crypto-biz-magazine-issue-02-150dpi by CryptoBiz Magazine

Bitcoins for Sale!

CONTENTS

The Power of The Blockchain: Future Developments and Applicationsâ&#x20AC;

Why You Should Probably Be Using a MultiSig Bitcoin Wallet

by Dom Steil

by Arianna Simpson

Cryptogenic Bullion and the Consultancy Culture by Brian Vereschagin

Visual Culture and Cryptocurrency

Expert Advisory Board .

Crypto Biz Magazine Page.4 July.2014

by Nikki Olson

yesbitcoin

by Branden Petersen

Can Bitcoin Displace Gold as a Store of Value?

by Ariel Deschappel

Bitcoin for Charities

by Piotr Piasecki

CryptoCoin Social Q&A with Swarm .

. .

Continued on page.8

Issue.02 July.2014 Published by CRYPTO BIZ MEDIA, a division of CRYPTO BIZ GROUP Editor-In-Chief SOSHI Chief Operations Advisor TRENT NELLIS Chief Financial Advisor BARRY MORGAN Chief Technical & Media Advisor JAY ADDISON Senior VP of Business Development NATHAN WOSNACK Art Director VANESSA KING Social Media Crusader TYLER OMICHINSKI COVER DESIGN Jay Addison CONTRIBUTING WRITERS Oleg Andreev, Kristov Atlas, Gary Boddington, Sean Comeau, Ariel Deschappel, Susan Fourtané, Ben Isgur, Reed Jessen, Daniel Krawisz, Alexander Merricks, Vivek Nair, Phoenix Olivia, Nikki Olson, Jacob Payne, Branden Petersen, Piotr Piasecki, Arianna Simpson, Domenic Steil, Brian Vereschagin CRYPTO BIZ MAGAZINE PH3507 1111 West Pender St Vancouver BC CANADA V6E2B4 TEL 1 844 CRYPTO1 (1 844 279 7861) www.cryptobizmagazine.com Crypto Biz Magazine assumes no responsibility for unsolicited material. Opinions expressed herein are those of the authors and advertisers and do necessarily reflect those of CRYPTO BIZ GROUP, editors, advisors or staff. Readers are encouraged to thoroughly investigate and consult with a crypto financial advisor before embarking on any investment, speculation or financial opportunities. Crypto Biz Magazine makes no warranties or guarantees and we assume no liability regarding advertise ments or editorial content or any claims that may arise from them. The contents of Crypto Biz Magazine are Copyright © 2014, all rights reserved. Crypto Biz Magazine may not be reproduced in whole or in part without the expressed written permission of CRYPTO BIZ GROUP. subscriptions@cryptobizmagazine.com for a FREE subscription to Crypto Biz Magazine

I am Soshi and this is Issue.02 of Crypto Biz Magazine. I welcome you to our journey into the futuristic world of crypto currency. Over the next decade, the world’s economy will be revolutionized by innovation and efficiency through the mass adoption of crypto currency, and its unlimited benefits and improvements on the current global economic models. Mankind’s creativity has always been driven by innovation and necessity. There is almost always a “better way” with which to achieve our goals, whether they are on an individual level or a global scale. Look at the evolution of finance and technology as a natural progression from the centuries-old centralized system we have all been beholden to. As a consumer, you can expect to see the infrastructure for Bitcoin growing around you. Recently, we have seen Overstock.com, Dish Network and Expedia boldly and proudly announce to the world that they are accepting Bitcoin. Our global economic substructure will experience an infiltration of payment gateways, implemented and accepted as seamlessly as the introduction of debit transactions were in the 1980s. Look for the official “Bitcoin” sticker in retail storefronts around the world, adjacent to the traditional VISA, Amex and MasterCard logos. Consumer adoption and confidence will innately grow as crypto currency and Bitcoin become familiar terms in the world’s vocabulary. In this issue we bring you an eclectic mix of articles surrounding crypto currency and goings-on in our sector. A descendant of Bitcoin with an advanced security model, our cover story is about Cryptogenic Bullion. This is a hybrid concept that presents a strategy to buy and hold crypto currency as a commodity, in much the same way you would precious metals like gold and silver. US Marshals recently auctioned off nearly 30,000 Bitcoins seized from Silk Road, which was speculated to have negatively impacted the price of Bitcoin. However, this supply only strengthened the demand for Bitcoin, and the price actually rose nearly 7%. What does this tell us? Consumer confidence, buoyed by the US Government’s validation of Bitcoin, equals increased demand—and thus the price did, and will continue to, increase. You can read about the Silk Road Legacy of Dread Pirate Roberts inside. In late June there was a Bitcoin conference in Washington, DC. We have a review of Bitcoin in the Beltway by Ben Isgur that details the attendees, speakers and the general positive aura that accompanies this growing sector of finance. Innovation and community are the strong points in this space, and the reports we’ve had from those in attendance were very positive. The organizer of the Bitcoin in the Beltway conference was Jason King, the founder of Sean’s Outpost, a Pensacola, FL non-profit named after a deceased friend of Jason’s. His mandate has been to help the less fortunate in his area with Bitcoin donations. Bitcoin community members have proven to be compassionate and generous, as noted by Sean’s Outpost and another charitable organization, The Water Project. Our Advisory Board member, Piotr Piasecki, shows us the benefits of crypto currency for donations in Bitcoin for Charities. Finally, we very are proud to announce that Minnesota State Senator Branden Petersen recently joined our Advisory Board. Petersen was elected to the House in 2010. His legislative priorities include funding equity for schools with great needs but insufficient revenue, and “value-added” teacher evaluations that measure effectiveness by student progress, rather than teacher proficiency. Recently, Petersen announced that he’s founding a new non-profit, yesbitcoin, with a mission to communicate to people and organizations how Bitcoin works, and the ideas and infrastructure behind it.

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

Read and enjoy. If you have feedback, including questions, please feel free to contact me at soshi@cryptobizmagazine.com.

Enjoy! —S

July.2014 Page.5 Crypto Biz Magazine

E-MAIL contact@cryptobizmagazine.com

I AM SOSHI…

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 sometimes is under-discussed is their role in the future of transactions. As merchants learn about the benefits of accepting cryptocurrencies like Bitcoin, skepticism will be met by the numerous advantages of using this type 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 BitPay merchants pay 1% or less of their transaction amount (depending on volume) as a processing fee which is significantly less than other payment processing options. It’s the P2P nature of the Bitcoin network that enables this extremely low payment processing option. It’s also important to realize that Bitcoin is still in its infancy and other payment options have had 50 plus years to build their network and infrastructure. Bitcoin has been around since 2009 and in those five years the user experience for merchants and customers has become drastically easier. This will continue to improve as the open source platform develops. 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 developer Jeff Garzik is a member of our team and we continue to contribute to the platform through projects such as Bitcore. One of our biggest hopes is as other startups grow that they will be able to expand their development teams to contribute to Bitcoin. Bitcoin users currently have various reasons to use the protocol; including technological, political, financial and economic. As merchant acceptance grows and education on the subject grows, the user base will diversify and the platform will become easier to use. We aren’t close to widespread acceptability in the same vein as a credit card, but it is something that the Bitcoin community is currently developing.

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 is more in line with what the consumers wanted. Some advantages that Bitcoin has over what happened with Napster include the existence of a global marketplace, venture capital investments and continued development of the protocol. The switch to digital was something that was confusing and scary for many music fans and the immediate resistance slowly faded away and business opportunities such as iTunes and Google Music came to make buying digital music easier and the preferred way to purchase a song. Bitcoin is controversial now because it’s challenging something that has been the same for a very long time. It’s more important to realize that, like any other technology, it becomes more mature and easier to use over time. Some of the smartest and most successful entrepreneurs in the world are embracing Bitcoin. These individuals see the long term potential in how it could drastically reduce payment costs as well as the global reach it has. BitPay has 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 continue to grow globally with new offices in San Francisco, New York City, Argentina and Amsterdam as well as a new location for our continuously growing Atlanta office.

ACCEPT BITCOIN www.bitpay.com

CONTENTS

continued

Boatcoin 2014 Debuts During The London Technology Week .

Where does Accounting/ERP meet Bitcoin, Dollar, Euro & Yen?

by Susan Fourtané

by Gary Boddington

Dark Marketplaces Positioned to Accelerate the Collapse of Governments .

by Kristov Atlas

The Legacy of the Dread Pirate Roberts

by Jacob Payne

OPENCL vs OPENGL for Mining .

by Vivek Nair and Alexander Merricks

Crypto Biz Magazine Page.8 July.2014

What Makes a ‘Good’ Password Manager Good?

Bitcoin Suppression via the Patent System .

. .

by Phoenix Olivia

Bitcoin in the Beltway—Who, What, and Where Is Charlie? .

by Oleg Andreev

50 52

by Ben Isgur

Github Bitcoin Glossary .

46 48

by Reed Jessen

A Personal Journey Down the Bitcoin Rabbit Hole .

43 44

by Sean Comeau

Bitcoin and Cryptocurrencies: Prospects for Development in Russia .

38 40

by Daniel Krawisz

Bitbasket Q&A

EXPERT ADVISORY BOARD BLAKE ANDERSON

SUSAN FOURTANÉ, BA

BLAKE ANDERSON is an MIT

SUSAN FOURTANÉ , Science &

educated cryptographic economist and computer scientist. Having worked in Fortune 25 finance as a math based security project manager he now works with Bitcoin derivatives, contracts and financial products. Working full time with BTC behind the scenes for years prior to IRS direction Blake is now happiest when speaking publicly about technology empowering the individual. More about Blake at: cointelegraph.com/post/blake_anderson

Technology Journalist—Susan’s articles on diverse technology topics have appeared in various UBM Tech and UBM Electronics online publications since 2009, and on Helsinki Times and other publications since 2006. In February 2014 Susan joined CryptØMiners’ Board of Advisors as Media Advisor. Susan on Twitter: @SusanFourtane.

KRISTOV ATLAS K R I STOV AT L AS i s a n e t wo r k

security 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.

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.

BRANDEN PETERSEN is the founding Executive Director and Chairman of the Board of yesbitcoin. Along with this work, he serves on the Financial Standards Working Group at The Bitcoin 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 non-profit and corporate clients as a Senior Counselor at Ainsley Shea Communications in St. Paul, MN.

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 Va n c o u v e r - b a s e d s o f t w a r e d eve l o p m e n t s t a r t u p. S i n ce 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 cryptocurrencies.

July.2014 Page.9 Crypto Biz Magazine

LISA CHENG

BRANDEN PETERSEN

VISUAL CULTURE AND CRYPTOCURRENCY by NIKKI OLSON

I m a g i n e yo u r s e l f d e s i g n i n g a new cryptocurrency. You develop the protocol and other specific software attributes, and perhaps you’ve already settled on a name for your currency. Now you’re at the point where you have to create your cryptocurrency’s imagery… How do you decide how it will look, and why?

and paper currency being a source of nationalism and national iconogra phy. For over 2.5 millennia, currency around the world has been a way in which countries have made visual their self-image, ideals, aspirations, history, mythology and many other things. The most common images on money are of people (commonly, national heroes), but also popular are buildings, local flora and fauna,

Creating and decoding the signi ficance of visual attributes is an exercise in visual culture.

What is “visual culture”?

Crypto Biz Magazine Page.10 July.2014

Visual culture refers to aspects of culture that are communicated or evidenced in visual mediums. It can refer to anything from explicit art to fashion, from logos to typefaces—essen tially, it’s anything that corre sponds to a culture that is processed visually. While there are many inter esting visual facets to the Examples of ancient Greek cryptocurrency culture itself, coins, which followed the first in this piece I’ll focus on coins from Lydia, (present-day cryptocoin logos, elucidating Turkey) 600 B.C. the contrast between nationand methods of transpor state currency and cryptocurrency tation. In general, the visual from a visual standpoint, as well as aspect of nation-state cur explore the common symbolism rency can be thought of as used in cryptocurrency design (and a source of citizen education, the meaning it conveys). artistic enjoyment, and of course, communication and propagation The visual aspects of nation-state of national values. currency have a rich history, dating back to approximately 600 B.C. in It should be quite clear that the Lydia (present-day Turkey), which visual aspects of cryptocurrency is where the first coins with artistic are of a vastly different orientation. symbols and pictures etched into Cryptocurrency imagery almost them appeared (Standish, p.15). unanimously takes the form of The Greeks quickly followed, and circular logos, often of 2 or 3 solid in both instances the images on colors. There are of course a few coins were symbolic logos, often significant counter-examples, which representing the city-states that I will turn to in a moment, but first, were producing them. What would I pose the question: what are the ensue would be a 2,600-year history common visual themes? What do of a globally shared practice of metal

the common themes communicate; and can design in this space be categorized in any way? A survey of top cryptoc urrencies reveals that the digital aspect of cryptocurrency is a consistently highlighted and/or central attribute in design. Binary digits and/ or circuitry are common, as are aesthetics denoting a futuristic kind of elegance and sheen. Another thing to note is the frequent use of historic and even ancient language symbols. The “D” character on the Devcoin, for instance, which also appears on Dogecoin, is the historic character “eth,” which is used in numerous languages of the Middle Ages, including Old English. Others reach even further back. Zetacoin uses the Greek

alphabet’s “Zeta,” and Primecoin uses its “Psi.” What kind of meaning is conveyed by historic lettering? One could argue that the addition of historic lettering serves to give the logo an official feeling, as well as to emphasize positive attributes of stability and longevity. In addition, some instances of ancient letters

(such as “zeta,” and the written version of megacoin (MSC) which uses the summation symbol), have crossover use in mathematics and engineering, giving these logos, in addition, connotations of “precision,” “intelligence” and “reason.” One area of the market where design in this space is perhaps most interesting, and in many cases more similar in nature to traditional currency, is in instances where cryptocurrency is designed for a particular group of people, such as a nationality, or groups with common interests.

“Ideological coins” (for example Anoncoin and Franko Coin,) and novelty coins such as Dogecoin, also tend to appeal to specific cultural groups more intentionally in the logo.

What does the future hold in terms of cryptocurrency’s visual space? As the cryptocurrency movement unfolds, it will be interesting to see the aesthetic relationship communi ties have with cryptocurrencies grow in richness and complexity. Some visual customs of nation-state currency, such as the use of “official-looking” script and culturally significant images, having been carried through to cryptocurrency design and I wouldn’t expect that to change. However, as our relationship with cryptocurrency grows and unfolds, the meaning we associate with crytpocoin imagery will continue to change and intensify.

References: 1. Standish, D. (2001). The Art of Money: The History and Design of Paper Currency from Around the World. San Francisco: Chronicle Books. —S

July.2014 Page.11

NIKKI OLSON is an entrepre neur, Transhumanist writer, and Affiliate Scholar at the Institute for Ethics and Emerging Te c h n o l o g y. S h e h a s a B A i n Sociology and Philosophy and is now a student of Computer Information Systems at the University of the Fraser Valley. Contact inikki3@gmail.com. Her Bitcoin address is: 1GRxv7cuPU2P25kMR78qp6vrX5n71uCogD

Crypto Biz Magazine

Take, for instance, Aurora Coin, a coin created for Icelandic citizens. Given the nation-state context, we find ourselves back in a familiar place in terms of design, where visual attributes (and the name, in this instance) are connected to local geography and the history of the region. The image is of the Aurora Borealis, a significant phenomenon of the sky in the far north, and the character on the coin is a Viking Rune, the first letter of the Runic alphabet. The character means “wealth” or “cattle,” but also bears resemblance to a coniferous tree, which is a tree of the North. Another example is MazaCoin, which is the official reserve currency of the Oglala Lakota Tribe. The MazaCoin logo incorporates the colors of the Lakota medicine wheel. You can see the evolution of the logo here.

YESBITCOIN by EXECUTIVE DIRECTOR BRANDEN PETERSEN

Crypto Biz Magazine Page.12 July.2014

or five years, Bitcoin advocates have helped build an ecosystem that has caught the attention and interest of the world’s most powerful institutions. Yet today, less than five million people worldwide use Bitcoins in their everyday purchases. Bitcoin remains an enigma to the mainstream consumer marketplace despite exponential growth in venture capital and number of commercial business entities. Bitcoin investors, users and commercial interests are depending on the adoption of Bitcoin as a mainstream currency with upside value heavily dependent upon its use as a currency in the everyday marketplace. In order for this to happen, the broader community of diverse interests must communicate effectively to the marketplace at-large, as well as key constituents who have a stake in the successful adoption of Bitcoin as a global currency and technology.

focused communications and public relations an overwhelming challenge for the community. Individual business entities or interest groups, no matter how successful, will likely be unable or reluctant to “carry the water” for the Bitcoin ecosystem because those organizations will not be the sole, direct beneficiaries of such an effort. Any investment they make in large-scale communications on their own behalf will benefit competitors and the ecosystem at large. S e c o n d l y, B i t c o i n i n t e re s t s c a n ’ t s c a l e communications efforts in a way that makes economic sense for their organizations and business objectives. Again, the decentralized n at u re o f t h e B i tco i n e co syste m m a ke s informational and advocacy work on behalf of bitcoin use problematic. Of course, given that most consumers are unaware of Bitcoin, this educational advocacy must be done before a brand can even begin to talk about their own value.

To address the challenges, a 501(c)(3) non-profit organization named yesbitcoin will launch as the world’s first strategic, consumer—and merchantfacing communications effort on behalf of the world’s most prominently accepted crypto currency. yesbitcoin will focus primarily on driving understanding and acceptance of Bitcoin as a mainstream consumer technology. As Co-Founder and CEO of Coinbase recently said in an interview with CNBC about Bitcoin’s mainstream adoption, “The biggest hurdle is education.” But educating the broader marketplace is a challenge when talking about something that is inherently decentralized. The decentralized and diverse nature of Bitcoin interests and core constituents makes large-scale,

Bitcoin needs a single, recognizable, central advocate that can help the entire ecosystem by communicating on behalf of all interests on an

appropriate, strategic scale without the conflicts presented by proprietary interests—with a single objective of driving understanding, acceptance and use. yesbitcoin is the world’s first global nonprofit organization committed to demystifying the Bitcoin economy and increasing understan ding, acceptance and use of Bitcoin. The yesbitcoin mission is to immediately become the solution to the problem of decentralized interest and lack of focused, strategic advocacy.

DONATE TO: 1DV9NsxTsaLMbDaduS49oKcAEcpER4aqJX or at www.coinbase.com/yesbitcoin

WEB SITE: www.yesbitcoin.org CONTACT US: at branden@yesbitcoin.org or call 1 (763) 227-5444

BRANDEN PETERSEN is the f o u n d i n g E xe c u t i ve D i re c t o r and Chairman of the Board of yesbitcoin. Along with this work, he serves on the Financial S t a n d a rd s Wo r k i n g G ro u p a t The Bitcoin 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 non-profit and corporate clients as a Senior Counselor at Ainsley Shea Communications in St. Paul, MN: 1GRxv7cuPU2P25kMR78qp6vrX5n71uCogD

Crypto Biz Magazine

have been selling the benefits of their products for decades, and have paved the path that Bitcoin must travel. We seek to serve in this capacity on behalf of Bitcoin, with “retail” communications efforts that can be easily understood by the marketplace at large.

We are an organization that is dependent on donations from the community.

July.2014 Page.13

Consumers and merchants are accustomed to advertising communications from the financial service industry. Visa, MasterCard, American Express and other financial service providers

yesbitcoin will operate in a collaborative, nonterritorial and transparent manner. We seek to be a partner in propelling Bitcoin into the mainstream. We will continue in the tradition of the broader Bitcoin community, and work with all interests to advance our cause.

THE POWER OF THE BLOCKCHAIN: FUTURE DEVELOPMENTS AND APPLICATIONS by DOM STEIL

“Talent hits a target others can’t hit, Genius hits a target others can’t see.” —Arthur Schopenhauer mechanism of transfer and record. It is the “third-party” that is needed in so many of our current trust base models for various services. It is the “universal balance sheet” used to record and verify the most recent state of various digital ownerships.

The sentiment surrounding Bitcoin has transformed. It has gone from being the anonymous payment mechanism to facilitate illegal transactions, to a speculative digital bubble with no intrinsic value, to what industry leaders are now calling the greatest and most disruptive technological breakthrough since the Internet.

Crypto Biz Magazine Page.14 July.2014

The paradigm has shifted; entrepreneurs and worldclass venture capital firms are teaming up to improve the efficiency and effectiveness of this new payment ecosystem through: 

online exchanges



single-signature wallets



multi-signature wallets



merchant integration services



B2B enterprise solutions



mobile user applications

So far, what has been built is a secure and effective means to “pay” someone else without the need for a third party. It is simply a global transfer of ownership mech anism using a mathematically distributed digital asset that is growing in scarcity because of an increase in the awareness of its namespace and purposiveness. It is a decentralized peer-to-peer (P2P) transfer of ownership protocol using a time-stamping mechanism, and ultimately, it works. The underlying technology that facilitates the transfer of bitcoins, the blockchain, the namespace not in the headlines, is what will transform almost every domestic and international vertical market. The blockchain is intrinsically powerful in that it is the backbone of this new type of open source, verifiable, distributed

The blockchain is the foundation for so much more than just a payment network in the same way the Internet is the foundation for so much more than just e-mail. If the blockchain is what’s important, then “Bitcoin” is simply the global onloading mechanism. It is the first tier, an introduction to a new age of what is possible through decentralized networking and computing. Tier 1: A Decentralized Digital Currency and Payment Network 

Why is Bitcoin being developed in the form of multiple online exchanges and wallets based on geographical location and currency?



What if there was one was global exchange that allowed anyone to buy and sell any form of digital or physical asset regardless of location in world?



How could a global asset exchange such as this increase the security, transparency, and efficiency of global finance and trade?

Tier 2: Decentralized Networks and Development Platforms 

Why are digital currencies the only things being built up on top of this blockchain technology?



What if anything that could logically be expressed in code could be implemented on a blockchain?



How could this type of network and platform be adopted by the global economy?

This concept has the namespace of “Ethereum,” “Eris” (on Ethereum), “Colored Coins,” “Smart Contracts,” “Bitcoin 2.0,” and “Sidechains.” The crux of this whole phenomenon is that “Bitcoin” is a currency application to the blockchain. Ethereum wants to make it so ANY type of deal, organization, service, or system, can be decentralized. It just requires the parties involved to set the parameters expressed in code. So what will be built on top of the Ethereum network for consensus verification?

Third-party Trust Models

Gambling and Betting



Real Estate escrow between parties can be implemented using multi-signature contracts



Proof of a Bet



Indisputable

Insurance Policies can be engrained in the blockchain

Digital Commodity Pricing 

Commodities pegged at consensus-aggregated value

APIs with Global Mobile Banking 

MPesa



WeChat



Alipay

Weather Based Contracts

Non-Disclosure Agreements



Contract premiums based on seasonal conditions



A Farmer makes an insurance agreement based upon rainfall data

Patents, Copyrights, and Trademarks

File and Data Storage 

Proof of Existence on Bitcoin Blockchain



Dropbox/Box-type cloud storage



Enterprise storage, buy space from others on the network



Timestamped Verification

Timestamped Intellectual Property Rights

Payment Processors 

DAOs (Decentralized Autonomous Organizations)



An organization run and bound by code

Domain Names

Smart Contracts and Escrow



Namecoin



Hedging accountability



First to exist



No option of default



ICANN Replacement

Signatures

Governance



Docusign



Opt-In



Multi-signature to set proportional abilities on access to assets given a certain number of keys



Laws consensus driven

Private Keys to Share Economy Assets

Voting Systems and Records

Home and Apartment Leases

Reputation Systems



Home and Apartment Keys

Online Identification Systems and Records



Hotel Keys

Airbnb 

Car and Ride Leases



Car and Ride Keys



Autonomous Vehicles



Safety Deposit Box Keys



Package Delivery Keys

Permits to Controlled Assets Guns



Prescriptions



Timestamped verifiable access

Audit and Financial Services 

Taxes



Returns

Incentivized Truth Consensus Crowdsourcing 

Range of n inputs for a sought after accurate condition or state of n, correct answers are rewarded x

What is actually enabling individuals to trade any amount of bitcoin, regardless of their location in the world? “Mining.” The cryptographic time-stamping mechanism that replaces centralized authority with community consensus. The blockchain needs miners to survive. It needs nodes to verify valid blocks with valid transactions. What if the mining becomes centralized, thus Bitcoin becomes centralized? It is now self-evident to anyone who has been following the development of this cryptocurrency that the “mining” and “the blockchain” are what really matter.

Crypto Biz Magazine



Medical Records

July.2014 Page.15



Crypto Biz Magazine Page.16 July.2014

The incentivized mining mechanism is what should make this ecosystem thrive, not the companies building a new type of wallet or security feature. User adoption isn’t people buying up, holding and dumping after a price increase, it’s about people mining, becoming another node, therefore increasing the security and transaction volume capacity of the network. It’s those people realizing they can be part of a truly empowering decentralized global network. The network effect is what makes this technology powerful, its functionality as a type of distributed consensus technology increases over time. So the Bitcoin blockchain is being “mined” for a currency because it’s catching on, people are starting to accept it, online and offline. There is incentive. For all of these other future blockchain applications to work, you need people to mine “ether” from the Ethereum blockchain. I don’t know if I will be able to spend “ether” anytime soon, but the important thing is that if given the right incentives, a blockchain has the potential to become very powerful. Create an incentive for people to decentralize a type of process:

Bitcoin

Additional Reading on this: Tomorrow’s Apps Will Come From Brilliant (And Risky) Bitcoin Code By PRIMAVERA DE FILIPPI Wired The coming digital anarchy By MATTHEW SPARKES Deputy Head of Technology The Telegraph Think the Internet’s disruptive? Hold tight for blockchain By PHIL WAINEWRIGHT diginomica —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:

Create a platform that allows people to decentralize any type of process:

Ethereum

1FiYresjQP7GV9EUxr9fudWm3Xz7WC2VMC

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

BTC: 1LRWAyE3WKwTzXszEmtqKXzikQvoq7NJBa

www.vericoin.info

CAN BITCOIN DISPLACE GOLD AS A STORE OF VALUE?

Crypto Biz Magazine Page.18 July.2014

by ARIEL DESCHAPPEL

fter several high profile arrests, the collapse of its once biggest exchange, and many other setbacks and scandals, Bitcoin is still around… and kicking as hard as ever. The price of a bitcoin has rebounded over 70% since April, and venture capital continues to be injected into the ecosystem.

Circle Financial, another Bitcoin startup, has raised $26 million to-date and recently just unveiled its first consumer service, aimed at making it as easy as possible for the mainstream to use Bitcoin.

In May, the Bitcoin payment processor BitPay raised $30 million in a funding round that inclu ded major players such as billionaire investor Sir Richard Branson.

P e r h a p s m o st i n te re st i n g l y, E u ro Pa c i f i c Precious Metals—one of the world’s largest gold and silver dealers by volume—has started accepting Bitcoin payments. Euro Pacific Precious Metals was founded by Peter Schiff, gold bug, and since early 2013, one of the leading vocal critics of Bitcoin.

Also in May, the leading Bitcoin mining hardware manufacturer, BitFury, closed its own additional funding round of $20 million.

So why this seemingly sudden development? Has Peter Schiff altered his opinion on Bitcoin and “crypto currencies”?

Not according to his brief interview with CoinDesk, where he states that this is simply a strategic move, and proceeds to reiterate some of his previous objections to Bitcoin. Ultimately, Schiff still believes gold is better than Bitcoin. Oddly enough, extreme skepticism of Bitcoin is quite possibly the only thing Peter Schiff and Paul Krugman—the New York Times writer who penned ‘Bitcoin is Evil’— truly have in common. For Krugman this makes sense given his traditional background in favor of large government spending, regulation, Federal stimulus programs, etc. All policy recommendations whose principles stand in stark contrast to Bitcoin. Yet Schiff is another matter, and may simply be too beholden of gold to let it go so easily. So how do gold and Bitcoin really match up?

It’s an extremely powerful means of transferring value in the digital world, at the same speed we can transfer information, something that had

The odds of a catastrophic glitch being discovered at this point is practically zero, as Bitcoin is open source software that has been scrutinized, tested, and tweaked by legions of programmers and computer scientists over the past 5 years. While there are a number of smaller internal issues

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Now it’s important to realize that thinking of Bitcoin as “not real” is a silly mistake. It may only exist in the digital realm, but Bitcoin is cryptographically hard wired to have a limited supply of only 21 million units. This scarcity is very real, and even more transparent and assured than gold. Further, these limited units have utility. They can be transferred all over the world almost instantaneously and at practically no cost. Bitcoins have utility because they are the only unit of value on the planet that can boast such global efficiency.

Once you realize that Bitcoin is as “real” as any other limited good with value, you realize both Bitcoin and gold play by the same market rules. If, for whatever reason, everyone decided tomorrow that gold wasn’t pretty anymore, and Bitcoin became useless as a means of exchange, then both would indeed collapse in price. In that situation the fact that gold holders have something physical left over is a moot point if it isn’t worth much. The only advantage gold really has in this respect is a multi-millennia track record of holding value, while Bitcoin is admittedly far newer and therefore carries inherently more risk. However these risks are easily identifiable, so to render Bitcoin useless or totally insecure as a means of exchange (and thus worthless) would require either a catastrophic internal bug, or some other mass loss of confidence in favor of a superior “cryptocurrency.”

July.2014 Page.19

Mr. Schiff has several objections to Bitcoin, all I believe stem from a lack of appreciation for its many technical intricacies. For starters, Mr. Schiff is perturbed by the fact that Bitcoin is backed by nothing. Critics like Schiff claim its value can go from thousands of dollars to zero at any time, leaving owners holding the bag. Gold, on the other hand, can always be melted down into jewelry, and used in many industrial applications. However, the large bulk of the demand for gold comes from its value as a hedge against inflation and as an investment. These two uses make up the vast majority of its demand.

eluded us until Satoshi’s original white paper. If Bitcoin is not “backed” by anything in the traditional sense, it’s because bitcoins are already “something” themselves. Each bitcoin is a unique, unreplicable unit—much like gold. But where gold first gained value from its aesthetic appeal, Bitcoin gains its value from its built-in global payments network, and technological advantages.

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and debates that you can spend weeks reading into, none of them spell the doom of Bitcoin. As for a mass exodus to another digital currency, in order to supplant the massive first mover and networking advantage Bitcoin has, it better have features that far surpass it, and it’s hard to beat instant, and virtually free. More likely Bitcoin will be the “Facebook” of digital currencies, with newer ones with specialized features appealing to niches that may be sizable i n t h e m s e l ve s b u t wo n ’ t threaten the incumbent. Gold originally became soughtafter because of its luster, and will always retain some kind of value because of this property. Similarly a Bitcoin will always have value as long as the network continues to function, something that its decentralized architecture ensures as there is no one point of failure. In a debate with Stefan Molyneux of Freedomain Radio, Mr. Schiff commented, in regards to Bitcoin, “A currency backed by something is always better than a currency backed by nothing.” To be fair, in a world of precious metals and fiat currencies, this is an accurate statement. Modern day fiat currency is merely a tool leveraged by governments to help finance unsustainable spending and debt. In the United States the dollar has lost 97% of its purchasing power since the abolition of Bretton Woods in 1971, deficit spending continues to spiral out of control, and as of 2011 the largest holder of US debt is the Federal Reserve. Contrary to the delusions of some, like Paul Krugman, there is no reality where this ends well. All of these developments have only been made possible by fiat currency, and the power of the printing press. The opposite of this monetary system was the Classical Gold Standard, which tied currencies to the supply of gold. That is the primary purpose of any commodity-based currency: to prevent the unlimited, unsustainable, and arbitrary printing of currency by a central authority. While there is certainly a certain allure to a tangible and physical store of value like gold, this should not be confused as a superior monetary property in regards to Bitcoin. In fact the physical nature of gold has a number of major disadvantages in that regard. Let’s use a hypothetical example Mr. Schiff presents on a number of occasions to illustrate

this point: A gold-backed digital currency. Actually it’s not a hypothetical, as it has been attempted a number of times and failed. There are a number of problems with a gold- or commodity-backed

currency today, and the simple way to sum them up is centralization. To back a digital currency with gold requires a place to hold all this gold, be it a Swiss bank or Fort Knox, and the capital to support all of that storage and overhead. This all requires trust in the party holding the gold, in the infrastructure running the digital currency to be maintained properly, etc. At the end of the day, this is not only massively expensive but it’s pointless. What this system ultimately tries to accomplish is a modern form of the classical gold standard. A digital currency that can indeed be traded and transferred instantly but is fundamentally limited in supply. However if the ultimate goal of tying a currency to a commodity is to create scarcity, and therefore ensure its sustained value, then why bother with these shenanigans at all? The technology behind Bitcoin fundamentally allows for hard-coded scarcity, doing away with the need to be tied down to a commodity to keep supply limited. In fact the most important quality gold has in terms of securing its value is its scarcity. If it rained from the sky, or a massive super reserve was discovered and mined, for all its aesthetic appeal it would still be worthless. Bitcoin perfectly employs the great attribute of scarcity that has allowed gold to exist as a standard of value in countless world civilizations for thousands of years. But having that scarcity be physical can actually be a downside. Gold-backed digital currencies all had one major reason for failure due to their centralization: government shutdown. You see, governments aren’t

fond of the idea of losing their monopoly on money. A central location with hoarded gold backing up a digital currency is easy to put pressure on, or in extreme cases, confiscate—an event that actually has precedence in the United States. Bitcoin, on the other hand, exists over the Internet with no central point of control. Short of Armageddon, it can never be shut down, and can never be confiscated. You may correctly think that a gold-backed digital currency would have a price stability advantage, which is certainly true today. That is because gold, having existed for thousands of years, has already experienced re peated price discovery, while Bitcoin is still up in the air. Fortunately, fundamental logic would suggest that the higher the Bitcoin market cap and daily volume rises, the more stable the price will be. Take the dollar, which—like Bitcoin— is backed by nothing and has value that is determined entirely by supply and demand. The dollar, however, is used every day by hundreds of millions of people, and, as a result, its day-to-day value is very stable. Theoretically, the dollar at the market size of Bitcoin would be just as volatile, and Bitcoin used at the level of the dollar would be just as stable. Of course the difference is that bitcoins are limited in supply while dollars are not.

In ancient times, gold used as a ubiquitous means of exchange was a revolution in trade and comm e rc e . I t wa s , a n d re m a i n s , easily div isible, limi ted in supply, durable a n d i m p o ss i b l e to counterfeit. However, Bitcoin represents a similar revolution in money, combining the fundamental values of gold as money and

implementing it in a worldwide decentralized sys tem with no borders, no artificial barriers, and with total monetary freedom. It instills the ability in all owners, whether wealthy venture capitalists, or a merchant in Zimbabwe with a cell phone, to send money instantaneously around the world without any middlemen, at close to no cost. Bitcoin is the embodiment of both sound money, and a new age of unprecedented global trade and economic freedom. Gold will always have its historic past, but the future belongs to Bitcoin. —S

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ARIEL DESCHAPELL

is an enthusiastic Bitcoin community organizer, analyst, writer, and entrepreneur. Since first hearing about Bitcoin he has been on a mission to c o r re c t t h e va s t a m o u n t o f misinformation circulating about Bitcoin online, article by article. He is a Miami born Cuban-American, and attends Florida International University for finance. In his spare time he enjoys reading, eating, playing Halo, and mountain climbing. Ariel accepts Bitcoin tips: 1D9P94wkZNvaDVei4q8iYS9zKKkHgbRjLG

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The question is, can Bitcoin crawl up to levels of greater usage and thus stability? It’s actually a bit of a paradox, as greater amounts of people would only be confident using Bitcoin if it was more stable, and it won’t get more stable until greater amounts of people use it. This makes it an uphill battle for adoption, one that is unprecedented as far as technological advancements go. However, the potential benefits of Bitcoin, if widely adopted, are clear, even if it could take a while. Goldman Sachs estimates $210 billion could be saved a year globally by Bitcoin, and that’s only the economic benefit that’s easily measurable. It’s impossible to even contemplate how much economic damage is done in the form of artificially inflated bubbles from rampant and irresponsible government money printing, not to mention the theft of the purchasing power of citizens to fund what would otherwise meet violent opposition if it required increased taxes. Finally, Bitcoin is an open platform that allows for permissionless innovation, much like the Internet, allowing for an untold number of

applications and useful subsystems to be added to it in the future. Gold doesn’t have even a medio cre chance of matching any of these technological achievements.

BITCOIN FOR CHARITIES

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by PIOTR PIASECKI

The Bitcoin technology has a lot to offer to the non-profit sector. This message permeated the Bitcoin in the Beltway conference. It doesn’t matter whether you’re feeding the homeless like Sean’s Outpost, building water wells through The Water Project, or mapping the asteroids floating in our solar system with B612 Foundation, the Bitcoin community wants to give you money, and it will go out of its way to make sure you can accept it. Using Bitcoin can be a challenge in itself, let alone using it in your business. However, there are many great services that take care of everything for you. For example, BitPay will accept Bitcoin payments and donations on your behalf, convert the money into your local currency of choice and deposit it into your account in a matter of days.

Moreover, if you are a registered charity or nonprofit, they will do it for free, end-to-end. No setup fees, no transaction fees, no withdrawal fees, nothing. All a non-profit needs to do is set up with the service, put a widget or a QR code on their website and it’s done. If that still sounds too complicated, or like too much of a hassle for your charity, another organization by the name of Bitcoin 100 will gladly help you go through the process. In addition, once you start accepting funds on your website, they’ll give you the equivalent to $1000 in Bitcoin for your trouble. No strings attached. While this amount might just pay for the effort of setting everything up in the West, that can be a sizable contribution in developing countries. And that’s only a start…

When you’re talking about money, you also have to keep in mind how difficult and expensive it is to send money to some places in the world. PayPal doesn’t support many countries (complete list of unsupported countries), countries such as Haiti, Iran or Pakistan. Sending $100 to these countries through Western Union can cost as much as $12, and the ratio gets worse with smaller amounts. With Bitcoin, no amount is too small. It’s actually econo mically feasible to donate one dollar or less to a charity half a world away, and know they’ll receive that money instantly. A charity in a third world country can solicit direct donations from anyone on the Internet without having to rely on third part ies or having to pay an arm and a leg for the privilege.

Another important thing to remember is that Bitcoin can thrive under oppression. Women’s Annex Foundation is a charity aiming to bring digital literacy to women in Afghanistan and other countries. While in the Western world one takes access to banks for granted, it is a struggle in developing countries. Traveling long distances to a bank, the danger of robbery when carrying a lot of money, women unable to open bank accounts without their husband’s consent—a reality for many people.

PIOTR PIASECKI is a Chief Scientist at Provable Inc, 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 cryptocurrencies.

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Bitcoin changes all of that. One can easily use Bitcoin with SMS through 37Coins, or a number of online wallets on a smartphone. Transactions are cheap, Bitcoin does not discriminate against anyone and you can use it everywhere. Not only can Bitcoin technology help charities, it might be the only way for some people to receive money.

Not only do Bitcoin enthusiasts love charities, they go out of their way to support them. The Bitcoin technology boosts existing charities and enables new non-profits to form where they couldn’t before. So if you’re donating to a charity, let them know about Bitcoin and why they should accept it. If you are a charity or a non-profit, give Bitcoin a go—it costs you nothing to try and who know how many people will shower you with their coins and affection. —S

July.2014 Page.23

The Bitcoin community loves to support charities in its space. The Celebrity of Bitcoin non-profits is by far Sean’s Outpost, a homeless outreach from Pensacola, FL. In their first year of operation (they recently celebrated their oneyear anniversary) they fed over 60,000 meals to the homeless, handed out 1,000 blankets, got nine people off the street permanently, created a Satoshi Forest homeless sanctuary, and much more. They raised about 733 bitcoins in total for their cause and are going so strong they are planning on setting up new charters all over the US and in Canada. The message couldn’t be clearer—Bitcoiners love nonprofits.

Lastly, Bitcoin protects the charities from fraudulent “donors” and chargebacks. You hear those stories every now and t h e n a b o u t s o m e o n e w h o s t e a l s c re d i t card information and decides to be a “generous” Robin Hood and donate some of the stolen money to a charity. A few weeks or months down the line that charity receives a massive chargeback on their account, for money they’ve already spent, because it came from a fraudulent source. Despite accepting the money in good faith, the charity suffers. Bitcoin donations are like cash, once they’re given, that’s it—there is no taking it back.

CRYPTOCOIN SOCIAL

Crypto Biz Magazine Page.24 July.2014

@MaxKeiser

@CryptogenicBull

CRYPTOCOIN SOCIAL

@BitcoinReporter

July.2014 Page.25

@BitcoinPrice

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WHY YOU SHOULD PROBABLY BE USING A MULTISIG BITCOIN WALLET by ARIANNA SIMPSON

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If you’re like most people, you probably like things to be simple. Many users simply don’t want the headache of thinking about security, which is the appeal of a full-service solution that stores your private keys for you. These full-service solu tions become problematic for more advanced or tech-savvy users, who generally want a heightened degree of security while maintaining control over their assets.

I WOULD SAY I’M GENERALLY a jovial person, but if I woke up and realized I had lost 7500 bitcoins, I would encourage the rest of the world to back away from me… very slowly and without making any sudden movements. Fortunately, this hasn’t happened to me, but it did happen, unfortunately, to Jeremy Howells, who became infamous in the Bitcoin commu nity for accidentally disposing of his hard drive with the keys to all of his bitcoins on it. At this point in time, we’re still in the early stages of Bitcoin’s life cycle, and five years is like the blink of an eye in currency years. Although there is a strong trend toward mass adoption (5 million wallets, growing 8x year-over-year, according to

Mary Meeker’s annual report), we’re not there yet. As things c u r re n t l y st a n d , t h e re ’s a fundamental disconnect between usability and control. You can choose to keep your private keys yourself in what is known as a client-side wallet, or you can hand them over to a third party that stores them for you in a web wallet. When you do the latter, you’re trusting that the third party is taking appropriate security measures, which includes keeping at least the majority of your bitcoins in cold storage. As we’ve learned from Mt. Gox and other similar fiascos, this isn’t always the case, which is why the safest thing to do is to diversify your holdings by using a variety of wallets so if one gets hacked, you don’t lose everything.

Conveniently enough, the Bitcoin protocol can accom modate such a tall order. Pay to Script Hash (P2SH) is a type of Bitcoin address that was introduced as part of Bitcoin I m p rove m e n t P ro p o s a l 1 6 (also known as BIP 16), early in 2012. P2SH addresses can be secured using a more complex algorithm than standard ad dresses, and involve the use of multiple Elliptic Curve Digital Signature Algorithm (more commonly known as ECDSA) keys, rather than only one. Multi-signature (M of N) wal lets allow users to maintain d i r e c t c o n t r o l ove r t h e i r bitcoins while also removing some of the security burden from them. In the event that one of their private keys is lost or stolen, it no longer means lost access to your bitcoins, as they can still be accessed using the backup keys. The concept of m-of-n signa ture schemes is fairly simple, at least at an abstract level: In order to complete a transac tion, more than one private key (m) is needed out of a total number generated (n). In a 2-of-3 scenario, you would need

two out of a total of three keys to withdraw money, but the process for deposits is the same as it would be for a standard address.

Since it’s significantly harder for someone to steal two private keys than one, this adds an additional safety net against both physical and digital theft. The benefit of multi-signature wallets is that they’re more secure than a traditional digital signature setup, and also offer more protection from human error. In the event that I accidentally go into spring-cleaning overdrive and toss out my hard drive with my private keys on it, I can still access my bitcoins using the backup key.

I’ve only examined the application of multisignature transactions and wallets for security purposes here, but it can also be applied to escrow, and to transactions involving digital payment for physical goods. Multi-signature transactions can also be used in institutional or corporate settings, where more than one person is needed to sign off on something before funds can be released, for example. These applications of multi-signature transactions deserve their own examination, which I’ll address in an upcoming issue. —S

As a Bitcoin enthusiast and in vestor, ARIANNA SIMPSON is particularly passionate about helping women get involved in the Bitcoin community. She is now at Facebook, working out of the New York office, where she organizes the Bitcoin meetup group. In her previous lives, Arianna did ecology research for the National Science Foundation in South Africa, cofounded Tigervine, lead sales & boutique operations at Shoptiques.com, and spent several months backpacking through Southern Africa. Her Bitcoin address is: 1DLBeB2NxcGNsCAFyLa6ateQqtBc1o1LJh.

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The reason I like multi-signature addresses and wallets is that, unlike having a vault that is simply insured, they use technology to secure the coins. What’s most exciting about multisig is that it’s an actual advancement in the protocol that permits this type of address to be created and used. While insurance has its place, it does not actually solve or get rid of the problem of loss or theft—it merely corrects the wrong after the fact. Insurance does not offer an advancement in technology, and

I have no doubt that insurance covering Bitcoin assets will become industry-standard in the next few years, but if Bitcoin ends up requiring all the same cum bersome financial infrastructure as the current system, we will have gone full circle while making little real progress.

July.2014 Page.27

You can then approach distributing and storing the keys in various ways. You could hold one key, you could give another key (the backup) to a trusted friend or relative—or even store it yourself in a different location from the “main” key, and the third key would be held by another party, such as a company offering the service. BitGo, which I recommend checking out, is a company at the forefront of implementing m-of-n addresses.

the onus still falls on the insurance company to make things right again.

Q&A WITH SWARM

CEO JOEL DIETZ Crypto Biz Magazine’s Editor-in-Chief Soshi sits down with Swarm Corp’s CEO Joel Dietz. On the weekend we covered their pre-launch party, which took place in Berlin, Germany, as they counted down to their (June 17th, 2014) launch, and to keep the momentum going we decided to also include a Q&A. SOSHI: Thank you for joining us for an interview, Joel! Our team is honoured to have the pleasure to sit down with such an important innovator from within our fastgrowing crypto-community. DIETZ: Super excited to be with you guys! Been very impressed with Crypto Biz Magazine so far.

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SOSHI: Please tell our readers a little a bit about Swarm Corp, how it all got started and the moments leading up to your Tuesday launch? DIETZ: Largely under Vitalik Buterin’s influence, I started to see the potential for applications built on top of the blockchain. I also was heavily influenced by conversations with Nick Szabo and Tim Swanson (author of Great Wall of Numbers) on the potential of smart contracts. A platform for issuing crypto equity, allowing easy access via crowdfunding seemed like the best next step to building full crypto companies. The need for some intermediary step, ideally one that includes both funding and accountability, was especially clear when I saw the struggles that some folks were having with their own fundraisers. SOSHI: We read online that the Swarm crowdfunding platform raised over 450 Bitcoins (over $600 USD each at today’s prices) in two weeks. This is truly a phenomenal feat, and unlike many of the other startup crowdfunding efforts we’ve seen in some time! DIETZ: Yep, we actually hit our 500BTC target without any advertising. It was all done through networks of open source developers, which excites me a lot, concerning the future of crowdfunding, since even large raises can totally be driven by the future users of the project. SOSHI: We also read that your COO, Ben Ingram, has described your Swarm platform as the Facebook of crowdfunding. In what ways are Swarm’s crowdfunding efforts different than other ones we’ve seen previously in this space? DIETZ: One of the benefits of crypto technology is that it is frictionless and instantly global, so this allows people easier access to your crowdfunding efforts.

Because it’s all programmable, it also allows a lot of fascinating incentivization strategies that encourage people to get in early. It’s also very focused on building blocks that increase the overall value of these open source ecosystems. SOSHI: Your site mentions that Swarm plans to make 100 million SWARM coins available in a limited-crowd sale until July 20th. How can the general public get in on Swarm Coin and where can they get involved in this crowd sale? DIETZ: That’s right, the sale starts at Midnight in Berlin (GMT +1). Instructions are on our website, but you just need to set up a counter wallet (www.counterwallet.co) and then send bitcoin to our address. SOSHI: We read that your team has been working closely with Evan Wagner and Adam Krellenstein at Counterparty XCP. Can you tell us a bit about your choice to use Counterparty as opposed to others? DIETZ: We love Counterparty. It’s very developer-friendly and we are currently seeing a boom in activity in the eco system around it. A lot of the features (like dividends) are also extremely high value to us and only available on Counterparty. SOSHI: It’s been said that the Vennd functions will help with creating a frictionless experience for the users who convert from XBT (Bitcoin) to Swarm Coins. Can you explain a bit about how ‘Vennd’ works? DIETZ: Vennd (www.vennd.io) is an open source platform that allows people to easily exchange one asset class for another. This works between assets created on Counterparty, and other things like BTC or other alt coins with their own blockchain like DOGE. We’ve been working

with the Vennd guys very closely to add on some custom code that allows for things like linear depreciation in exchange rate and other things that allow easy access (but also prevent massive arbitrage opportunities, as with Maidsafe). We think a bunch of vending machines will greatly increase the liquidity around Counterparty.

DIETZ: We will be busy for the next couple of weeks with the launch, but in early July we will be hanging out in Ben’s bat cave near London. Send us some specs and we’ll see if we can knock something out

DIETZ: In our “Indications of Interest” round the first bit coins came as a steady stream of small amounts, then suddenly we started seeing much larger chunks come in and our sale jumped it to near full. SOSHI: If you were to give one piece of advice to those starting out within the crypto currency crowdsourcing

SOSHI: What are some of your plans for the remainder of the year post-IPO for Swarm? We read there are some plans for an app, can you tell us a bit about this and other plans on the horizon for you and SWARM? DIETZ: We are very excited as we put together the plans for the next three coins to launch via SWARM. We are planning to announce these throughout our fundraiser. We have quite a bit of work to support these coin offerings, including custom pages for each project Kickstarter-style, as well as a dashboard that allows you to see each of the coins you hold. That’s the next two-plus months. Later this year I want to focus on implementing decentralized due diligence so that we can allow anyone to evaluate coin offerings and mobile apps so that you can get information on everything going on in Swarm. SOSHI: Thanks for your time, Joel! We appreciate it. —S

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SOSHI: We read that you have a few different phases for SWARM Coin. Phase One—4,000 Bitcoin @ 5,250 SWARM coin per Bitcoin, decreasing to 4,750 per Bitcoin until the end of Phase One. Phase Two—17,000 Bitcoins @ 4,250 SWARM coin per Bitcoin, decreasing to 3,750 per Bitcoin until they are all gone. How has this been coming along? Are you seeing consistent purchases as you ramp up to the launch?

DIETZ: It’s important to face the legal challenges square on at an early stage. We’ve spent a lot of time and energy to make our best effort be legally compliant (although there’s a lot of grey area that we are working hard to clarify).

July.2014 Page.29

SOSHI: Your COO Ben Ingram seems to be big into 3D Printing. 45 minutes ago you guys posted some excellentlooking designs. Maybe we can send you some designs for Ben to make for CBM (Crypto Biz Magazine)?

space based on your own success with Swarm, what would that be?

CRYPTOGENIC BULLION AND THE CONSULTANCY CULTURE by BRIAN VERESCHAGIN

Trends: Obscurity, Capitalization, Mining and Speculation, Adoption If the advances of Bitcoin and its ecosystem of altcoins have been like a meteor shower, what comes next may be an extinction-level event for debt-based fiat currencies. In this article, we will try to break down some of the fundamentals of the cryptosphere, and the logical conclusions of what’s next. Our position is to embrace the diversity of altcoins while accepting that one coin cannot perform all necessary tasks.

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Bitcoin’s trailblazing efforts have left it in a unique position as a highly liquid market gateway which we all rely so heavily on. The Bitcoin crowd bridges the divide between the heavily regulated fiat markets and the new realm of digital currencies. So long as it does this well, it will maintain its value. With the protocol a solid foundation, a flexible and dynamic community can only boost the effect. Cryptocurrencies began to see a real capitalization phase in early 2013, which carried on to its blow off top by the end of the year. This mainstream attention led to hundreds of new altcoins and an overall focus on mining and speculation. Cryptogenic Bullion, now a year old, was designed with the pro perties of money, and modeled after the supply of gold, making it a better store of wealth. Other coins work better for spending, like Dogecoin, whose major innovation is a welcoming, highly organized community with an adorable dog for a mascot; it’s not to be underestimated. The explosion of the altcoin scene was met with the outflow of capital aided by constant negative signals from media and government around the world. This has really become a survival of the fittest, though positive news is taking hold again. In times like these, we can more easily consider working together to transition from the current focus on mining and speculation, to the capital that awaits “mainstream” adoption. Our goal is to show how this is possible, through education and consultation.

As an investor, it helps to know some fundamen tals. Cryptocurrencies can be held to spend, held to save, held to invest, and used to move funds from one person, place, or market to another. Predicting changes in this demand is one way that an investor can generate a return. As we become more aware that adoption is at hand, we can invest, and then push capital towards the projects that are making it happen. With these fundamentals in mind, we can better understand the financial services which will satisfy the increasing demand.

Adapting Financial Services to Meet Demand Gold and silver are called honest money for a reason, and it’s the same reason that you can apply to crypto currencies; they pay special favor to no one. They can be stored in a safe, or removed and sent across the world in minutes. We are now able to create decen tralized trading markets which facilitate trades on a peer-to-peer basis. As the pendulum swings we seek balance between centralized convenience and decentralized freedoms. As awareness is expanded and major demand is realized, some of the largest financial institutions begin to offer accounts denominated in crypto currencies. These financial institutions will be wellconnected to foreign exchange markets, including

The freedom to interact with each other in boundless, and yet fair, new ways is what will drive the demand for these cryptographic blockchain technologies. However, freedom always comes with responsibility. Today’s financial system totally depends on centralized trust to store and transact our savings. The trade-off for this convenience of security is that you don’t actually control your money (and it doesn’t technically exist outside trust).

To get a better understanding, we will quickly go over some variables that can make a coin unique. One is what we call the inflationary profile; that’s the rate of monetary base expansion over time. Another is security method and reward. Proof of Work (PoW) rewards miners with newly created units, while Proof of Stake (PoS) provides existing holders with interest, in an energy-efficient manner. Cryptogenic Bullion is an example of a hybrid, which rewards miners at 0.5%/yr, and savers at 1.5%/yr. The perceived fairness of distribution can also be an important factor. Cryptogenic Bullion was among the first PoS coins, owing its lineage to Novacoin, and the original innovator, Peercoin. It’s the first cryptocurrency to display all of the properties of money, while providing the bearer with interest for holding it. Like gold, it is portable, divisible, fungible, scarce, low inflation, durable, non-consumable, and a store of wealth. Not only does Cryptogenic Bullion emulate the supply of gold, a classic safe-haven asset, but it also represents a part of the movement towards a more fair and honest system of money. While Bitcoin is being mined over the span of decades, most altcoins chose a quicker expansion phase. Cryptogenic Bullion was very bold at the

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While government regulations will shape the industry, the decentralized nature of crypto assures us that it shares qualities with physical cash, and can not be truly controlled. Cryptocurrencies may actually ensure that a cash substitute is always available, regardless of our move to a “cashless” society. Each wallet is like a bank account, but banking services will bring elements of centralization and trust such as those that allowed Mt. Gox to fail. There is a balance to be found, and it will require active participation.

What Makes CGB Unique and Pioneering?

July.2014 Page.31

all major cryptocurrency exchanges. A mobile app and an online wallet will utilize proprietary infrastructure to execute requested transactions. These financial institutions will provide security, printing and delivery of private keys on request, customer-verified segregated funds, and advanced cryptocurrency functions like claiming interest. These services will all integrate seamlessly with customer expectations.

time to set a one year mining period. This rapid tapering leaves the coin with a very small inflationary headwind on the price. Quark had a six month mining period and the investor-friendly inflation level seen since then likely plays a big role in its respectable market cap.

Crypto Biz Magazine Page.32 July.2014

Every successful coin eventually has to navigate the transition from mining and speculation to adoption. This means that we have to adopt the currency into its intended role to provide the demand (chicken and egg problem). The methods of how to do this are being developed right now in the CryptoTown On The Ground project. This is the level of flexibility and innovation that the CGB Core Team and community are becoming known for. We acknowledge that one coin cannot efficiently fill all roles, and that competition keeps the ecosystem healthy. The value of Cryptogenic Bullion is neither de termined by how many markets it can directly trade to, nor by how many businesses and individuals will accept and hold it for spending, but from its fundamentals, which allow it to serve as a more stable store of wealth. The role of any cryptocurrency also changes over its life-cycle and all have yet to reach their full potential. As time goes on, CGB is building utility as a more stable store of wealth, and as a currency for settling larger, more infrequent transactions. With this focus in mind, we still encourage businesses to accept payments in CGB as a matter of convenience. The consultancy culture is about helping people to understand these and other fundamentals, so we can all make more rational choices— individually, and together.

The Consultancy Culture This idea stands on its own and is not unique to CGB; that open, rational discussion is preferred for better understanding and outcomes. We all have something to bring to the table through more open collaboration and organization. This notion underlines the importance of our education focus, our open community collaboration, and our on-theground consultancy. This culture is borne out of the understanding that CGB does not compete with, but actually complements, most other cryptocurrencies. CGB’s consultancy culture is developing a knowledgeable and open community that advances the cause of all cryptocurrencies,

based upon the principle that the more people who end up using them, the more people will end up own ing some CGB. By taking a non-biased approach, we can tap t h e re s o u rc e s a n d exc i t e m e n t o f t h e e n t i re cryptosphere in a credible manner. The end result is something that can seldom be experienced in few other communities—honest, up-front advice coming from a “big picture” perspective. Talented individuals looking to make their mark on the frontier of cryptocurrency adoption need look no further. Some of the concepts that we would like to convey can be nuanced and quite difficult to truly understand. An already difficult concept can be made almost impossible to convey when met with prejudice, emotion, and outsider defenses. This is a natural reaction in human society and it can protect indi viduals from harm, but it may also stifle progress. This is the first major challenge for any encounter with which the consultancy culture aims to reconcile. Two major forces at play here are personal gain, and con structive creativity. It is very simple to tell the difference between the two. Profit motivated schemes almost always involve trust, and apparent convenience, while constructive creativity requires no trust, but individual work and skills may be required. The CryptoTown On The Ground project can be seen as creative construction, while a CryptoMall itself could be run for profit or even mismanaged. Decentralization demands that we become more independent, and “street smart,” to properly navigate. This empowerment is a side effect of the consultancy culture and helps to make stronger communities from more independent individuals. Our laser focus on the fundamental path toward mass adoption is what will keep CGB and the Consultancy Culture relevant. Proactive creation of global demand may seem like a daunting task, but we already have a plan in place, and boots on the ground to back it up.

“On The Ground” Consultancy to Drive Adoption A major new channel for crypto-advocacy is being created through the CryptoTown On The Ground project. We are developing a comprehensive guide and the resources necessary for creating and participating in what we call a CryptoMall. A CryptoMall is a directory and network of businesses, investors, consultants, and resources maintained by a group of volunteers who organize and advise its members. The Official CryptoTown Guide is part of a decentralized structure, much like the crypto we advocate, which relies on individuals, “on the ground,” to sort out the specifics of their own situation. This project is the product of collaborative effort amongst these self-managed CryptoMalls to explore and document the most effective methods to facilitate the adoption of cryptocurrencies as part of stronger communities. An effective feedback loop and open structure ensures that anyone can start a CryptoMall and share their experiences and ideas back into The Official CryptoTown Guide. It is becoming clear that the “buy and hold” mentality is not going to drive real demand. Those who are able can find many ways to help out through the CryptoTown On The Ground project. We are positioning CGB as a leader in the facilitation of cryptocurrency adoption by businesses, with a focus on

those with physical establishments. Cryptogenic Bullion backs CryptoTown with its reputation, resources, and consultants. At just one year old, CGB is becoming more than just a cryptocurrency. It is evolving into a suite of tools and services which allows it to adapt to many use cases. As we execute and explore real-world strategies for cryptocurrency deployment, problems and inefficiencies will be remedied through active development of these tools and services. Through development of our shared resources, our communities become stronger, and each of us more self-reliant. —S

B R I A N V E R E S C H AG I N

a n I n f o r m a t i o n Te c h n o l o g y professional with an affinity for communication networks. His logical approach and attention to detail has provided him with the tools and experience necessary to discern the way forward. “When we understand that teaching is not only knowing a concept, but also knowing your student and forming the understanding based on that, we can then take these technologies forward with logic and reason to a wider audience. Consider holding a bit of Cryptogenic Bullion (CGB). To find out why, read on and ask some questions; experience the consultancy culture.” Brian takes CGB tips at 5d8i3zuAugZXLnouJnhFPcZJCLuQPjXkRP

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CRYPTOTOWN ON THE GROUND

BOATCOIN 2014 DEBUTS DURING THE LONDON TECHNOLOGY WEEK by SUSAN FOURTANÉ

Crypto Biz Magazine Page.34 July.2014

English landmarks, cruising the Thames, and cryptocurrency networking was a cocktail of some of the best cryptonews happening in June Sailing the waters of the River Thames, the first ever Boatcoin Conference cruise debuted on June 18, during the vibrant, first-ever London Technology Week, attracting an interesting group of cryptocurrency speakers and attendees. After a smooth boarding from Westminster Pier on the good ship M V Royalty, the conference began with a series of presentations on the latest and most important topics on Bitcoin and other cryptocurrencies.

The cruise, which launched from Westminster Pier and sailed for nearly six hours, was a one-of-a-kind event where, welcomed by Boatcoin host Mark Le, the attendees had a unique opportunity for networking. The event was also an opportunity to experience a typical sightseeing cruise, admiring London

attractions such as the magnificent Big Ben and Houses of Parliament, the London Eye, London Bridge, Tower Bridge, and much more between presentations, or during the lunch break. It was, by far, one of the best venues for a networking event of this type. Attendees also the chance to snap some pictures while networking. The presentations by Stanislav Wolf, from World Bitcoin Forum; Alex Kotenko, from XBTerminal.com; Stephan Tual, f r o m E t h e r e u m . c o m ; N i c o l a s T. Courtois, cryptologist, UCL; Olly Wasser, from altcoinspeculation.com; Niki Wilies, from Counterparty.com; Ivo Mosler, author of In the Name of the People published in 2013; and Simon DIxon, from BankToTheFuture.com, were followed by a panel discussion, right before the attendees started taking the last pictures and ending their

July.2014 Page.35

August issue for highlights on Boatcoin 2014 presentations. —S

Did you miss the most important cryptocurrency event of the year?

All photos by Susan Fourtané

Crypto Biz Magazine was there to bring you the highlights from this year’s Boatcoin conference in the hope that next year you will not miss the cruise. Watch out for Crypto Biz Magazine’s

SUSAN FOURTANÉ, Science & Technology Journalist— Susan’s articles on diverse technology topics have appeared in various UBM Tech and UBM Electronics online publications since 2009, and on Helsinki Times and other publications since 2006. In February 2014 Susan joined CryptØMiners’ Board of Advisors as Media Advisor. Susan on Twitter: @SusanFourtane.

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cryptocruise adventure and heading back to Westminster Pier.

WHERE DOES ACCOUNTING/ERP MEET BITCOIN, DOLLAR, EURO & YEN? by GARY BODDINGTON

Crypto Biz Magazine Page.36 July.2014

Planning) industry as an isolated example, for no reason other than this domain stands in line to be disrupted as much as any other.

Can you imagine a world where a crypto currency (something like Bitcoin) sits alongside the dollar, the euro and the yen? In a recent discussion at a Bitcoin meetup in Vancouver, the topic turned to user adoption and, more specifically, what needs to be done to see crypto currency gain mass adoption on Main Street. This was encouraging, not least because I believe crypto currency discussions to date have been unnecessarily encumbered with technical one-upmanship, or arguments over monetary policy ideology, or a confusing cocktail of both. Full disclosure, I am firmly in the camp that believes that crypto currency will ultimately reach its aspirational goals of Main Street adoption, but I am categorically under no illusion that this will happen either quickly or soon. It is clear that there’s a wide gamut of “traditional world” business across banking, legal, accounting, financial services, taxation, gaming and gambling that could be shaken to their core, so in the interest of invoking a discussion, and attempting to understand the crypto currency world we endeavor to live in, let’s use the accounting & ERP (Enterprise Resource

The Accounting & ERP vendors (vendors) landscape is an incredibly competitive landscape populated by multiple large and small vendors distributed globally, all of which cater to all sizes of organizations. So, how does crypto currency gain adoption amongst these vendors who influence millions of the world’s businesses through the software they produce and the associated advice their channel of integration partners offer? Well, at first glance it seems straightforward, because crypto currency is just another currency, just like the dollar, euro and yen, and almost all of these vendors have multi-currency functionality as standard. So it’s that simple then, vendors just communicate to their market that they already handle multi-currency as existing functionality, so everyone just go right ahead and transact in the crypto currency of your choice. But hang on, not every crypto currency is created equal—certainly not in the hands of global regulatory agencies, anyway. Depending on the region of the world a vendor operates in, crypto currencies have been treated dramatically— and with mass adoption aspirations in mind— damagingly, inconsistently, ranging from a traditional currency to an informal form of barter. The reactions of separate jurisdictions have ranged from enacting very strong pro-crypto regulations, including strong privacy, to an attempt at an outright ban by certain states.

Regardless, for vendors to ponder adoption of crypto currency for their install base, this represents a potentially harmful legislative minefield that poses a non-trivial challenge to adoption. But let’s steamroll that issue for the sake of this article and imagine for a moment we all live in a global crypto currency utopia, a place where all regulatory authorities give the green light to crypto currency on their turf. Sounds great—but wait, there are already a wide range of digital currencies to choose from, and a whole range of new “derivatives” under con struction in the crypto currency development community. So, does each vendor need to ac commodate all these currencies, or should they choose to support just a few? Does that mean, for example, that vendors need to consider an integration with one crypto currency exchange, or will it need to support a few, or none? If it’s necessary to collaborate with more than one, how does a vendor choose the most reliable and re putable exchange to integrate with; and where do the big guys that have operated in the money exchange space traditionally stand on their own crypto currency play? Should vendors wait and let this play out, choose not to integrate at all, or choose to build or buy something of their own?

Pande’s reference to his partner channel is very representative of the Accounting & ERP industry in general insofar as it is built on an interdependent triumvirate of vendors, partners and consumers, which, when working in harmony, form the B2B backbone of the

It seems certain that crypto currency is a tsunami in an ocean of small waves. It will have enormous implications. As vendors, and as partners providing mission-critical services for these vendors, now is the time to become appropriately familiar with this space. Customer needs and opportunities are on the way. For crypto currency adoption to happen in the Accounting & ERP space, a market greater than three million businesses worldwide, it’s the vendors that will need to ask and answer these questions for themselves, before any users start to adopt new crypto currencies, and, in my opinion, it’s at the wallet level that you get to the user experience interaction, where “the rubber meets the road” and Main Street users will get to make their decisions about accepting a crypto currency alongside, or in substitute of, the dollar, the euro and the yen. —S GARY BODDINGTON Silver Lining Ventures Inc, Vancouver, BC, Canada, Email: gary.boddington@outlook.com. LinkedIn • Twitter

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Vendors clearly have some planning ahead in the crypto currency space and early adopters have already started planning. Portland-based, VersAccounts ERP, offers online ERP solutions designed for medium-sized businesses with a global footprint, and CEO Sunil Pande has taken a long-term view as an early adopter in saying, “We are 100% sure that crypto currencies will become an important vehicle for commerce in the near future, and we are actively engaged in developing our plans around how to best support it for our customers, as well as for ourselves and our channel partners.”

The ranks of the early adopters are swelling in the partner community as well. Rusty Tarsches, a CPA who owns and runs Targo Advisors in Atlanta, GA, supports XERO Accounting & VersAccounts ERP to offer cloud-based accounting services for start-ups, emerging growth and mature business organizations. Rusty believes, “…crypto currency has a huge potential for disruption in many industries, and at Targo we make decisions about which vendors we support based on their progressive thinking, and we are very interested in how vendors will integrate crypto currency into their architecture. We are learning as the crypto industry emerges so we can give our customers the most informed professional advice possible.”

July.2014 Page.37

In pursuit of user adoption, let’s keep moving for ward regardless, and let’s imagine even further that the vendors have made their decisions about a currency, or currencies, to support, and an associated crypto currency exchange to work with, does it then elect to build its own wallet, or integrate with an existing wallet, or many wallets? Still more questions, and again certainly no trivial issues.

industry’s ecosystem. The partner will typically advise their customers which software to adopt and will offer professional services associated with the application they elect to support. Right now, and with apologies to the early adopters, and as a sweeping generalization, this underlying triumvirate reflects no more than a collective conglomerate of ignorance when it comes to crypto currency, and represents a concurrently massive educational challenge for the crypto currency industry to address, if it is to achieve mass adoption in this lucrative B2B space.

DARK MARKETPLACES POSITIONED TO ACCELERATE THE

COLLAPSE OF GOVERNMENTS

Crypto Biz Magazine Page.38 July.2014

by KRISTOV ATLAS

The solvency of the US government has been circling ruin for the last several decades. Without reversing the current trend and drastically reducing taxes and capital controls, the dark market economy will flush this government directly down the drain. Since the 1970s, each American economic recession has taken longer than the previous to recover from. Real income has steadily declined throughout the last forty years. Washington has attempted to hide this course through profligate money printing and make-work in government sector jobs, but to limited avail. Between 2000 and 2010, public sector jobs in the US rose from 20.5 million workers to 22 million, while private sector jobs declined from 110 million to 108 million. By July of 2010, the average federal government worker was paid 60 percent more than the average private sector worker. Money continues to pour out of the government spigot, lining the pockets of politically connected corporate officials like those of Halliburton, Lockheed Martin, and Citigroup; yet the

average American’s standard of wealth continues to plummet. Between 2009 and 2014, the number of households on foodstamps rose from 15 million to 23 million—a record 20 percent of US households. One third of all households are now living from paycheck to paycheck, with 66 percent of those residing in the middle class. The government’s balance sheets scarcely look better, having accumulated 17 trillion dollars in debt and 127 trillion dollars in unfunded liabilities by the end of 2013. The typical government knee-jerk reaction to such losses is to grow: more taxes, more capital controls, more laws, and more threeletter agencies. However, e c o n o m i s t s h a ve l o n g studied this approach and documented its counterproductivity. Compounding

the effects of government regulation with further restric tions on market activity drives more market actors into the safe haven of the underground economy. In a 1997 economic paper studying this pheno menon, The Underground Economy: Global Evidence of its Size and Impact, Canada’s Fraser Institute wrote that “personal taxes must figure p ro m i n e n t l y [ ... ] a m o n g the factors that have caused the growth of the underground economy.” Those of us who do not participate in the under ground economy are often unaware of its breadth: it grew to include one half of the world’s workers by 2009, and is projected to include two-thirds of workers by 2020. Europeans affectionately refer to it as Système D, short for the French word “débrouiller,” meaning “to manage, especially in an adverse situation.” Système D now glo bally represents a ten-trillion-dollar economy. Participants in the underground economy have tra ditionally used cash to transact privately. This will rapidly change as more of them realize the incredible potential of crypto-currencies in general, and Bitcoin in

Not content to simply splinter the Silk Road into many scion marketplaces, inde pendent software developers continue to press the issue, evolving them to become ever more resistant to state intervention through peerto-peer protocols like Dark Market/Open Bazaar. This next generation of dark marketplaces will serve not only as places for people to buy drugs and guns, but also to execute sophisticated cryptographically-enforced smart contracts and to ex change completely mundane items, when traditional mar kets fail them. A few years from now, we may be as likely to see a toaster oven purchased through Open Bazaar as Amazon.com. By default, the market tends to eliminate middlemen and transcend coercive elements. These are sources of friction to a machine seeking to travel ever more quickly and efficiently, and must be removed in order for that machine to achieve its goal. In the past few decades, this has been accomplished by the pluck of Système D entrepreneurs and cash, but with the advent of Bitcoin and dark marketplaces, far

particular. Whereas cash can only be transported slowly, with great risk, and in limited quantities, Bitcoin has demonstrated the capacity to send unlimited funds across the world within a few minutes without fees, and practically no risk of interception. This is what Satoshi and his successors have provided to the world: fast, cheap, censorship-resistant money.

KRISTOV ATLAS is a network security 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. Kristov also accepts Bitcoin tips: 1H694KgneawqRfyZzR2yJ7oTvNN2EJghxm.

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Immediately after this incredible tool was invented, dark marketplaces using crypto-currencies and other cryptographic means of protection sprang up around the Internet. For years the Silk Road, the first and most famous of dark marketplaces, has allowed underground market actors to trade with confidence some of the most highly prohibited items in the world. The shutdown of the original Silk Road led darknets to generate several new marketplaces, with the total number of items available for sale and overall transaction volume significantly eclipsing the numbers observed just before the shutdown.

greater distances are possible for the underground economic machine. Unless lawmakers tempt their citizens back into state-approved realms by reducing friction themselves, economists may have to adjust their projections upward for participation in 2020s underground economy. —S

July.2014 Page.39

A few years from now, we may be as likely to see a toaster oven purchased through Open Bazaar as Amazon.com.

THE LEGACY OF THE DREAD PIRATE ROBERTS by DANIEL KRAWISZ

Crypto Biz Magazine Page.40 July.2014

I vividly remember the first time I saw the Silk Road in mid-2012. Like a timid fawn venturing out into an unknown meadow, I fired up the Tor Browser, enter ed some gobbledygook into the address bar, and took my first peek into the darknet. When I finally logged in, it was like witnessing a miracle. The variety! The selection! “Crack?” I said to myself. “I can buy crack here? I’ve never even seen crack in real life!” I was awes truck. For a few hundred dollars I could have reams of LSD blotters. There were things, like ketamine, that I, a li bertarian activist, had never even heard of. I’m not much of a drug addict, but for a moment, I felt like Hunter S. Thompson. All at once, so many things that I had always been told were evil, forbidden, taboo even, to investigate or discuss rationally were now available on the cheap, and at the push of a button! The brilliant thing about the Silk Road was that it operated just like a normal business. It operated out in the open, in defiance of the entire drug war, and invited anyone to participate. It staked its reputation on quality and low prices. This is what freedom feels like. When I saw it, I immediately knew the rules had changed. It opened its doors like any ordinary business. It let people interact without fear. We now know that it brought peace to the illegal drug wholesale market and that it made enormous profits doing so. It was, furthermore, infinitely reproducible. Thus, even though it could not exist with complete impunity, it could be recreated again and again.

This is, I suppose, why its mysterious founder chose the name Dread Pirate Roberts for himself. As in the film from which the name was taken, imitators would replace him—even if he himself were caught and humiliated. His name is a statement of both economics and of a de fiance that is unstoppable. Each iteration of the Silk Road would make the industry more peaceful, more secure, and more ordinary. It was one act of defiance, but nothing could stop the imitation that it would provoke. The more accessible to o rd i n a r y p e o p l e t h at illegal drugs become, and the more that the drug market can operate like an ordinary business, the less people will be able to maintain a conceptual separation between rec reational drugs and other business. Once that conceptual separation has been broken, the drug war will end because it will simply not make sense to anyone anymore. The biggest problem with the Silk Road, I thought initially, was that of exchanging bitcoins for dollars. That was a real inconvenience. But the more I pondered it, the less of a problem it seemed. In fact, it was not a problem. If the Silk Road was attracting business, it meant that going through the Bitcoin network was worth the inconvenience of doing it. It meant that there was profit to be made helping dealers spend their bitcoins—which could be done by just doing more business in Bitcoin! Because the drug market was using the Bitcoin network, it would draw more opportunities within it, which in turn would

draw in more, and so on. These were my thoughts over the next several weeks. Of course, that’s not quite what ended up happening, but I think I was pretty close. Bitcoin is now roughly one hundred times more expensive and there are now several competing Silk Road incarnations. The Dread Pirate Roberts changed the world in two different ways. He communicated the idea of the Silk Road’s business model and produced the first sustainable source of Bitcoin profits. When the Silk Road first came online, Bitcoin could not compete with credit cards and traditional banking because Bitcoin services were so sparse. It was where these services were excluded—on the black market—that Bitcoin could be most useful. This was its path of least resistance upward. Before the Silk Road existed, Bitcoin was little more than a curiosity. Afterwards, Bitcoin was something the world needed. This was understood by some at the time: the opening of the Silk Road sparked the first Bitcoin mania in 2011. Every Bitcoin venture must build upon Bitcoin’s former successes because each step in Bitcoin’s growth makes Bitcoin more useful and makes new opportunities

The evidence strongly suggests that Ross Ulbricht and DPR are the same person. If this is true, then DPR is a political prisoner, and he is nearly alone when he deserves the whole of the agorist and Bitcoin communities to honor him as their master. I wish I had written this article for him sooner, but it is easy to get caught up in dayto-day concerns and forget what is most important. He is the greatest agorist of our times, and, probably, who will ever live, and I would rank him as the second most important Bitcoiner after Satoshi Nakamoto. Please support his cause at freeross.org. —S

DANIEL KRAWISZ graduated

with his Master’s degree in physics from The University of Texas at Austin in 2010. He is a founder of the Satoshi Nakamoto Institute and is now its Director of Research. Daniel accepts Bitcoin tips:

19zEabLpYpB7yMQCXF8K9un67ZL7U59M3h

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I confess, I never actually bought anything at the Silk Road and I never engaged with the community there. Now that the opportunity is lost forever, I really wish I

When Ross Ulbricht was caught in late 2013, I was sur prised because I had met Mr. Ulbricht briefly in 2009, at an event called 3-Day Startup. If he is really the Dread Pirate Roberts, then I had met him before he was famous, before he had created his great work. This is not so unlikely; we did have some unusual interests in common. Unfortunately, I don’t really remember our meeting very well, but a friend recalls me telling him that digital currencies are a stupid idea. That’s how life is sometimes.

July.2014 Page.41

possible. Without the early proof, courtesy of the Silk Road, of Bitcoin’s viability, Bitcoin would not have attracted the investors that it did then, and consequently would not now be attracting the investors that it does today. All Bitcoin entrepreneurs today build on top of the success of the Silk Road. His made their work possible.

had. However, I did do some things. It was shortly thereafter that I gave a presentat ion to the Libertarian Longhorns in which I advised them to cease all political activity immediately and focus entirely on crypto anarchy. A libertarian vic tory was no longer impossible, but nigh inevitable. Shortly thereafter another group I attended, The Mises Circle at UT, became the first Bitcoin student group that I know of, and not long after that we started the second Bitcoin student group I know of (The Cryptoanarchy Club at UT). The first group was for economic discussions and the second for cypherpunk discussions. Finally, we started the Satoshi Nakamoto Institute in mid 2013.

BITBASKET Q&A by JACOB PAYNE

Before reading the Bitbasket Q&A we recommend reading the whitepaper, which is available at: www.bitbasket.info. Jacob Payne, inventor of Bitbasket, discusses Bitbasket: A Scalable Peer-to-Peer Multi-Cryptocurrency Wallet System whitepaper that he recently wrote.

Crypto Biz Magazine Page.42 July.2014

Q: If one sidechain member is attacked wouldn’t this stall the system? PAYNE: As long as all of the sidechain member host nodes have not been compromised, the minority will ignore the longest host chain, and instead continue to work on their shorter, but honest, chain and continue with the rest of the thread members to create the next thread block. Q: What prevents a sibyl attacker from creating bogus thread chains? PAYNE: If the system where pure SPV then yes. However, since the network depends on both sidechain minertype validation, with the longest validated thread, this forces a sibyl attacker to create valid spoof threads for each sidechain proof-type as well. The thread is validated from height from a client node, and both depth and height from a miner node, preventing an easy sibyl attack. Q: Sure, but each sidechain is, individually, easy to attack. What prevents a sidechain from forking? PAYNE: To put it simply: each sidechain node no longer accepts its longest host chain to be the valid one, only the chain that can continue to be a member of the longest thread. Even with a minority of honest nodes within a sidechain, the minority nodes with the shorter chain still have the advantage, correlating with the rest of the thread members. Q: What if the attacker makes an attack across the ma jority of sidechains?

PAYNE: That is highly improbable since being able to attack multiple sidechain members precludes the ability to be more powerful than the majority of hash-type powers combined. Surprisingly, even if that were the case, the attacker would still not succeed! To understand this, you need to understand that for a valid thread block to be made, all of the sidechains must be consistent. Even with a majority, the remaining minority of those compromised threads will still continue to work, with the last remaining minority of honest sidechains to create the next thread block. Q: How does a new sidechain member join the thread? Wouldn’t this create a fork? PAYNE: When a new sidechain member transaction is sent, this changes the hash value embedded within each transaction. When nodes receive the other transactions they will notice that, while each hash is the same across each sidechain block, the hash result of them combined is not correct. Because of this, a host miner node can realize that it is missing a new sidechain member and request the new member block. As long as the new sidechain miners can propagate their new block to the majority of other sidechain miners, their sidechain will become a valid thread member. —S A web developer from Vancouver, JACOB PAYNE is an avid contributor to open-source projects and cryptobased startups. He often explores and discusses opportunities in varied areas of blockchain-based technologies and contributes brand and PR strategies to multiple teams of developers. Jacob accepts Bitcoin tips at: 12Fx3xCCeB8KiZjk5WSdPKDx21EF4AL9Sn

OPENCL vs OPENGL FOR MINING by VIVEK NAIR AND ALEXANDER MERRICKS

As we witness the evolution of the creation of digital assets via the birth of the virtual currency world, it is critical to understand the foundation of what makes this innovation possible. OpenGL is a scientific computing architecture that enables an individual to perform advanced scientific calculations using the higher floating point capacity of a graphics device. The only limitation of OpenGL is that the user will have to create a mechanism to convert the computing problem to a graphical context so that OpenGL can process the calculation. Nvidia uses OpenCL-based CUDA architect ure on their devices to enable their GPU hardware to be used for applications other than graphical rendering and gaming. The GPU has been used more often for scientific computing, such as Open CUDA-enabled graphical cards which possess enhanced computing possibilities due to their increased ability to handle floating points.

With OpenCL, the calculations are computed as a floating point, but in case of OpenGL, these calculations are computed by converting them into scalar images which are then computed by the GPU as just another graphical calculation. OpenCL is based on an earlier ancestor named GPGPU, a system that is based on the application Nvidia engineers and architects created which includes other firms. This solution was used by the digital mining revolution which started with Bitcoin and now includes over 300 different currencies. It has matured beyond GPUs and FPGAs with the onset of the ASICS, and we are seeing the digital currency world grow leaps and bounds.

This is currently very relevant since understanding the concepts of OpenCL and OpenGL enables miners and programmers to develop solutions for their ASICS. The collective knowledge and collective involvement is responsible for bringing about the success of digital currencies. With any new technology, there will be obstacles and hurdles to overcome. OpenCL and OpenGL open the door to future applications beyond the current mining aspects. The integration of gaming and mining will lead to new ways of providing access for high-level graphics and rendering capabilities. As we move forward, monetizing digital assets in the 21st century will become a more intelligent and efficient process. If we continue to use these architectures and move forward in this manner, the possibilities are endless. —S VIVEK NAIR and ALEXANDER MERRICKS are the founders

of CosmicHQ.com. They pro vide integration of digital currencies and consulting on the SHA 2 protocol and similar cryptographic algorithms. Bitcoin tips to CosmicHQ at:

1GfQcd79rx1tQwdFk694Tyh3ugkikezbRe

Crypto Biz Magazine

The technology that has created the solutions for this phenomenal change in the same way that money has been perceived, has been created by OpenCL and OpenGL. The developers of Bitcoin, who began this revolution in 2009, initially started with the OpenGL-based miners, gradually moving into Nvidia’s hardware which was less expensive than its AMD-based graphics card counterparts. This attracted the attention of developers and they implemented OpenCL/CUDA-based miners.

Technologically, OpenCL is faster than and superior to OpenGL, with respect to digital currency mining, as it doesn’t have to convert the mathematical logic into graphical data, which saves a lot of time and reduces the computational usage. An Nvidia-based miner for Litecoin (a successful successor of Bitcoin) is about 55% cheaper than its AMD-based successor.

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The solutions that arose from these innovations lead to the development of newer breeds of GPUs and FPGAs. The topic at hand discusses how the application of this newer breed of GPUs is applied for digital currency mining. The changes that these advancements have brought about made possible the implementation of OpenCL and OpenGL digital currency miners.

These were less expensive and more cost-efficient for digital currency mining processes. This brought about a greater acceptance of Bitcoin and its many successors.

WHAT MAKES A ‘GOOD’ PASSWORD MANAGER GOOD?

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by SEAN COMEAU

KeePass is an open source application available at no cost. It has OSI open source certification. Downloads for KeePass are available at the developer website. KeePass is available as a classic 1.x version and “professional” 2.x version. Both versions are in active development. The website has a page describing the differences between the versions. The Windows versions are available with an installer and as a zip file. Both are self-contained. The folder from the installer version, when copied to a USB drive runs fine. The installer merely provides desktop and start menu shortcuts, and automatically copies the program to a desired location. The 2.x version runs on more operating systems than 1.x, but uses Mono which proved problematic in our test on OS X 10.6.8. This might be overcome

PART 2 OF 4

with work at the command line in Terminal, but the necessity of this violates the ease of instal lation requirement. Ports are available for the 1.x version. The Mac port for this version comes as an OS X app called KeePassX but is reported to have weaker protection against dictionary attacks. The database from version 2.x is not compatible with KeePassX. Thus KeePass is available on Mac OS X if version 1.x is used and reduced protection against dictionary attacks is acceptable. There is a 2.x compatible port for Android, KeePass2Android. This port is installed from Google Play on an Android tablet. It opened a test data base created on a Windows Vista computer and transferred passwords to Chrome and Firefox. 2.x ports are available for other platforms as well.

The standard installation of KeePass will allow the login information to be transferred to any web browser by drag and drop. The web page can be accessed from KeePass. Doubleclicking on the user name and password in KeePass will copy these to the clipboard for pasting into any browser. More direct interaction with browsers may be available with plugins. KeePass does not store the password database on the web. They have no plans to offer this ability for security reasons. An individual user could upload the database to a remote storage service and access it there from multiple devices. The database itself is secured as will be discus sed further on. The user will have to identify a remote service with acceptable security features where they will do the upload.

The standard installation of KeePass does not detect pass word events in the browser, nor does it fill forms. These capa bilities might be available with plugins. However, the availability for specific platform-browser combinations will vary.

Both versions of KeePass can be used by multiple users. The synchronization ability is much

KeePass is an open source project, using open encryption technology. Encryption is done using AES, and hashing is done with SHA-256. These are both well understood and highlyregarded algorithms. Additionally, the hash is performed with a random salt. Steps are taken to generate truly random numbers. Steps are taken to prevent against dictionary attacks. Data is encrypted in the memory used by the KeePass process. Some protection against keyloggers is provided. All of the security features are described on the KeePass website. KeePass allows for two factor authentication by providing the option for a keyfile as well as the password. This is all done locally so the user can secure the process to their satisfaction. If the database is stored in an online storage service, the keyfile can be kept locally on each device that needs access. Users will have to decide whether this meets their security needs. KeePass will securely generate a random password for each site that you use. If you choose your own password KeePass will show an indicator bar describing the strength of the password. It does not prevent you from choosing a poor password but does attempt

to warn you with the color coding of the indicator bar. The availability of plugins gives more functionality to KeePass, but also creates a security concern. Plugins are installed by getting copied into the application folder and will run if they are present. This means that KeePass could be targeted with a malicious plugin that would merely need to be copied to the correct location. This could be prevented by write-protecting the folder as an administrator and then running from a non-admin account. All ports of KeePass to other operating systems are labeled as unofficial on the website. Thus we are not explicitly assured that the security measures described for the main product are implemented correctly in the ports. KeePass scores well on the open ness standard. They use open security algorithms and they are fairly detailed in describing the security of the product. This description is available on a dedicated page, and the link to it is clearly visible and available from every page. —S SEAN COMEAU is a computer security and cryptography enthusiast based in Vancouver, BC, Canada.

Crypto Biz Magazine

KeePass offers the feature of secure notes and attachments. The entire database is encrypted, so any notes or attachments will be secured by the encryption. The standard installation of KeePass does not fill forms, but this feature may be available with plugins.

Security of Encryption

July.2014 Page.45

KeePass is compatible with a variety of database formats, including the widely used CSV (comma-separated values). Thus, it will be able to import data from any password mana ger that exports a CSV file. Data from KeePass is readable by any program that reads CSV files.

better in the 2.x version. The 1.x version is not synchronized at all. The 2.x version does not use record-level synchronization, but uses a method which is described in overview. It does not support multi-user permissions, however, a method to a p p rox i m a te t h i s i s described in the KeePass discussion forum at Sourceforge.

The Conference will discuss the following questions:

FOR IMMEDIATE RELEASE

Crypto Biz Magazine Page.46 July.2014

Crypto Currencies Foundation Russia (CCFR) and First Bitcoin Center Russia (Bitcoin Russia), with the assistance of the Bitcoin Foundation and Ethereum, invites you to participate in the First International & All-Russian Conference “Bitcoin and Cryptocurrencies: Prospects for Development in Russia,” which will be held August 9, 2014 in St. Petersburg, Russia. There will be appearances and addresses by official guests and speakers, Bitcoin developers and officials, chief editors of leading professional media, the creators of online Bitcoin-relevant sites; there will be exchanges and exchange offices, as well as the Bitcoin business community—including the founders and managers of online stores and service businesses. Guest speakers include invited government officials, representatives of the banking community and companies developing payment systems, including the National payment system.



Legal and regulatory framework in Russia, jurisprudence and legal aspects;



The use of cryptocurrency (the viewpoint of supervisory and regulatory authorities, credit institutions, payment systems and so on);



Business security and expert advice;



Turnover Bitcoin: experience operating businesses;



Creation of Bitcoin centers (advice from leading experts);



Mining (especially activities that compare analysis of hardware and software and master class);



Russia’s first Meetup with the Ethereum creators;



Presentation of the first regional cryptocurrency on the territory of the former USSR;



Other topics discussed and will be presented later.

The Conference will hold roundtables for devel opers and enthusiasts, a special session for the media and owners of online shops, as well as by an open general meeting hosted by CCFR. We invite Bitcoin-professional participants of the market, the media, government officials, lawyers and enthusiasts interested in promoting their own projects. Event website: CryptoForum.info  Promoter website: CCFR.info

BITCOIN AND CRYPTOCURRENCIES: PROSPECTS FOR DEVELOPMENT IN RUSSIA Crypto Biz Magazine’s Nathan Wosnack will be speaking remotely at the First International & All-Russian Conference Forum “Bitcoin and Cryptocurrencies: Prospects for Development in Russia.” This is an exciting invitation from the CCFR and a wonderful opportunity for Nathan to share his views, insight and experiences with the Eastern European crypto community. —S NATHAN WOSNACK is a serial entrepreneur and pioneer in cryptocurrencies; first running Bitcoin in November 2009. He is involved as an advocate, miner, trader, and community spokesperson in Vancouver, BC, Canada.

BITCOIN SERVICE DIRECTORY WALLETS BLOCKCHAIN

COINBASE

blockchain.info

COINKITE

coinkite.com

MULTIBIT

coinbase.com

HIVEWALLET

hivewallet.com

XAPO

multibit.org

xapo.com

EXCHANGES BTC-E

btc-e.com

CAVIRTEX

cavirtex.com

MINTPAL mintpal.com

CRYPTSY

cryptsy.com

QUADRIGA CX

SWISSCEX

quadrigacx.com

swisscex.com

INDEXES BITCOIN AVERAGE

BITCOIN CHARTS

bitcoinaverage.com

BITSTAMP

bitstamp.com

bitcoincharts.com

BRAVENEWCOIN

COINMARKETCAP

bravenewcoin.com

COINDESK

coindesk.com

coinmarketcap.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 youâ&#x20AC;&#x2122;d like to see added to this list, please contact us at directories@cryptobizmagazine.com. Additionally, let us know if you find that any of these companies has stopped accepting bitcoins, or if you have any difficulty using bitcoins with them.

BITCOIN SUPPRESSION VIA THE PATENT SYSTEM by REED JESSEN

The advent of bitcoin presents the global economy with an issue it has never had to face before. Bitcoin is the first currency that is fundamentally a technology. It’s not simply an electronic network for keeping track of who owns how much fiat currency, like the Automated Clearing House. Nor is it a technological abstraction of an underlying non-technical asset, like an oil futures contract. It is, at every level of the protocol, a novel and unobtrusive technological advancement, and many of its embodiments are, therefore, patentable. Before going any further, it is important to make a distinction. The bitcoin protocol itself has been opensourced and is no longer patent eligible. Many of the innovations developed on top of the blockchain, however, could be patented. If an inventor successfully obtained such a patent, it would grant them monopoly power to exclude others from its use for the next 20 years.

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A good clarifying example of the relationship between patents and bitcoin can be seen in the dairy industry. Milk, as a product naturally occurring in nature, is not patentable. Nevertheless, technologies developed to keep milk fresh, safe, and to transport it to the breakfast table certainly are patentable. The same is true with bitcoin. While the protocol itself is not patentable, embodiments like QR code transactions, dual signature wallets, and serverless cloud storage like MaidSafe certainly are. Bitcoin represents a massive disruption of the natural order that traditional transaction companies like Visa, MasterCard, and Western Union have come to expect. These companies are accustomed to skimming 3% or more off the top of every transaction. When retailers and consumers are offered a viable alternative, which costs them nearly nothing, and provides an equal or greater level of security, they will migrate in droves to the cryptocurrency economy. This will cut deeply into the profit margins of the traditional transaction companies, thus highly incentivizing them to suppress the adoption of cryptocurrencies. Examples of established power structures suppressing the adoption of disruptive innovations are all around us. As a taxicab company, what do you do when Uber comes into your territory? You first kick yourself for not leveraging the computer in your customer’s pockets to better serve them. Next, you lash out with the mono polistic taxicab medallion laws you paid to put in place. Or, as a car dealership, what do you do when Elon Musk says he’s going to circumvent the dealership system and sell Tesla cars directly to consumers? You dust off your ancient tomes of anti-competitive automotive franchise law (again, that you paid to have written) and load your lawsuit cannons. As bitcoin begins to transact a larger portion of the economy, traditional transaction companies will react. They will attempt to suppress the adoption of

cryptocurrency technologies with the most effective tool at their disposal… the patent system. One could imagine that credit card companies, pressured to keep profits up, may sue companies like Coinbase for their merchant-integration API, Robocoin for their ATM, and Xapo for their debit card. Examples of patent-based technology suppression are all too real. The 3D printer was first invented in 1984, but key patents on laser printing technologies have kept the price of quality 3D printers prohibitively high and therefore out of the hands of average consumers. After 20 years, these patents are expiring and only now might we see the decentralized manufacturing revolution. It’s exciting to see this revolution begin to take shape today but sad to consider that the patent system may have needlessly delayed it for so long. Early Linux innovators saw the risk that patent sup pression posed to an open source operating system. They founded the Open Invention Network (OIN) to pool Linux-related patents for a common defense and to keep Linux royalty-free. They knew that offering free software would draw the ire of the powerful proprietary software vendors. In 2007, a patent licensing company with ties to these powerhouse software companies called IP Innovation LLC, tested OIN’s resolve by asserting old Xerox patents from the late ’80s against Novell and RedHat for their use of Linux. The OIN community came to their defense, mounting a massive prior art search. After 3 years of court battles, the jury looked to this prior art and finally found IP Innovation’s patents invalid. OIN drew a line in the sand and today the Linux kernel is found on almost half of all mobile devices. Members of the bitcoin community need to be aware of the economic forces at play in the nascent cryptocurrency economy. Bitcoin adoption is undermining traditional power structures and it is predictable how those losing power will react. If we want bitcoin to flourish like Linux rather than stall like 3D printers, we need to actively engage the patent system and leverage it to our advantage. —S

REED JESSEN is a patent analyst

and the creator of The Cryptocurrency Defense Foundation. The Foundation is a defensive patent aggregator that acquires cryptocurrency related patents and licenses them openly to all those who agree to not enforce their patents against other members of the community. Reed regularly blogs about intellectual property at Preferred Embodiment. Bitcoin tips for the Cryptocurrency Defense Foundation/Reed Jessen at: 15KV1Apea7U2ucZcYKNjv98iZPABM2i2zt

FREE COMING SOON: Download your FREE issue of Crypto Biz Magazine every month—straight to your iPhone or iPad—from the App Store.

A PERSONAL JOURNEY DOWN THE BITCOIN RABBIT HOLE by PHOENIX OLIVIA

I first heard of Bitcoin on a Sunday afternoon while walking along Kitsilano Beach (Vancouver, BC, Canada) with my friend Sebastian. He asked, “Ever heard of something called ‘Bitcoin’?” I hadn’t, so Seb proceeded to sketch out the basic tenants of the bizarre-sounding idea. At first I was bewildered, but the more I heard the more I became fascinated and intrigued by the concept. His understanding of it was elementary, but it was enough to spike my curiosity and desire to do more digging. The following day I asked a few of my friends if they had ever heard of a digital currency called ‘Bitcoin.’ No one had, but another friend mentioned she knew someone in her network who told her years ago he was mining Bitcoin—his name was Frankie. It turned out Frankie was someone I’d met several years back during my early DJing years in Vancouver, and he’d even fixed my computer once.

Crypto Biz Magazine Page.50 July.2014

I quickly tracked him down online and sent a message saying I wanted to learn more about this mysterious and baffling thing called ‘Bitcoin.’ He responded immediately and the next day I was at his downtown office. What Frankie explained to me that day blew my mind. At first I was confounded. It didn’t make sense—how it could be possible for this idea not to be a scam of some sort—or, if not, then to even be accepted by the “powers that be,” the people who own and control most of the financial systems of the world. The idea was too beautiful to survive in a world designed from the top down to be unfair. Nevertheless, as Frankie told me more about Bitcoin, I started to catch a glimpse of its potential and power. Being a firm believer that the world is long overdue for a major upgrade of many of its old, antiquated systems, I became hopeful, and excited, and left the meeting with four bitcoins, with a determination to continue studying the crypto currency phenomenon. The idea that ‘The People,’ not financial institutions, could determine exactly how their money was spent, who their money went to, how payments were made, all done within minutes and costing mere pennies, was stunning. Bitcoin was essentially cutting the parasitic middlemen such as PayPal, Visa, MasterCard, and Western Union from the equation and turning the existing money exchange paradigm on its head, by shifting the power balance into the hands of individuals. Even more exciting for me, however, were the ramifications this new paradigm would have on the world outside of North America and Europe.

The people of the developing world have forever been cut out of the world of money, and fair access to the wealth of the developed world. Family members in the West attempting to send money back home to relatives are faced with fees and charges from the current institutions that are unjustifiably high. By the time the money gets to where it’s going, it’s significantly less than what was originally sent. Most people in the developing world have no bank account, so reliance on these systems for money from the West is absolute. Until now they had no choice. PayPal charges from 0.5% – 3.9% on every person-toperson transaction; Western Union charges 0 – 5% to send money; the credit card companies place limits and restrictions on who can get a card, while charging outrageous rates; and bank fees eat away at people’s hard-earned money. Bitcoin is practically free and takes minutes to complete transactions around the world. The majority of people in third world countries have no bank account, nor the means to get one. Bitcoin requires no bank account, no credit checks, no social status; it’s a truly non-prejudicial platform that places financial power in the hands of the people on a global scale, instead of only a privileged few.

BitPay’s Manager, Moe Levin, says “If you didn’t have a strategy for the Internet in 1995 it’s the same as not having a strategy for crypto currencies now.” This is the age of the Internet and it makes complete sense that our money become more digitally based. Humans are flawed and corruptible, mathematics are not.

Individuals choosing to adopt Bitcoin may find it confusing and overly technical at first, but when you actually make the first step you quickly realize, as I did, that it’s not that overwhelming at all. It’s actually far simpler than opening a bank account.

Change is inevitable, it’s long overdue for our global financial system, and Bitcoin is a long-awaited and much-needed medicine. —S PHOENIX OLIVIA is a

Vancouver-based DJ and crypto coin enthusiast. She accepts tips at:

1Df8AUxjU1wrCQCEp2r31uac2SzP7mZjM

Crypto Biz Magazine

Crypto currencies are a logical step forward in a world that uses fewer resources. Jeremy Alaire from Circle, a consumer finance company says, “Bitcoin is the economic singularity. It’s like the invention of the printing press, or railroads, or the Internet, except this is happening on a really compressed scale.”

Everyday an increasing number of systems are being put in place to enhance security and create ease of use for regular people who aren’t tech-savvy. Already a healthy and vibrant ecosystem exists around Bitcoin and is growing fast. At this point the big companies and banks have to find a way to work with it or be left on the sidelines! The Bitcoin protocol is beautiful. It evens out the playing field for everyone and makes the world a bit more fair, by allowing wealth to be accessible to anyone with an Internet connection and a smart phone. With the release of Firefox’s new $25 smartphone, even more people in the developing world can now access Bitcoin. As Eric Hoffer, the American author and social philosopher, states, “In times of change the learners inherit the earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists.”

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This must be terrifying to some people, who would prefer the world of inequality to stay just the way it is, with one percent feeding off the backs of 99 percent. Western Union, Paypal and the credit card companies must feel extremely threatened by Bitcoin, but clearly these companies aren’t going to close up shop and walk off into the sunset. They have tried to make Bitcoin go away but failed, so they must realize that the world of money exchange is radically evolving and they’ll have to grow with it.

BITCOIN IN THE BELTWAY—

WHO, WHAT, AND WHERE IS CHARLIE? by BEN ISGUR

I was lucky enough to be able to attend Bitcoin in the Beltway this past weekend, hosted by none other than the man who is probably the best known Bitcoin philanthropist, Jason King of Sean’s Outpost. When I say lucky enough, I mean it—for many reasons. First, I was local, and not always having to travel far makes events like this much easier to make it out to. Second, I was the recipient of Jason’s good will—I keep to a tight budget and wasn’t able to find a way to add in the price of attendance in time for the event, but he was kind enough to offer me a last-minute press badge so I could still come by and have a great time interacting with the community. However, the third, and most significant, reason I say I was lucky enough to attend, is the all-star list of speakers and Bitcoin businesses that were in attendance.

Plenty of other big names in the cryptocurrency world were there as well, showing off the newest of the new. Mycelium’s booth was staffed by Dmitry Murashchik, or, for those that know him by his alias, Rassah, and he had a neat little new gadget from Mycelium to show off. What is that he’s holding, you ask? It’s called Mycelium Entropy. It’s a tiny random wallet generator that is designed to be plugged directly into a printer. It remains entirely offline during the process, and prints out a beautiful paper wallet. It can also print out 2-of-3 wallets, if you’d prefer. If you can see the tiny white button on the device, that is used to switch between the two modes: 2-of-3 and single address. Dmitry had printed off test versions of each to show off the functionality, and while

For those not fortunate enough to be there themselves, I snapped a few pictures during my time there. There was quite a bit going on!

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The gentlemen and lady running BitPay’s booth were constantly swarmed by people wanting to talk to them. I couldn’t even find a time to get a quiet picture of just them and their booth, so I had to settle for this! I’ve heard

The Mycelium Entropy—plug into your printer, it prints a beautiful paper wallet, or 2-of-3 wallets

of much worse problems than having your time demanded by interested potential customers, though. And even if I couldn’t get a solid picture of their booth, I didn’t walk away emptyhanded. I stole (was given, same thing) a stuffed copy of Bitpay CEO Tony Gallippi’s dog. I imagine the real-life version to be much cuter, but I bet that he doesn’t wear a Bitpay shirt!

the paper is simple, the functionality is both quite obvious and quite valuable. Mycelium intended to launch a Kickstarter for the device, but they’re being prevented from doing so by Kickstarter themselves, who claim that their project vio lates Kickstarter’s rule against providing financial services. If this device interests you, look to see a crowdfunding project going live very soon from Mycelium—and probably on a better website than Kickstarter; hopefully one that can understand the difference between financial services and data security services. Moving on… Also in attendance was BitMainTech, a Bitcoin mining

hardware manufacturer known for their Antminer line of products. They’ve got a solid track record within the Bitcoin mining space, because there’s something they do a little bit differently than their competitors: they don’t do preorders. They only sell products that are either in-hand or are very close to being in-hand—never vaporware. While this can hardly be considered good for them, as preorder capital is delicious, it is definitely good for their customers, who can be certain of receiving their products when they expect them—and not 6 weeks later, when their profitability might be seriously different. Antminer is just about to send out Batch 4 of their new S2, a 1TH/s miner with pretty low power consumption at ~1100 watts from the wall and a price point of 3BTC. You can check it out here.

Butterfly Labs’ BitSafe lets you create and store addresses, label them however you’d like, display QR codes, send and receive payments, and so on. It pretty much does everything, while remaining immune to intruders—and to water! It’s not quite available yet, but it will be soon. Check in with Butterfly Labs soon to order one yourself!

with student loan garbage, distrustful of the govern ment, and excited about new technology. Who better to pitch the cause of cryptocurrency to? The CCN was there taking names and contact info, looking to start up more and more campus groups—as well as getting commitments from potential guests that they would shop around to groups who would like to host speakers. Grassroots activism like this is the way to move us forward, and I was glad to see some fellow young faces around the conference hall—bright-eyed and looking forward to a Bitcoin-powered future. Another company I hadn’t heard of but whose ac quaintance I was glad to make, CrowdCurity, is a

Crypto Biz Magazine

CoinOutlet is a very young company— so young, in fact, that their website is just getting finished up! They were onsite showing off their Bitcoin, Dogecoin, and Litecoin ATM Kiosk! It’s a nice piece of machinery with a relatively simple process for first time buyers—my only complaint was the price. At $5,000 per model, you’d have to be certain of placing it in a high-traffic area for it to be worth the investment. Still, running an

The guys at the College Crypto Network are pushing the cause forward among the most receptive demo graphic out there—college students. As a rule, students are fed up with the predatory banking system, fed up

July.2014 Page.53

Butterfly Labs, the best-known and largest producers of mining hardware, also attended the conference. This weekend though, when I asked, they wanted to show off something a little bit different. Rather than their mining machines, they were focused on their new hardware wallet, the BitSafe. They had a demo copy flashing through a few of the default screens.

ATM is a profitable business—maybe enough to justify the price tag.

online. I tried my best to convince him it should be, but rabid customers will do it better! He’s not threatening violence against anyone—he’s just threatening to replace the old paradigm with a new one, built on Bitcoin, aimed at creating freedom. Hardly something worth not selling a shirt over, in my mind.

Crypto Biz Magazine Page.54 July.2014

crowdsourced platform for web security. An organization for white hat programmers (those who look for bugs, security flaws, and other issues with the intention of informing the owners so that they can be fixed, as opposed to black hats, who search for flaws to exploit or sell them for personal gain). CrowdCurity is making it easy for smaller web businesses to incentivise programmers to secure their websites through bug bounty programs. You’ll no longer need an in-house security expert to run a secure platform, thanks to CrowdCurity. Yet another example of how decentralization can improve the lives of everyone—individuals and corporations alike. White hats get jobs, companies get affordable security, and consumers can be more confident of their personal information security on various platforms they use. Everybody benefits from competition.

Last of the attendees I spoke to, but far from least, was this unassuming booth. You can’t see it in the picture, but the computer screen is showing the stock ticker for NEMstake on the NXT Secure Asset Exchange. The man on the right is Sergey Nazarov, one of the developers of the Secure Asset Exchange and someone who likely deserves far more followers on Twitter than he currently has. I find the project incredibly exciting—it’s only missing one thing: more companies listing a diverse array of assets on the exchange. That’s something that will come in time, though. Still, even now, the exchange has a few worthwhile ventures you should consider looking into. I anticipate that the SAE will be one of the most important early-use cases for cryptocurrency moving forward, and I’m excited to watch it push on. That’s all for the various exhibitors who were present, but what about the other meat of the conference? The speakers were a diverse group, but I’m going to focus briefly on just a few of the most influential. The headliners for the conference were the alwaysimpressive Patrick Byrne, the impeccable Jeffrey Tucker, and the inimitable Andreas Antonopoulos. Andreas spoke early on the first day, and not surprisingly his speech was so popular that it ran well past its appointed time. His talk got a lot of laughs, but it was actually deadly serious. Andreas’ point is much the same as it has been in the past: ‘Bitcoin’s great achievement is a movement of power from a corrupt and centralized structure to an open, transparent, and decentralized structure. Power has returned to those to whom it belongs: the individual.’ Andreas ended his talk with a brief discussion and announcement of something he called “Proof of Publication.” Details on that project should hopefully be forthcoming, and I’m certainly looking forward to seeing it happen. Mr. Tucker’s presentation focused on a different under standing of the history of the world than is commonly taught; one in which money fuels conflict, an idea that

A man who should need no introduction, Davi Barker of Bitcoin Not Bombs fame, was there and I had a chance to talk with him. For those unfamiliar with him or his organization, he is a prolific anarchist and activist. Bitcoin Not Bombs is an organization devoted to just what you might expect—the cause of liberty. It was great to get a chance to meet him and have a quick exchange (mostly about his risqué t-shirt, pictured here)—he’s a very friendly and likable guy, out in the world doing something he is extremely passionate about, and for good reason. His table was full of merchandise of all sorts, much of which you’ll be able to find on the Bitcoin Not Bombs shop once it relaunches. If you want a copy of that risqué t-shirt, though, you’ll have to get at him on Twitter or through e-mail! When I spoke to him, he was a little uncertain of whether it should be available for sale

seems so obvious once presented. He catalogued the world moving forward as one in which a cycle repeats itself: a centralized institution takes control of a people’s monetary supply. That institution, or those pulling its strings, uses that power for selfish reasons—to wage wars, to disenfranchise the powerless, to hurt those with whom they disagree or who might question their power or its use. And then it implodes, and yet eventually, every time, we manage to return to the first step: a centralized institution is given control over people’s money. Bitcoin has ended this most vicious cycle, finally, once and for all. It disrupted step one: instead of a centralized institution being given control over people’s money, a decentralized one has taken its place. And ‘given control’ might even be a misnomer, given the programmatic nature of the Bitcoin system. Jeffrey Tucker was, as always, eloquent and good-humored, even while discussing this most dismal of topics. I enjoyed his speech immensely, and would strongly recommend it to my readers once it is available on YouTube. Last item of the day—Patrick Byrne, Bitcoin Messiah, CEO of Overstock.com, and Scourge of Wall Street. While Mr. Byrne chose to spend the first few minutes of the presentation disavowing that particular titling, I would disagree with him. It certainly seems welldeserved to me.

Mr. Byrne wove together several topics in his discussion, but his focus was on the concept which we might commonly call corruption within centralized institutions. He excellently articulated a concept titular to his investigative journalistic work, DeepCapture.com, which focuses on… well, his website speaks for itself. In the about section:

Mr. Byrne ended with a surprising announcement on a different topic that was met with deafening applause. Overstock.com will begin donating a significant portion of their added profits from Bitcoin to some worthy organization aimed at promoting the technology. The program is still so new that the details are not perfectly settled, but somewhere around 3% of Bitcoin sales will be going back into the Bitcoin ecosystem in order to promote it. A very kind gesture on their part, one that is very likely to provide an additional surge of goodwill from our community to their company. A win-win, as they say. To hop back a moment over the topics I’ve touched on, though, I’d like to discuss the title of this article: Who, What, and Where’s Charlie? Charlie, of course, is Charlie Shrem, currently under house arrest, although still quite active in the Bitcoin community. He was supposed to be attending and speaking at Bitcoin in the Beltway, but he was prevented from doing so for unknown reasons. Captured authorities, one might suggest, though without evidence at the moment. It is unfortunate to see such an influential member of the community prevented from fulfilling something as innocuous as a speaking obligation, due presumably to a relatively unrelated but ongoing criminal case. Of course, we all wish him the best, although he has gone through immense personal tribulations these past months, and continues to, he has never given up on the Bitcoin community, and never stopped doing his utmost to support and encourage it as it developed. That’s all for my summary of Bitcoin in the Beltway this past weekend! I hope you enjoyed getting a chance to visit along and see a little of what went on over the weekend. Make sure to check out the excellent and dense array of panels, speeches, and presentations from the weekend as they pop up on YouTube! There were far too many excellent presenters to discuss in just one article, and much of what they had to say is certainly worth a watch (or a listen!). —S

‘Public choice theory describes a phenomenon whereby industries take control of, or “capture,” regulators who are supposed to oversee them.’

Mr. Byrne’s speech provided an excellent backdrop and justification for this work—very important work that it is. Recently DeepCapture made waves by filing a historic lawsuit against the SEC, specifically relating to their lack of enforcement of naked short selling laws. I hope to see it continue to push forward exposing corruption

BEN ISGUR is a cryptocurrency analyst, journalist, and

advocate. He is the author of both TheBlogChain.com, a cryptocurrency news and analysis blog, and Bitcoin in Brief, a <20 page non-technical introduction to the important technological concept of cryptocurrency. Ben is a professional Bitcoin trader (who also dabbles in altcoins) who reports his trades in real time both on his blog and through his Twitter, @BenIsgur. Ben is a George Mason University graduate who holds degrees in Philosophy and Government. He also accepts tips in crypto currency on his tips page.

Crypto Biz Magazine

The claim of this website is that powerful actors have been able to influence or take control of not just the regulators, but also law enforcement, elected officials, national media, and the intellectual establishment.”

July.2014 Page.55

Patrick’s speech was very different. If you’ve heard the phrase, “a face only a mother could love,” I’d suggest a slight deviation of it would be applicable to his speech. “A talk only another philosopher could find enrapturing.” Mr. Byrne holds a Doctorate in Philosophy from Stanford University, and as a fellow philosopher, I recognize the curse this has laid upon him: he has difficulty discussing complex topics in a way that non-philosophers can find engaging. This problem only persisted for the first portion of his discussion (which was, in retrospect, critical to the remaining portions. I don’t mean to criticize his speech with my quip about philosophers, merely to note the unusual characteristics of his presentation.)

within not just financial regulators, but also in the realm of law enforcement, the mud of political arenas, and the two-faced theater that is media. I doubt there is any shortage of muck to be dug up.

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JRT PROPERTY

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JRT Property International Real Estate NEW EGG

OVERSTOCK.COM

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newegg.com

overstock.com

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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

Crypto Biz Magazine Page.58 July.2014

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

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

Address

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

Altcoin

A clone of the protocol with some modifications. Altcoins usually have rules incompatible with Bitcoin and have their own genesis blocks. Most notable altcoins are Litecoin (uses faster block confirmation time and scrypt as a proof-ofwork) 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 onsite 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.

Bitcore

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

Block

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

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

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.

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

Utility based on bitcoinjs to craft transactions by hand, convert private keys to addresses and work with a brain wallet.

Change

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

Crypto Biz Magazine

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

Blockchain

July.2014 Page.59

bitcoin-ruby

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BTC

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

Casascius Coins

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.

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.

GITHUB BITCOIN GLOSSARY 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).

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 64-bit 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

Client

See Node.

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

Coin

Confirmation Number

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

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).

Crypto Biz Magazine Page.60 July.2014

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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

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.

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.

Coinbase.com

Denial of Service

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.

Cold Storage

A collective term for various security measures to reduce the risk of remote access to the private keys. It could be

A form of attack on the network. Bitcoin nodes punish certain behavior of other nodes by banning their IP ad dresses 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 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

GITHUB BITCOIN GLOSSARY 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.

ECDSA

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

Elliptic Curve Arithmetic

Extra nonce

Fee

See Transaction Fee.

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

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.

Genesis Block

The very first block in the blockchain with hard-coded con tents 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 with it, or some noticeable part of the economy will continue with original blockchain following the old rules. See Fork and Soft Fork.

Crypto Biz Magazine

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.

Fork

July.2014 Page.61

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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GITHUB BITCOIN GLOSSARY Hash Function

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 SHA-1, SHA-256 and RIPEMD-160.

Hash, Hash256

When not speaking about arbitrary hash functions, Hash refers to two rounds of SHA-256. That is, you would compute an SHA256 hash of your data and then an SHA-256 hash of that hash. It is used in block header hashing, transaction hashing, making a merkle tree of transactions, or computing a checksum of an address. Known as BTCHash256() in CoreBitcoin, Hash() in BitcoinQT. It is also available in scripts as OP_HASH256.

Hash160

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

To hash

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

Hashrate

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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.

Input

See Transaction Input.

Key

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

CONTINUED

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.

Key Pool

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 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

GITHUB BITCOIN GLOSSARY 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 un confirmed 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

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.

Miner

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

Mixing

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.

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, 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.

P2SH

See Pay-to-Script Hash.

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.”

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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.

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GITHUB BITCOIN GLOSSARY Paper Wallet

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.

Proof-of-Work (PoW)

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. 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. Ill-formed blocks or blocks containing invalid transactions are rejected no matter how difficult they were to produce.

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

Reference Implementation

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

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

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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.

Reorg, Reorganization

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 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.

GITHUB BITCOIN GLOSSARY 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.

Simplified Payment Verification (SPV)

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.

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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

Soft Fork

Testnet3

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.

Spam

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

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

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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.

The latest version of testnet with another genesis block.

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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.

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.

Secret key

GITHUB BITCOIN GLOSSARY 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.

are considered dust (containing outputs smaller than a transaction fee required to mine/relay them).

Transaction Input

Wallet

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

Transaction Output

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

See Transaction.

VarInt

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

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

Txin

See Transaction Input.

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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 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

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