro m
hance the bitcoin protocol, extend functionality or improve
overseas.
the speed and security of digital currency transactions. Th e only reg ula-
BITCOIN 2.0 ISN’T ONLY ABOUT FINANCIAL INNOVATION
tion that could be
“The idea of decentralized trustless systems is revolutionary,”
would be exchang-
Christelis says, “but the real potential for disruption comes
es back and forth
about through the ability to implement them and find com-
from the same
pelling business models. The open protocols on which these
area — Canada
virtual currencies are based, together with the highly collab-
to Canada — and
orative innovation processes at work amongst the different
by a certain class
develop communities, has created such a stimulating envi-
of trade (e.g., the
ronment for innovation that it is impossible to halt it. And
purchase of virtu-
these innovations aren’t only focused on financial applica-
al currency from
tions of virtual currencies.”
fiat currency).
These blockchain innovations are often termed Bitcoin 2.0
There’s skepti-
applications and include smart contracts, colored coins and
cism and distrust
decentralized autonomous organizations (DAO’s).
in the entire vir-
easily enforceable
said. But U.S. regulators have generally said it must meet ex-
WHAT DOES THIS MEAN FOR YOUR BUSINESS?
isting laws regarding money laundering, fraud and other is-
Regulators have warned money-transfer businesses they
sues, while other countries have outlawed it.
must follow the same rules as established financial institu-
tual currency system, which will always be there, Christelis
tions, including complying with anti-money-laundering laws. “The Department of Justice recognizes that many virtual currency systems offer legitimate financial services and have the
“The idea of decentralized trustless systems is innovative,
potential to promote more efficient global commerce,” Mythili
but the real potential for disruption comes from the abili-
Raman, acting assistant attorney general for the DOJ’s crimi-
ty to implement them and find compelling business mod-
nal division, told The Wall Street Journal last year.
els,” Christelis said. “The open protocols on which these
THE NEXT MULTI-BILLION DOLLAR INDUSTRY Venture capitalists have invested more than $400
virtual currencies are based, together with the highly collaborative innovation processes at work among the different develop communities, has created an environment for innovation that it is impossible to stop it.”
million in companies aimed at “getting in early on the next multi-billion dollar industry.” It also notes that awareness of virtual currencies ex-
WHAT SHOULD YOUR BUSINESS DO? Christelis advises that you should:
ceeds 50% amongst online adult consumers in the USA, the UK and Canada, but adop-
Organize and learn about virtual currency to build insight on
tion has been slow to gain traction. However,
how it could affect your business. Although it’s not guaran-
about one in five consumers intend to make
teed to affect your business, having the understanding of the
use of virtual currencies in the future, which
possible impact will be helpful.
given the current low base of usage, suggests very high growth in adoption over the next
Build the skills and capacity within your business to imple-
few years, the report predicts.
ment virtual currencies. Have your R&D department tinker with it to see if your business could handle the impact. You’ll
He stated, however, that segments like remit-
have to devote the time and resources — in specific cas-
tances, micropayments and online commerce
es — to see if it will work.
could see mainstream adoption within the next five years.
Start building and implementing new processes and business models to include virtual currencies. This may not happen
“We identified three alternative futures for
until much later on, but having all the necessities will allow
virtual currencies,” says Christelis “namely, ‘A
you to be one step ahead.
Trustless World,’ ‘Symbiosis’ and ‘Fractured Newer virtual currency companies are already looking into
we will see major disruption across a broad
different applications of the currency in areas such as “smart
range of industries, mostly, but not exclusive-
contracts, colored coins and decentralized autonomous or-
ly, in the financial services sector,” he says.
ganizations,” according to the report. Christelis said the direction that virtual currencies will take will depend on gov-
Christelis believes
ernment regulation.
that incumbents are “ill-prepared
The five potential phases of Bitcoin adoption
fo r t h e d i s r u p In a recent interview with John Mauldin of Forbes, Barry
starting to build”
Silbert, founder of the Bitcoin Investment Trust and one of
and recommends
the most active venture capitalists in the industry (with in-
that immediate
vestments in over 30 Bitcoin-related portfolio companies
action be taken
through the Bitcoin Opportunity Corp.), stated that he be-
to mitigate the
lieves the rise of Bitcoin from 2009 to 2014 is just the begin-
effects of mov-
ning… and the virtual payment system may be approaching
ing to a decen-
a big inflection point as Wall Street takes the baton from
tralized, trustless
Silicon Valley. Silbert thinks about Bitcoin adoption in five
world.
general phases.
1. Experimentation Phase [2009 – 2010] No real value associated with Bitcoin. Hackers and developers playing around with the source code. Experimenting with Bitcoin as a medium of exchange.
CryptoBiz Magazine
tive wave that is
January.2015 Page.41
Horizons.’ If either of the first two materialize,
2. Early Adopters Phase [2011 – 2013] Interest from investors and entrepreneurs started to grow with substantial press coverage in the wake of the Silk Road bust. First generation of Bitcoin-related companies (exchanges, merchant processors, wallet providers, etc.) started. Potential began to shine through poor management.
Prof Jem Bendell author of Healing Capitalism, believes that “It is possible to organize an entirely new structure of money, banking, and finance; one that is interest-free, decentralized, and controlled, not by banks or central governments, but by individuals and businesses that associate and organize themselves into moneyless trading networks.” “There are reportedly more than 400,000 companies world-
3. Venture Capital Phase [2013 – Present] World-class VCs started investing in Bitcoin companies and rapid ramp-up is already outpacing the early days of the Internet. VCs poured more than $90 million into Bitcoinrelated businesses in 2013 and more than $300 million in 2014 (compared to $250 million invested in Internet-related businesses in 1995).
4. Wall Street Phase [2015 – ?] Institutional investors, banks, and broker-dealers begin moving money into Bitcoin. Rising price and volume (in addition to development of derivatives) become the catalyst for mass adoption as retail investment follows.
5. Global Consumer Adoption Phase [? ] Only happens if (i) companies continue to innovate and make it easier for consumers to buy, hold, and spend Bitcoin, (ii) volume expands dramatically so that large merchants can start accepting payment in Bitcoin, and (iii) Bitcoin awareness continues to rise with these developments.
Brave new world—Bitcoin as a complementary currency CryptoBiz Magazine Page.42 January.2015
Bitcoin will become an optional selection amongst a number of alternative digital finance. Its main competition will be highly innovative and accelerating adoption of ‘airtime tokens’ offered by mobile phone companies and ‘digital money tokens’ offered by mainstream and alternative financial service providers emerging from the convergence of digital
wide who trade more than $12 billion dollars’ worth of goods and services annually without the use of any national currency. All forms of business can begin to accept complementary currencies as payment, and offer to pay their employees partly in a complementary currency. They can be active in the cryptocurrency field, promoting applications that empower communities and small firms, rather than speculative activity.” For example: “Mobile phone companies can help scale complementary currencies by collaborating on SMS payment systems. Retail banks can open accounts in complementary currencies. All firms can integrate complementary currencies into their philanthropy and community engagement. Firms can switch their accounts to financial institutions that practice full reserve banking, including building societies and mutual associations. Firms can encourage local governments to issue their own mutual credit systems, and for all governments to tax transactions in complementary currencies in those same currencies, not national money.” He continues: “Like Facebook, QQ, Twitter, LinkedIn and other networks that are purely social, I predict that some moneyless trading networks will grow exponentially and provide significant daily alternatives to bank-issued money. The vibrant field of innovation in cryptographic currencies is already enabling new experiments in self-issued credit systems, such as RipplePay, which can be used to transact personal promises of all manner of currencies without the money actually changing hands.” In conclusion, during my interview I highlighted that com-
banking, mobile commerce and cryptocurrency platforms.
plementary currencies might become dominant in emerging
Financial regulators and compliance efforts will focus on the
ly as complementary and ultimately competitive alternatives
bridging capabilities of these new technologies across platforms, jurisdictions and commercial and social applications.
markets, whilst in established markets, they will enter initialto the current offerings with Bitcoin as the leading complementary currency.
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.
THE INTERNET OF COINS
by JOACHIM DE KONING& ROBERT DE GROOT
CryptoBiz Magazine Page.44 January.2015
IN THE PAST WEEKS WE HAVE BEEN VISITING NUMEROUS LOCATIONS TO SHARE WITH OTHERS WHAT WE ARE DOING. One of our visits was to the Bitcoin 2 Business event in Brussels. There we had the unexpected chance to present our project in front of a large group of crypto-enthusiasts and business-oriented investors and entrepreneurs. Joachim also had a conversation with Vitalik Buterin about threshold cryptography, a technology that may be utilized within the Internet of Coins. BUZZ Recently we presented our project at the Ethereum and Bitcoin meet-up in Amsterdam’s iconic Beurs van Berlage. After that we were present at Bitcoin Wednesday, also located in Amsterdam in the brimming cultural house Pakhuis de Zwijger. And most recently, we were visiting the city-wide event of Arnhem Bitcoin Metropolis, to share a beer, bitcoin and the bridging of all currencies with the onlookers. Next to that we have been to Gent and taken part in the Crypto Money Expo, an online event digitally bringing together crypto-enthusiasts from around the globe. TEAM We have expanded our team and now have Jelle, Amadeus and Moniek on board. They will be helping us with the mathematical and technical details concerning the implementation of the hybrid daemon, and representing Internet of Coins. Jelle and Joachim have been work-
ing hard on the details of the white-paper, while Robert has been contacting organizations to share our project with them, and Amadeus has been setting up tools for the development of the hybrid. Moniek will be present in the Bitcoin Embassy every week to answer any questions about the project. RESEARCH The past few weeks we have been very busy developing and committing our theories to the whitepaper. We will publish our whitepaper on the 3rd of January 2015, the sixth birthday of the bitcoin blockchain, with a release party at the Bitcoin Embassy Amsterdam. Since the Dutch Embassy was founded, Internet of Coins has become an Ambassador and is now the first official Embassy-supported project. At 18:55:05 GMT, the whitepaper will be uploaded to the website. COLLABORATION The biggest news since our last letter is the generous support we have received from our VC investor Bitalo. They are supporting us by funding our development and courageously assisting our pioneering project in exchange to be one of the first to implement the Internet of Coins technology in their back-office. We are very grateful for their help, and are thrilled to know there are organizations willing to take a risk with us to change the future of finance for the better.
BITTUNES Australian Bitcoin powered Music Startup ‘Bittunes’ has cut a low profile throughout 2014, moving from Alpha to Beta testing phase in an open Google+ Community, quietly adding features to its Android platform based on feedback from a small but fiercely loyal and engaged group of early users. In an ocean of crypto currency related startups Bittunes is notable for the contrast between its highly differentiated and innovative system of remuneration for both Artists and music buyers on the one hand, and it’s steadfastly conservative approach to remaining a Bitcoin ‘pure-play’ on the other, rather than go down the alt-coin/ token pathway as so many other companies in the space have done. To put it simply, the monetization model in Bittunes is not about just selling music for Bitcoin, that would be much too pedestrian for the futurists at Bittunes. Nor is it about offering Artists their own self-branded coins so that fans could buy virtual shares or ‘pop-futures’ in the bands they admire.
CryptoBiz Magazine Page.46 January.2015
Managing Director Simon Edhouse has little time for these systems which he describes as “fanciful at best, misleading at worst.” “The Bitcoin era,” he says, “has seen the pendulum swing back in favor of seeing technology as the key driver of innovation,” and thereby potentially providing solutions for highly complex and entrenched problems such as those that have beset the music industry. “Technological innovation is fine,” he says, “but not at the expense of the need for simplicity, authenticity and an understanding of what really matters to consumers.” By comparison, Bittunes offers a very straight forward proposition: Buy songs on this platform and you will earn Bitcoin, automatically. At first this sounds like a gimmick. Because no one gets anything for free, right? Images of Pyramid or multi level marketing schemes come to mind, because at first glance these may seem to be the closest analogues. However, this would be a misapprehension, because the goal that Bittunes is pursuing here is simply to add a pre-
by CLIVE PHILLIPS
viously unavailable missing ingredient to what has been one of the most powerful but most maligned technologies of the last fifteen years. P2P file sharing. At the route of the Bittunes plan is the concept of using the innate utility of Bitcoin as a genuine P2P digital currency, which is already designed to be divided into minute monetary fractions, and to marry this utility with P2P file sharing’s well established process of the exchange of segmented chunks or hashes of digital files. In short, to monetize P2P file sharing, by rewarding the users who provide pieces of digital files to other users, with Bitcoin payments paid in proportion to how much data they provide. In practical terms, if one explores this idea, and we hypothesize about such a system scaling up to hundreds of millions of nodes all exchanging songs on an open network the numbers can get kind of crazy. Popular songs traded on such a system could generate 10x or 20x profits above their purchase price, or beyond, and in an ecosystem with way less heads in the trough, Artists could start to make real money. In many ways however, the idea is orthogonal to the current status quo in the music industry that has been moving relentlessly toward streaming music models for the past few years. So, is Simon and his team simply betting on the earning aspects of such a system to drive adoption? Apparently not. “The end-game involves full P2P functionality, music ownership and transaction verification embedded on a blockchain and the mother of all (privacy protective) recommendation systems.” Although the current system is not operating as a true P2P network, the focus has been on guaranteeing a consistent level of service while they engage with and learn from their users, on the demand and supply side. Edhouse sees the project’s technology development as a ‘staircase,’ and is very aware of the current constraints that the project must overcome so as to prevail. One of the key problems is that the Bitcoin network is great at transferring very large sums of money, but the relatively small transaction fee charged on a million dollar Bitcoin transaction
in these blockchains, but designed specifically to address a new set of requirements for a new kind of open global music industry that is much more focused on the interests of users rather than corporations. “The Blockchain is part of the wider P2P meme which has been around since long before Bitcoin was conceived. These kind of systems have many common elements but also a common underlying philosophy of empowerment of the edges of the network. When you allow this philosophy to guide you, it inevitably leads you to create systems that protect and empower ordinary users.
While Sidechains are a key aspect of the forward plan for Bittunes, blockchain technology itself does not hold all the answers for delivering systems that can begin to exert a disruptive influence on the outmoded structures and legacy systems of the music industry.
“However, in the end, its not just about the technology… technology is a tool. To find lasting solutions that unlock the very human processes of making and sharing music, we have to focus on the rights and reality of end users, and give them something that is absolutely magical.”
According to Edhouse, the final configuration would involve potentially innovative use of Sidechains in conjunction with external systems that expand on the core data embedded
CryptoBiz Magazine
Early in 2014 Edhouse sought out and began talking to Austin Hill of the Blockstream, sending Bittunes’ CTO Adrien Violet to the Amsterdam Bitcoin conference in May to consult with Hill and Adam Back. Since that time its been a matter of having to wait patiently while events ran their course and the wizards at Blockstream set about developing the proposed Sidechain technology that has now become the focus of much anticipation across the field.
January.2015 Page.47
does not decrease proportionately when the transaction is only for five cents. The transaction fees for micro payments effectively negates the micro payment.
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.48 December.2014 Magazine Page.48 January.2015
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.
CryptoBiz Magazine
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.
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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.
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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.
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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.
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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.
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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, “to hash a transaction� 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.
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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.
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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.
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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.
TX
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.
PROVIDENCE DEVELOPS DECENTRALIZED BIOMETRIC KEYS CALIFORNIA, DECEMBER 28, 2014—The Providence team is proud to announce the launch of the Pledger Club. The Pledger Club is a method of storing biometric keys in the form of signatures or symbols drawn by the user. By allowing the user to create unique signatures attached to each account, the Pledger Club will establish a trustless system on which to create legal agreements, contracts, or pledges.
—Jared Mimms
Pledger Club: Website Business Plan: PDF Providence Site: Website Mission Statement: PDF For direct inquiries contact Matthew Neumeier: matthew@providence.solutions For telephone inquiries call: 312 952 1495
CryptoBiz Magazine
It’s anticipated that global investment in biometric security will grow to a sixteen billion dollar industry by 2017. With a combination of the most modern cryptographic protocol, and biometric keys, the Pledger Club becomes one of the first financial tech companies to successfully implement the combination. On the bleeding edge of the financial tech evolution, Providence has used the biometric signatures as the core of their economic ecosystem.
Providence has publicly declared their intentions with their mission statement and business plan. You can read more about the project, and learn about the coming fintech revolution by following the links:
January.2015 Page.57
“A pledger may graphically sign with mouse or finger, then cryptographically sign the resulting image with a secure cryptocurrency wallet, storing the signature in the decentralized, open-access ledger in one action. Eternal signatures cryptographically signed in the ledger by every pledger’s secure cryptocurrency wallet encompass the first legal protectorate of individual independent enterprise. Pledge on! ”
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