Volume 2, Issue 3 by yBitcoin

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VOLUME 2 ISSUE 3

Introducing the Future of Money

Bitcoin-Powered Payroll Generating Massive Savings For International Companies

HashingSpace Sets Out to Build Infrastructure for Global Adoption

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ENTERPRISE-GRADE â&#x20AC;˘ SECURE & SCALABLE APPLICATION DEVELOPMENT PLATFORM Introducing CoinSocketTM

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Quickly develop enterprise-ready applications. Protect your cryptocoin accounts and those of your customers from loss or theft. Configure and deploy security policies incrementally without changes to your application logic. Rotate wallet keys without downtime. CoinSocket provides easy-to-deploy services allowing you to securely create and manage multisignature accounts across your entire organization. Monitor your accounts from anywhere, receive notifications of all account activity, enforce policy, and coordinate transaction signing across many devices.

Enforce Policy for Outbound Payments CoinSocket allows you to coordinate m-of-n multisignature account signing across multiple devices. This means you can develop your application logic and your security policy independently while avoiding single points of failure. Send transaction request notifications automatically to multiple devices. Other devices can choose to authorize or reject the transaction based on custom rules, or alternatively, they can prompt the user to authorize manually or to obtain a signature from a secure offline device. This makes it possible to use the same application logic whether you are using a hot wallet or a cold wallet since the tools and APIs are the same in either case. By looking at the signature in signed transactions, it is possible to determine who authorized them. This adds greater transparency and accountability within your organization. Sponsored Content

Create invoices and directly request payments from customers. Receive realtime updates whenever transactions are seen or confirmed on the network. Easily track payments with arbitrary labels and metadata.

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VOLUME 2, ISSUE 3

yBitcoin

ySecurity

WHAT IS BITCOIN?

HOW DO I STORE MY BITCOIN?

Everything You Thought to Ask—and More

By Erik Voorhees

Bitcoin is both a digital currency and a payment system. It can be sent around the world in seconds, at almost no cost.

By Andreas M. Antonopolous

Bitcoins are stored in a digital wallet. Wallets can exist on your smartphone, a computer, on the Internet or printed out on a piece of paper and locked away in a safe deposit box.

WHAT MAKES BITCOIN VALUABLE? Why Bitcoin Has Value— Notes on the “Network Effect”

By David Perry

Bitcoin has value because of all the good things you can do with it. Whether you need to quickly transfer money internationally, shop online without a bank account, accept payment from a compromised land with no risk of fraud, or have a store of value you can easily convert into local currency, Bitcoin is your answer. This base level of demand gives Bitcoin a monetary value that can be used in the exchange of goods and services.

Bitcoin: Perhaps the Most Promising Investment Opportunity of Our Age

By Alan Reiner

Currently, there are a number of measures you can take to completely secure large Bitcoin funds, but they can be complex to achieve. For now, it is best to consult with one of the well-known security companies in the Bitcoin space. Meanwhile, those same companies and others are busy innovating, and greater ease and efficiency are on the way!

By Kirk Phillips

By Tuur Demeester

HOW DO I BUY BITCOIN? Guide To Buying Bitcoin—The Basics to Get You Into the Market Bitcoin can be bought, mined or exchanged for goods and services. Buying bitcoins is the simplest way to acquire them. You can buy bitcoins in person, direct from another bitcoin holder, purchase them online through an exchange or buy them through a growing number of Bitcoin ATMs.

The Good, the Bit and the Ugly— Cautionary Tales on Bitcoin Security Similar to online banking information, logins and passwords to Bitcoin services must be kept 100 percent private. Best practices include using a password manager to store unique, long passwords for each site and enabling two-factor authentication using a smartphone whenever possible.

Bitcoin is the best performing financial asset of all time. While still nascent, and with several risks, the opportunity for Bitcoin to appreciate in value is remarkable.

Getting Bitcoin Security Right—

IS BITCOIN SAFE TO USE? IS BITCOIN A GOOD INVESTMENT?

WHAT IS THE MOST SECURE WAY TO STORE LARGE AMOUNTS OF BITCOIN? And Ready for Main Street

yInvest 3 Year: +52,900%

How to Ensure Bitcoin Security— Tips on Safety and Accessibility

yMining HOW ARE BITCOINS CREATED?

What is Bitcoin Mining?

By Alexander Lawn

A process called Bitcoin mining ensures that bitcoins are created at a predetermined rate until reaching the total number that will ever exist: 21 million. Miners also confirm transactions, ensuring that bitcoins are not “double spent.”

ON THE COVER Cover art by Proof of Work, a London-based creative agency specializing in digital storytelling and brand development. ProofofWork.media

Buy your first bitcoins with us!

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Join Us yCommerce DO ANY WELL-KNOWN MERCHANTS ACCEPT BITCOIN?

Merchant Adoption: Full Speed Ahead!

By Trace Mayer

New York, NY July 28, 2015

Multi-billion dollar companies are beginning to accept Bitcoin, and more are doing so every day. Overstock.com, TigerDirect, Dish Network, Dell Computer, Expedia, Microsoft, Newegg, Anheuser-Busch, Virgin Galactic, the Sacramento Kings NBA basketball team, OkCupid, WordPress and even the rapper 50 Cent!

WHY DO MERCHANTS WANT TO ACCEPT BITCOIN?

Four Reasons Why Your Business Should Accept Bitcoin! Getting Started With Payment Processing

By Tony Gallippi

Bitcoin offers numerous advantages for businesses. Merchants are able to save the fees that are generally charged by credit card companies, never have to deal with chargebacks, and can accept payment without requiring personal information from their customers. And with payment processors, merchants don’t have to worry about Bitcoin’s volatility.

62 Los Angeles, CA August 3, 2015

HOW IS BITCOIN CHANGING INTERNATIONAL BUSINESS?

Problem: International Payroll Delays and Fees Solution: Bitcoin

By Jonathan Chester

One of Bitcoin’s most compelling applications is its role in international commerce. While new enterprise uses are coming to market daily, one of the most developed and valuable tools is payroll services. With the advent of the Internet, companies today, both big and small, are building teams distributed across the globe. Powering ordinary payroll processes with digital currency allows even the smallest of companies to pay international staff cheaply and quickly. For example, an international newspaper could pay thousands of freelance writers from around the world every month without having to worry about fees, minimum transfers, foreign currencies or week-long delays.

Las Vegas, NV

September 28-30, 2015

HOW CAN I IMPLEMENT BITCOIN IN MY BUSINESS?

How to Launch Organizational Training and Development for Bitcoin-Related Initiatives

By Sterling Ledet

Beyond accepting bitcoin as a form of payment, there are a multitude of different ways to engage and use digital currency and blockchain technology in your business—from paying overseas employees to cutting-edge accounting and reporting practices. Most important, however, is to build a long-term strategy for your organization and team, which means in-depth research and active education.

Las Vegas, NV

October 25-28, 2015

PIONEERING ENTREPRENEURS

Seoul

December 10-11, 2015 35

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VOLUME 2, ISSUE 3 cont.

ySpend WHERE CAN I SPEND MY BITCOINS?

Growing The Market—A Bitcoin Shopping Guide

By Alan M. Silbert

There are more than 100,000 merchants accepting Bitcoin—and more every day. You can use your smartphone to spend bitcoins at a local brick and mortar store, or you can spend them online direct from your digital wallet.

yLegal WHAT IS BITCOIN’S LEGAL STATUS?

Virtual Currencies Hit the World Stage: Bitcoin’s Ever-Evolving Legal Status By MushkinLaw.com – Bitcoin Law Team Bitcoin has been treated as a currency and a commodity by the United States government, meaning most Bitcoin companies fall under existing laws and regulations. In the U.S., it is legal for individuals to buy, transact and sell bitcoin for personal use as long as capital gains taxes are paid to the IRS. The New York Department of Financial Services is in the process of establishing regulatory guidelines for Bitcoin companies in the State of New York.

History & Events HOW LONG HAS BITCOIN EXISTED?

History and Events Bitcoin has had a storied history since its birth five years ago. From the initial white paper to a $10 billion market cap, the Bitcoin ecosystem has grown in leaps and bounds. Despite occasional setbacks, there is no sign of a slowdown.

yBlockchain ARE THERE OTHER TYPES OF CRYPTOCURRENCY? 70

A World of Blockchain Technologies There are currently more than 1,000 different cryptocurrencies, but Bitcoin is magnitudes larger than its closest peer. Bitcoin pioneered the space and is without doubt the most trusted currency, but new innovations are happening regularly.

yPioneer

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yBitcoin.com

WHO RUNS BITCOIN? Get-to-Know—Leading Pioneers in the Bitcoin Movement No one! This is one of its beauties! Bitcoin is open source software that anyone can use and build on. Thousands of pioneers are actively building out the applications and services used every day by millions of users. Daily, established entrepreneurs from respected fields are entering the ecosystem and improving the protocol.

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Volume 2

Welcome to the Bitcoin Era More than two years after launching this magazine to explore and share the world of Bitcoin, my sense of excitement burns bright. I’m in contact every day with brilliant people from all over the globe, who are engaged in shaping the future of money.

Issue 3

Founder/Editor -in-Chief David F. Bailey Publisher Calli S. Bailey

But I don’t have to look far to see how quickly Bitcoin is changing the world. I am experiencing it first hand, as our own business integrates Bitcoin into our everyday practices.

Business Development Tyler Evans

I published my first magazine in 1986, and while the media landscape has changed dramatically since then, until Bitcoin hit the world stage in 2013, the way we used financial services changed little if at all. We were still snail mailing checks, and taking credit card payments that dinged us up to 3.9 percent.

Te c h n o l o g y Andrew DeSantis

Now, only two short years later, Bitcoin has opened up for us a new frontier of doing business. We work with a global network of freelancers whom we seamlessly pay in digital currency—with no payment delays and no extra fees. We invoice our global base of customers in bitcoin and our payment processor guarantees the amount in dollars regardless of the bitcoin valuation. And those guaranteed, risk-proof payments are automatically deposited into our bank account with no transaction fees or costly currency conversions. These changes alone saved our startup business thousands of dollars in 2014. Has this complicated our bookkeeping? Minimally and well worth it. Quickbooks now readily accommodates Bitcoin and a Bitcoin tax accounting software program automatically integrates all of our transactions. The cost of all this amazing growth-enabling software? Less than $100. Using Bitcoin and its related services and providers, Main Street is on the brink of a revolution in the way it does business. This kind of change is exciting because it has no downside. It’s easy to implement, results in cost savings that are both immediate and significant, and its benefits are open and available to everyone—including the unbanked. The whole world, literally, can and will share the Bitcoin experience. Welcome, friends, to the Bitcoin era. We are on the threshold of a new age, just as we were when the Internet was young. In the pages of yBitcoin, you’ll get a glimpse of what it can all mean to you. The print edition of this magazine may have reached you on a one-time basis through one of our strategically targeted distributions. If you'd like to receive subsequent issues, please sign up at ybitcoin.com, and we will send you a complimentary copy of our fourth-quarter edition as soon as it rolls off the press. Thank you for reading. I know you are going to enjoy exploring the profitable new world of Bitcoin.

Warm regards,

Calli S. Bailey, Publisher calli@btcmedia.org

Senior Consulting Editor Andrew Hidas Copy Editor Ellen Sullivan Senior Designer Jennifer M. Taylor Cir c u l a t i o n / D i s t r i b u t i o n Alex Gum Contributing Wr i t e r s Andreas Antonopolous Jonathan Chester Tuur Demeester Tony Gallippi Alex Lawn Sterling Ledet Trace Mayer Ken Miller MushkinLaw.com – Bitcoin Law Team David Perry Kirk Phillips Alan Reiner Alan Silbert Erik Voorhees Downloadable Digital Edition:

yBitcoin.com Advertising Sales Office 256.539.6100 www.ybitcoin.com yBitcoin is published quarterly by BTC Media, LLC, P.O. Box 1411, Fayetteville, TN 37334. Reproduction without the express written consent of the publisher is prohibited. yBitcoin is not responsible for unsolicited manuscripts, photography or art. yBitcoin does not endorse any advertiser or business listed in its directories, and is not responsible for errors and omissions in advertisements, sponsored content or editorial content. The information contained herein should not be construed as an endorsement of any company or individual, nor reflect in any way upon the products/services they provide. yBitcoin does not knowingly accept false or misleading advertisements, sponsored content or editorial content, nor does the publication or its staff assume responsibility if such advertisements, sponsored content or editorial content appears in the publication. yBitcoin makes no warranties or representations and assumes no liability for any claims regarding services, products or claims made by advertisers. yBitcoin is not a broker, seller or buyer of Bitcoin, nor shall it be considered to be promoting or encouraging the purchase of or investment in bitcoin. ©2015, all rights reserved. *All sponsored content is paid advertorial and marked sponsored in the footer.

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Bitcoin

What Is Bitcoin? Welcome To Cryptocurrency by ERIK VOORHEES

Bitcoin has taken the world by storm. Yet when most people hear about it, whether for the first or the tenth time, they have one simple question: “What is it?” Like an automobile, Bitcoin is very technically advanced, and it can be extremely complicated, depending on how much you want to know about it. But also like an automobile, you don’t actually need to know much about Bitcoin’s technical details in order to use it—and in order for it to change the way you look at the world. Here’s what you need to know. Generally speaking, Bitcoin is two things: 1) A payment network (“Bitcoin”); 2) The currency unit used on that network (“bitcoins”). Thus, as both a payment network and the specific currency used on that network, you use “Bitcoin” to receive and send “bitcoins” to and from other people. To clarify this, consider a comparison to items with which you’re already familiar: PayPal and U.S. dollars. PayPal is a payment network, but not a currency. On the flip side, the U.S. dollar is a currency, but not a

“The real magic of Bitcoin, the reason it’s so newsworthy, comes from the consequences of its existence.”

yBitcoin.com

“Bitcoin is two things: (1) A payment network (“Bitcoin”), (2) The currency unit used on that network (“bitcoins”).” payment network. You use the PayPal payment network to make transactions in U.S. dollar currency with people. Now, note that the PayPal payment network is operated and centrally controlled by one company (PayPal Inc.), and the U.S. dollar is created and centrally controlled by one organization (the U.S. federal government). Here’s where things get important, and revolutionary—and a little weird. With Bitcoin, the payment network is decentralized. It is not controlled by any company or organization. Think of it like filesharing—a network of computers that talk to each other, but nobody controls the network itself (there is no central server). The currency unit, called bitcoins, is also not created or controlled by any central party. Bitcoins are created by the network itself over time, in a somewhat random process that distributes the new coins to those computers that are supporting and operating the network. The number of coins created in this way is limited by a clever mathematical system. As of this writing, there are roughly 12 million bitcoins in existence, and this will continually increase over time to a maximum of 21 million bitcoins many years in the future.

Unless you care about how Bitcoin accomplishes this, the above is really all you need to answer the question, “What is Bitcoin?” Answer: It’s a payment network, and a currency used on that network, which are controlled by no central party. The number of bitcoins in existence is limited by mathematics.

“Bitcoin means that for the first time in human history, every person has financial sovereignty. Private property can now truly be controlled by the owner, and nobody else.” Perhaps the more important question, of course, is, “Why should you care?” While computer engineers and mathematicians might find Bitcoin’s technical details fascinating, most people don’t really care about that. And while it’s true that Bitcoin permits financial transactions that have essentially zero cost, and which occur instantly anywhere in the world, these consumer benefits are not really what’s important, either. The real magic of Bitcoin, the reason it’s so newsworthy, comes from the consequences of its existence.

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The fact that Bitcoin is decentralized, with no controlling entity, has fundamental implications. Because there is no central control, the power of the currency and its payment network belong to the people who use it. And this power is tremendous indeed. Bitcoin enables any two people, anywhere on earth, to transact with each other freely. They cannot be censored. There are no rules for their exchange except those they set between themselves. With Bitcoin, there is no third party watching over the participants of economic activity, approving their conduct and charging a fee for doing so. With Bitcoin, one does not need permission to direct one’s own financial life. This means people can contribute to controversial causes they believe are important, with no government agency or financial company able to cut off the payment flow. It means an entrepreneurial child can start an Internet business before he or she is 18. It means a rural African farmer can receive payment

for crops from a neighboring city, even with no bank account. It means a citizen of a tyrannical nation can hide his financial assets from seizure.

“Bitcoin enables any two people, anywhere on earth, to transact with each other freely.” Bitcoin means that for the first time in history, every person has financial sovereignty. Private property can now truly be controlled by the owner, and nobody else. The rules of finance, and our economic relationships, now become set and regulated by markets instead of by politicians. By the individual, not the collective. The value of one’s savings now cannot be reduced through monetary debasement (i.e. inflation). Trade between individuals is now the business of only those individuals. Certainly, some of these implications are controversial. Indeed, they will have profound consequences on human society,

just as do all great technological achievements. A good way to think of it is that Bitcoin represents the separation of money and state—the ability to “practice one’s own economic behavior” without the permission of anyone else. It removes the power over money from governments and banks, putting it in the hands of anyone who learns how to use it. It brings privacy in an age of surveillance, and honesty in an age of manipulation. So what is Bitcoin? It is an experiment. It is a project that, if successful, will change the economic relationship between humans on a fundamental level. Its implications have just barely been explored. Like any experiment, it can fail, but the genie is now out of the bottle. While this genie goes about its business, many things you take for granted will likely change, so it may be wise for you to educate yourself on the technological, mathematical, and economic phenomenon that is Bitcoin.

Erik Voorhees

Erik Voorhees, CEO of ShapeShift.io, is recognized as one of the world’s leading Bitcoin entrepreneurs. Voorhees passionately advocates for Bitcoin, which he considers among the most important inventions in history. As a featured guest on Bloomberg, Fox Business, CNBC, BBC Radio, The Peter Schiff Show and at numerous Bitcoin and industry conferences, he has asserted that “there is no such thing as a ‘free market’ when the institution of money itself is centrally planned and controlled.” His writings address “the human struggle for the separation of money and state,” with Bitcoin as the instrument by which the future will happen.

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Bitcoin

Why Bitcoin Has Value Notes on the “Network Effect” by DAVID PERRY

exchanges anyone has to make. And there’s only one exchange rate We all have what feels like an intrinsic understanding of value, for every other commodity that matters: its cost in silver coins. though it is actually learned as we come to know our world. A gold In truth there is more complexity involved—some things, like bar has value, an empty soda can, not so much. When we encounter your fish, would make very poor money indeed. Fish don’t stay new things it’s usually fairly easy to assess what kind of value they good for very long, they’re not particularly divisible, and depending might hold, but Bitcoin is a different beast. Bitcoin is harder to on the exchange rate, you might have to carry a truly absurd define and understand, and for many beginning Bitcoiners the amount of them to make your day’s purchases. question of value is one of the most puzzling. On the other hand, silver coins have their So why does Bitcoin have value? “Bitcoin is instead a inherent problems too, when traded on To begin, we really need to understand why simple, elegant and extremely large or extremely small scales. anything has value. Fans of post-apocalyptic modern replacement for This is what is truly valuable about Bitcoin: It’s fiction will often point out that in the end, the the entire concept better money. only things of real value are those that sustain and defend life. Perhaps they’re right on one of money.” The Evolution to Bitcoin It’s been a long time since those first “hard” level, but with the rise of civilized societies moneys were developed, and today we transact primarily with things got a bit more complex, because the things that sustain and digital representations of paper currency. We imagine bank vaults defend those societies also gain a certain degree of value. It is in this filled with stacks of cash, but that’s almost never the case these context that all moneys, Bitcoin included, gain their value. Since our days—most money exists merely as numbers in a database. There’s societies rely heavily on trade and commerce, anything that facilitates the exchange of goods and services has some degree of value. nothing wrong with this type of system, either; it works fantastically well in an age where physical presence during a transaction is not From Barter to Money Imagine, for example, a pre-money marketplace where the barter a given. The problem is that the system is aging and far too often system is king. Perhaps you’re a fisherman coming to market with plagued by incompetence or greed. the day’s catch and you’re looking to go home with some eggs. Every IT guy knows that from time to time you have to take a Unfortunately for you, the chicken farmer has no use for fish at the drastic step: throw the old system in the trash and build a new one moment, so you need to arrange a complex series of exchanges to from scratch. Old systems, such as our current monetary system, end up with something the egg seller actually wants. You’ll probably have been patched so many times they are no longer functioning lose a percentage of your fish’s value with each trade, and you as efficiently as they should. also must know the exchange rate of everything with respect to We previously patched our problems with gold and silver by everything else. What a mess. introducing paper banknotes. We patched further problems by removing the precious metal backing those banknotes, then This is where money saves the day. By agreeing on one intermepatched them again and again to allow wire transfers, credit cards, diate commodity, say, silver coins, two is the maximum number of

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“Imagine being able to invest in the concept of email back in 1965 when some clever hacker at MIT found a way to use their primitive multi-user computer system to pass messages.”

debit cards, direct deposit and online billpay. All the cornerstones of modern life are just patches on this ancient system. But what would you do if you had the chance to start over? What if you could make purely digital money based on modern technologies to solve modern needs? What if we didn’t need those dusty old systems or the people making absurd profits maintaining them? This is Bitcoin.

Replacement, Not Repair Bitcoin isn’t another patch, another layer of abstraction added on top of an aging and over-complex system. Bitcoin isn’t another bank or payment processor coming up with new ways to move old dollars. Bitcoin is instead a simple, elegant and modern replacement for the entire concept of money. It has value for exactly the same reason as the paper money in your wallet: It simplifies the exchange of goods and services, not in the antique setting of a barter system bazaar, but in the current setting of modern Internet-enabled life. “But that’s only why it’s useful,” I hear some of you saying. “Why does it actually have value?” The two-word answer is one most economists are familiar with: Network effect. The network effect is a lovely piece of jargon that refers to the quite commonsense statement that networked products and services tend to have more value when more people use them. The most common example is the telephone: During its early days when few people had access to telephones their utility, and therefore their value, were minimal. Today practically everyone has a phone, so their utility and value

is so high as to be unquestionable. In this way the value of Bitcoin is directly tied to the number of its users and the frequency of their use. Of course Bitcoin’s value stemming from the network effect is not without its own unique difficulties. When the network is still relatively small, each new group’s entry or egress can create massive price fluctuations, resulting in huge profits for early adopters. Unfortunately, this makes Bitcoin look, on the surface, too good to be true—a bit like a Ponzi or pyramid scheme. Ponzis and pyramids are distinct and different forms of fraud, but they share one thing in common: The first ones in make a lot of money while the last ones in foot the bill. Both feature initial “investors” being paid out directly from new investors’ money. The return is always too good to be true and the gains (for those who actually get gains) are exponential. Because Bitcoin’s value has risen so dramatically since its 2011 debut, it seems to fit this sort of a profile at first glance, but then so does every new technology. It’s just not normally the case that we get to invest in this sort of technology and profit as it’s adopted. Imagine being able to invest in the concept of email back in 1965 when some clever hacker at MIT found a way to use primitive multi-user computer systems to pass messages. It might have seemed like a silly waste then, but owning even a tiny percentage of the rights to email today would make one wealthy beyond imagining. Technologies follow a known adoption curve, which tends to include a period of exponential rise. Bitcoin is no exception. Ponzis and pyramids both create value for their oldest investors by stealing from the new. There’s no economics involved—just theft. Bitcoin creates value for the old investors and the new by splitting a finite currency supply more ways. That’s not trickery or theft, just good-old-fashioned supply and demand at work— a basic and ancient economic principle applied to the world’s newest currency system.

David Perry

David Perry is the chief architect for BitcoinStore and author of the popular Bitcoin blog, “Coding In My Sleep.” When he's not breaking (or making) Bitcoin news, he can often be found moderating the Bitcoin StackExchange Q&A site, attending Bitcoin meetups and conventions, or tending to his Bitcoin mining operation.

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Bitcoin’s Path to Mainstream Adoption: Convincing Aunt Nancy by Ken Miller When will most people use Bitcoin, the way they now use computers and cell phones? When my Aunt Nancy processes her second bitcoin transaction—and does so intentionally— it will signal to me that a lot of our work here is done. But until that time, there is a long way to go to see mainstream Bitcoin adoption. Products and capabilities that are not only drop-dead simple to use, but that also delight the user, will be a requirement. The following graphic helps illustrate the groups of potential Bitcoin adoptees:

(e.g. My Aunt Nancy)

Hardcore enthusiasts are using Bitcoin now. They are the early proponents and adopters, as well as the ones doing groundbreaking development to make the blockchain usable in the real world.The enthusiasts tolerate friction and design flaws, because their desire to advance Bitcoin is so strong they will brave landmines to usage along the way. Relatively speaking, this group is miniscule. The next tranche of adoptees will be those who are tech savvy and motivated to use Bitcoin for a specific need or interest; for example, investments. A desire to invest in bitcoin for speculative reasons has led to occasional adoption among this group, because there has been a strong enough motive that the benefit of engaging in Bitcoin (even temporarily) surpassed the difficulties. This group is also small because its motivation can be intermittent. Then there is my Aunt Nancy, who has a smartphone, likes Facebook, and comfortably navigates apps and the Internet. She is not technically savvy, has never written a line of code, and finds Bitcoin confusing. This is the main problem: Bitcoin is too difficult to use right now for the average consumer, whose

motivation for use does not exceed his or her willingness to deal with friction. And this is most people. There is also a secondary issue involved in getting my aunt to use Bitcoin. Paying by credit card or cash is pretty easy, and therein lies the challenge with converting the majority of potential adopters. If you live in a developed economy, current forms of payment feel convenient and accessible. So, not only does Bitcoin currently have inherent ease-of-use issues, the existing consumer solution is really not that bad. A good analogy for the type of hurdle Bitcoin needs to clear is to examine the arrival of the smartphone and mobile apps. Before that, we had feature phones, which we were generally happy with.Then the smart phone showed up. Prior to that, my Aunt Nancy never said, “I need to have a phone where I can download mini-applications that allow me to perform various internet-like tasks without the existence of a keyboard.” If memory serves, what happened was that she saw a friend using an iPhone and said,“Wait…so I just push this logo on your screen and music starts playing?!” And voila, she was using an app without really knowing it! Bitcoin adoption for people like my aunt largely rests on developers being able to create seamless interactions that quietly do something similar to what the app did. A good example of this is the recent news from Volabit and SatoshiTango, who announced a remittance service between Mexico and Argentina, in which an individual in Argentina can send funds to a relative in Mexico who then receives Mexican pesos. All the actual settling between the companies is done in Bitcoin; the consumer uses Bitcoin to send money and never even knows it. Compare that to the traditional way of remitting funds, which can be time consuming and incredibly expensive. If a new way of sending funds emerges that is simpler, and costs extraordinarily less, that’s a big deal. This is the type of innovation that is required to change course on the current inertia.The first step is to seed passive but high-value adoption, which will then be used as a springboard for more conscious participation and use of Bitcoin, and eventually…adoption even by my Aunt Nancy.

Ken Miller

Ken Miller is the COO of Gem, a simple and secure platform for blockchain developers. Ken was the VP of Risk Management and employee #22 at PayPal, where he built PayPal’s anti-fraud and credit systems. He went on to become Co-Founder and CEO of Anchor Intelligence, and he served as Vice-President of Product, XD, and Risk Services at Intuit. 16

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Invest

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6 Month: +81%

2 Year: +217%

3 Year: +5,625% $2,000.00 $1,000.00 $500.00

Bitcoin:

$200.00 $100.00 $50.00

The Most Promising Investment Opportunity of Our Age?

$20.00 $10.00 $2.00

by TUUR DEMEESTER $1.00 Oct. 11

Jan. 12

Apr. 12

Jul. 12

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A technology is called “disruptive” if it creates a new market that first disturbs and then displaces an earlier technology. Bitcoin is potentially such a technology and much more. The fact that it can disrupt the largest and most interconnected marketplace in the world—money, banking and finance—makes it perhaps the most promising investment opportunity of our age. Unlike our current increasingly unstable and unpredictable financial system, Bitcoin has 21st century technologies at its very core. The digital currency and clearing network is open source, mobile, peer-to-peer, cryptographically protected, privacy oriented and native to the Internet. The fusion of these technologies allows for a level of security and efficiency unprecedented in the world of finance. These are some of the areas in which Bitcoin-oriented technologies can directly compete: • • • • • • •

$2 trillion annual market for electronic payments. $1 trillion annual e-commerce market. $514 billion annual remittance market. $2.3 trillion hedge fund market. $7 trillion gold market. $4.5 trillion cash market. $16.7 trillion offshore deposit market.

Bitcoin’s potential is not going unnoticed. After it had been praised by tech moguls such as Bill Gates (“A technological tour de force.”) and Gmail founder Paul Buchheit (“Bitcoin may be the TCP/IP of money”), the money started speaking. We saw investments in Bitcoin by top venture capital brass such as Marc Andreessen, Reid Hoffman, Fred Wilson, and PayPal co-founder Peter Thiel; by billionaires such as Jeffrey Skoll (eBay co-founder) and Li Ka-shing (by all reports the richest person in Asia); by iconic executives such as Vikram Pandit (Citigroup), Blythe Masters (JPMorgan Chase), and Tom Glocer (Reuters); and most recently by large cap companies such as 18

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Google, Qualcomm, NYSE, NASDAQ, USAA (American bank and insurer), and NTT DOCOMO ($75b Japanese phone operator). Finally, several academic and government heavyweights have also affiliated themselves with Bitcoin companies: Larry Summers (ex-Treasury Secretary, World Bank Chief Economist), James Newsome (CFTC and NYMEX), and Arthur Levitt (SEC). The core value proposition of this network is the fact that, in the words of IBM executive architect Richard Brown, “Bitcoin is a very sophisticated, globally distributed asset ledger.” What Brown and others hint at is that Bitcoin will in the future be able to serve not only as a decentralized currency and payment platform, but also as the backbone for an “Internet of property.” From the inception of Bitcoin in 2009 until January 2011, its market cap grew to $1.5m. From there, it rocketed to $145m in January 2013, to reach $4 billion in early 2015. This entails a decentralized global platform, smartphoneaccessible, on which companies and individuals can issue, buy and sell stocks, bonds, commodities and a myriad of other financial products. The effect will be to remove much of the current bureaucracy and barriers to entry, presenting a huge opportunity for the world’s 2.5 billion unbanked people. This raises the question: why Bitcoin, and not some other cryptocurrency? The answer may lie in the network effect: of all the cryptocurrencies, Bitcoin is the one with the highest adoption rate and the strongest security. The combined computing power of the Bitcoin mining industry serves as a protective firewall around the payment network. To give an idea of its size, as 21 Inc. CEO Balaji Srinivasan has pointed out that “all of Google today would represent less than 1 percent of mining.” In short: no other cryptocurrency is as secure as Bitcoin. This attribute in itself attracts more capital, which in turn makes the network even more secure and performant.

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Because of its robustness, the Bitcoin network is now the reference protocol for the new paradigm in finance. And just like TCP/IP became the mainstay for the Internet of information, the Bitcoin network will likely become the value anchor for the Internet of money and finance. Speed may be provided by off-chain or side-chain transactions, but for the high-value transactions of tomorrow, Bitcoin could very well become the security-providing reference currency. So, how much of all this potential is already realized? Well, from the inception of Bitcoin in 2009 until January 2011, its market cap grew to $1.5m. From there, it rocketed to $145m in January 2013, to reach $4 billion in early 2015. Despite a steady decline in price in the 12 months following the fall 2013 rally, year-on-year adoption trends markedly point upward: as of Q1 2015, there are 8.45 million bitcoin wallets (+100%), Bitcoin is accepted by 88,000 merchants (+100%), there are 374 Bitcoin ATMs (up from 47), and the hashrate of the network is 346 pth/s (+700%). Enticed by its great potential, investments in the Bitcoin ecosystem are taking off rapidly. In 2013, little over 40 VC deals were made that raised a total of $96 million. That number nearly quadrupled over 2014, with $335 million invested. For 2015, the current run rate is three times that, $916 million. The value of bitcoins in circulation has been rising steadily. This can be explained mostly by the fact that it is a scarce commodity (maximum supply is 21 million) with rapidly growing utility. Here are a few possible scenarios for the future value of one bitcoin: Scenario

Potential value of one bitcoin

Hedge funds allocate 1% to Bitcoin1 Argentines sell USD cash for Bitcoin2 Gold holders divest 1% into Bitcoin3 Bitcoin replaces remittance market4 Becomes global E-Commerce currency5 25% of black market transactions in Bitcoin6 Bitcoin replaces reserve currency7 Bitcoin replaces offshore deposits8

1,230

$ $

2,480 3,500

$ $

6,860 11,500

$ $

44,000 500,000

800,000

“Bitcoin does not appear to be a fad or bubble, nor merely a one-off hedge against gold.” How serious a risk do these challenges pose? Let us examine them. A better currency is possible, but experience shows that disruptive protocols—such as SMTP for email and TCP/IP for Internet—have proven to be very resilient once adopted by a critical mass of the population. As with any software application, the discovery of bugs may destabilize the system, but the open-source nature of Bitcoin allows for many eyeballs to help track problems, and many brains to help figure out a solution. A hard fork creates competition between two versions of Bitcoin, and after a period of fear and doubt, eventually the value will flow to the version deemed most useful by its users— not a long term threat in other words. An organized attack on the network is possible but expensive, and there are many potential defense mechanisms: miners can refuse suspicious transactions or raise fees, vulnerabilities in the code can be fixed, and so forth. From the perspective of the government, approaching the robust, decentralized Bitcoin network with an outright ban is nigh impossible. Therefore taxation, regulation and acceptance seems the more likely outcome. In any case, it seems exceedingly clear that the technology of the cryptocurrencies is here to stay. Bitcoin does not appear to be a fad or bubble, nor merely a one-off hedge against gold. With a risk-reward proposition this attractive, holding a small percentage of bitcoins in one’s portfolio as a speculation on increased adoption may be one of the wisest investment decisions of our age.

1) Source: http://tinyurl.com/HFresearch2013 2) Source: http://tinyurl.com/argentine-USDcash 3) Source: http://tinyurl.com/GMabovegroundgoldstock 4) Source: http://tinyurl.com/worldbank2012remittances 5) Source: http://tinyurl.com/ecommerceglobal 6) Sources: http://tinyurl.com/VOXEUshadowecon and http://tinyurl.com/CIAworldGDP

The scenarios projected above are, of course, not cast in stone. Bitcoin faces several risks going forward. These include: • The emergence of a much better digital currency that steals its market lead. • An undetected bug in the system. • A hard fork (what happens when some nodes in the network start running a Bitcoin software upgrade that is incompatible with previous versions) causing the Bitcoin payment network to split in two. • A sustained attack by an organization with substantial financial resources, such as a government.

7) Source: http://mises.org/content/nofed/chart.aspx 8) Source: http://tinyurl.com/HKMAoffshore

Tuur Demeester

Tuur Demeester is founder of cryptocurrency focused economic research firm Adamant Research and editor-in-chief of The Adamant Newsletter. He first discovered Bitcoin on a research trip in Argentina, and started recommending it as an investment at $5 in January 2012. yBitcoin.com

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Invest

Wondering how you can buy your first bitcoin? Fortunately, it’s much easier today than it was even a year ago, and thanks to innovative companies entering the market, it’s getting easier all the time. There are multiple ways to get started: you can mine them yourself, trade goods for them, or apply for a loan in bitcoin. Some employers—especially those in the Bitcoin space—will even pay a portion of your salary in bitcoin. However, the simplest way to break into the world of Bitcoin is simply to purchase them. There are a variety of ways to do so, and this guide will walk through some of the most popular options.

Buy Directly Online The simplest way to buy bitcoin online is by using a consumer site like Coinbase, Circle, Expresscoin, or Trucoin. Each of these companies will walk you through the process of setting up a wallet and linking your credit card or bank account to complete your purchase. However, the companies must verify your identity to comply with U.S. “Know Your Customer” (KYC) regulations. The availability of these services varies worldwide due to regulatory restrictions, although Coinbase and Circle maintain a presence in multiple countries. In order to control fraud, these sites typically impose limits on the number of bitcoin you can buy, and they charge transaction fees.

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The bitcoin you purchase through these companies are held in an online wallet linked to your account. From there, you can send bitcoin to another user, make an online purchase of items that sell in bitcoin, or transfer them to a different wallet. Many of these companies offer insurance for your bitcoin stored with their wallets, and they implement security features like two-factor authentication and multi-signature wallets to keep your account safe. If this is your first journey into the world of Bitcoin, consider these companies for a relatively quick and convenient way to get started.

Use a Traditional Bitcoin Exchange Traditional exchanges such as Bitstamp or Bitfinex are the most common sources for traders or large investors. These sites allow you to create an account and fund it with a deposit of fiat currency such as U.S. dollars. (“Fiat” refers to a currency that is issued or considered legal tender by a government e.g., euros, pounds, or dollars.) You can deposit your local currency into an exchange trading account using either a wire transfer or an ACH withdrawal directly from your bank account. The deposit options vary by exchange, and this process can take several days depending on the method you use. Once you’ve moved money to your exchange account, you can buy and sell bitcoin with other traders using the exchange. The exchange doesn’t actually sell you bitcoin directly, instead it

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matches you with someone else who’s willing to trade at that price using an order book. Yes, that means it works essentially like a stock exchange that matches buyers with sellers at an agreed-upon price. The order book is a list of all the prices and amounts of bitcoin that other traders are willing to buy or sell. For example, if you want to buy bitcoin, you can either place an offer at the current market price (“market order”) or you can set the price you are willing to pay and wait to see if anyone else will sell at that price. Once someone decides to sell at your asking price, the exchange executes the trade, transfers the fiat currency to the seller, and credits your account with bitcoin. Since exchanges are designed for professional trading, they offer advanced features like limit orders and margin trading. However, you must be careful to choose a reputable exchange since they maintain control of any bitcoin or currency held in your exchange account. Many exchanges are also required to comply with KYC and other anti-money laundering rules. These rules can require additional identity verification from users before they’re allowed to transact.

One of the most popular ways to find other people to trade with is the site LocalBitcoin.com, which allows you to search for people in your city who are willing to sell you bitcoin for cash. However, if you choose to meet someone for a transaction in person, be sure to take basic safety precautions like meeting in a public place.

Buy In-Person There are a growing number of locations worldwide where you can purchase bitcoin directly from a convenience store or ATM. A Bitcoin ATM will let you exchange local currency for bitcoin directly—often the fastest and most convenient option. A map of all Bitcoin ATM locations can be found online at http://bitcoinatmmap.com. Companies such as ZipZap in the UK, GogoCoin in San Francisco, and Ripio in Argentina allow you to purchase bitcoin through local convenience stores. This process is as simple as buying a gift card or telephone minutes; you receive a card that allows you to redeem it for bitcoin online. These services usually include substantial transaction fees, but are a convenient way to get started.

Modern technology and savvy entrepreneurs have made buying bitcoin easier and much more convenient than opening a bank account. If you own a cell phone, there are hundreds of ways you can start buying and spending bitcoin today. Find An Over-The-Counter Seller

Conclusion

Another way to buy bitcoin is through an over-the-counter (OTC) trade, which is a direct transaction with another party instead of using an exchange. There are a number of website and apps that facilitate these transactions by helping you find other people interested in trading. You can often contact these people and negotiate a transaction directly, paying with PayPal, cash, gift cards, or even gold depending on what the seller is willing to accept. For example, you can use the Facebook app Get Bits (https://bitpay.com/getbits) to find friends on Facebook who are willing to sell you bitcoin. This allows you to contact friends directly and negotiate a transaction without a middleman. There are also brokers who will connect you directly with a seller if you’re looking to buy a large amount of bitcoin at once. These brokers, such as Binary Financial and SecondMarket, specialize in transactions over $100,000.

While this guide covers some of the most popular ways to buy bitcoin, it is not exhaustive: new options and marketplaces are springing up rapidly as the Bitcoin economy grows. Startups worldwide are building easier and more convenient ways to transfer value with bitcoin and increase investment opportunities, including the ability to buy bitcoin with your 401k or retirement account. In addition, exchanges and services are expanding worldwide as the global regulatory environment adapts to this relatively new player on the world financial scene.

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Invest Buy/Sell Directory*

BITONIC BITCOIN.DE

Netherlands

Germany

https://bitcoin.de/en

https://bitonic.nl contact@bitonic.nl

BTC, EUR

CEX

CIRCLE

London, UK

Boston, MA USA

https://cex.io

https://circle.com info@circle.com

BITSTAMP Slovenia

https://bitstamp.net info@bitstamp.net BTC, EUR, GBP, USD, CHF

BITQUICK Cincinnati, OH USA

https://bitquick.co BTC, USD, EUR

COIN.MX Frisco, TX USA

COINBASE San Francisco, CA USA

https://coin.mx support@coin.mx

https://coinbase.com

0% Trading Fees

BTC, USD

BTC, LTC, USD

HUOBI

ITBIT

KRAKEN

Freeland, WA USA

Beijing, China

Singapore

http://expresscoin.com support@expresscoin.com

https://huobi.com support@huobi.com

https://www.itbit.com info@itbit.com

BTC, LTC, DOGE, BLK, DRK, STR, ETH, USD

BTC, LTC, CNY

BTC, SGD, USD, EUR

OK COIN

SAFELLO

Hong Kong, China

Stockholm, Sweden

Helsinki, Finland https://localbitcoins.com support@localbitcoins.com

https://okcoin.com support@okcoin.com

https://safello.com info@safello.com

ALL CURRENCIES ACCEPTED

BTC, LTC, USD, CNY

BTC, EUR, SEK, GBP

BTC, LTC, NMC, USD

BTC, USD

*Every effort has been made to ensure accuracy of information presented here â&#x20AC;&#x201C; see disclaimer page 11

yBitcoin.com

San Francisco, CA USA

https://kraken.com support@kraken.com BTC, USD, EUR, XRP, LTC

SHAPESHIFT Switzerland

https://shapeshift.io mail@shapeshift.io BTC, LTC, PPC, DRK DOGE, NMC, FTC, BC

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Security

How to Ensure Bitcoin Security by ANDREAS M. ANTONOPOULOS

“...Bitcoin security is increasingly implemented with hardware tamper-proof wallets.”

Bitcoin allows anyone to be his or her own bank. If that sounds to you like a potential scenario for chaos, it’s only because you haven’t yet heard of the great lengths to which Bitcoin users can go to ensure the security of their “one-person banks.” By following a handful of basic security guidelines, they can achieve a level of security for their money that is actually unavailable in the banking world as we know it. The truth is that banks are barely able to keep accounts secure. Although banks promise to have your deposited funds available for you, none of them could withstand a “run” in which all depositors simultaneously decide to withdraw their funds. In that respect, bank funds are just an abstract reference to value, because your money isn’t really there. It’s just a number in a ledger, but the actual money is out on loan to the bank’s borrowers. Bitcoin is not like that. Instead, it functions very much like digital cash or gold. You deposit it in your account, you

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maintain it, and when you want to use it for a purchase, it is there for you— yours and yours alone. With Bitcoin, possession is 10/10ths of the law. This means it comes with its own security challenges. Having the keys to unlock a bitcoin is entirely equivalent to possessing a chunk of precious metal. Which means if you misplace it, have it stolen or accidentally send the wrong amount to someone, you would have as much recourse as if you dropped cash on the sidewalk and didn’t notice until you got home. However, Bitcoin has capabilities that cash, gold and bank accounts do not. A Bitcoin wallet, containing your keys, can be backed up like any file. It can be stored in multiple copies, even printed on paper for hard-copy backup. A backup of bitcoin keys is as good as possession of the original keys. You can't "backup" cash or precious metals. Banks can recover funds for you, but only at their discretion. And they can also confiscate funds, adding a risk that doesn’t exist in Bitcoin. Bitcoin is different enough from anything

that has come before that we need to think about its security in a novel way, too. What should end-users do to secure their Bitcoin wallets? Here are five guidelines. 1. Balance the risk of loss and theft. While most users are rightly concerned about theft, loss is an even bigger risk. Data files get lost all the time, but if they contain bitcoins the loss is much more painful. In the effort to secure their Bitcoin wallets, users must be very careful not to go too far and end up losing the bitcoins instead. In the summer of 2010, a well-known Bitcoin awareness and education project lost almost 7,000 bitcoins. In an effort to prevent theft, the owners had implemented a complex series of encrypted backups. In the end they accidentally lost the encryption keys, making the backups worthless and losing a fortune. Like hiding money by burying it in the desert, if you hide it too well you might not be able to find it again.

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“...Bitcoin has capabilities that cash, gold and bank accounts do not.” 2. Use two-factor authentication. Many first-time users will use a web-based wallet or online service as their Bitcoin bank. Unfortunately, this has led to a rash of thefts from Bitcoin users, almost all due to compromised desktop computers. Hackers will install trojans and keyloggers looking for access to well-known Bitcoin sites. As soon as users log on, their own computer will compromise the account and surreptitiously transfer all their money to another Bitcoin address. Once stolen, there is no recovery, as Bitcoin transactions are not reversible. The most effective defense against this attack is using what is known as a “two-factor authentication scheme” or using a smartphone application to generate one-time codes. (See “Google Authenticator” at http://code.google.com/p/googleauthenticator/.) 3. Spread the risk. Would you carry your entire net worth in cash in your wallet? Most people would consider that reckless, yet Bitcoin users often keep all their bitcoins in a single wallet. Instead, users should spread the risk among multiple and diverse Bitcoin wallets. The prudent user will keep only a small fraction—perhaps less than 5%—of their bitcoins in an online or mobile wallet as "pocket change." The rest should be split between a few

different storage mechanisms, such as a desktop wallet and offline-storage as described below.

are many free tools that can be used to create them. Users should consider keeping the vast majority of their bitcoins (95% or more) stored on paper wallets and locked in a safe. 5. Consider hardware wallets.

4. Use physical storage. Humans have used physical security controls for thousands of years. By comparison, our experience with digital security is less than 50 years old. Bitcoin keys are nothing more than long numbers. This means that they can be stored in a physical form, such as printed on paper or etched on a metal coin. Securing the keys then becomes as simple as physically securing the printed copy of the Bitcoin keys. A set of Bitcoin keys that is printed on paper is called a "paper wallet," and there

In the longer term, Bitcoin security is increasingly implemented with hardware tamper-proof wallets. Unlike a smartphone or desktop computer, a purpose-built Bitcoin hardware wallet has only one purpose and function—holding bitcoins securely. Without general purpose software to compromise and with limited interfaces, hardware wallets can deliver an almost foolproof level of security to non-expert users. Most industry observers expect to see hardware wallets become the predominant method of Bitcoin storage, or eventually embedded in smartphones as a secure hardware module. For an example of such a hardware wallet, see the Trezor at http://www.bitcointrezor.com/. In summary, Bitcoin is a completely new, unprecedented and complex technology. Over time we will develop better security tools and practices that are easier to use by non-experts. For now, Bitcoin users can employ many of the tips above to enjoy a secure and trouble-free Bitcoin experience.

Andreas M. Antonopoulos

Andreas M. Antonopoulos is an expert in security and distributed systems, an entrepreneur, and a coder. He has founded six companies and advised hundreds more in a career spanning two continents and two decades. He lives in San Francisco, where he is writing a technical Bitcoin book for developers. He can be contacted at: http://antonopoulos.com

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Security

Assuring Bitcoin security is a challenge. The most secure ways to store large amounts of bitcoin are also the least convenient ways. Even users with the patience to learn and practice the best security techniques discover that there are not many tools to help them do it. The easiest “cold storage” solutions available are still advanced tools with a learning curve beyond the reach of non-technical users. And while the Bitcoin community hails “multi-sig” (see glossary) as the next Holy Grail of Bitcoin security, no one is quite sure how to access it without writing a custom application. In the world of traditional banking these are not serious problems. Laypeople are not expected to understand cryptography, certificate authorities, or hardware security modules (HSMs). Big institutions have the resources to create, deploy and maintain security systems, and users only have to look for the little “locked” symbol in their browser or type in the six-digit code displayed on their keychain token. The user remains blissfully unaware of all the complexity going on behind the scenes. However, in the world of Bitcoin, neither the users nor institutions know what to do, at least not yet. This is a new world in which the best practices have not been defined, and the necessary software and hardware tools do not yet exist. This should not be surprising—Bitcoin is still quite young and has had little time for these aspects of its ecosystem to evolve. But change is coming, as it will have to come if Bitcoin is going to make it into the mainstream of everyday life and commerce. I think one of the biggest issues facing Bitcoin right now is not the lack of a “killer app.” It is lack of insurance options. Early adopters would like to believe that the majority of users will hold their own Bitcoin, but I believe that is not a realistic 26

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by ALAN REINER

option when life-changing quantities of Bitcoin are involved. We should not trust Grandma to secure her own retirement savings via complicated computer maneuvers.

Bitcoin needs a strong backbone of insured storage options so that Grandma can confidently participate in this new technology. More to the point, she should not trust herself or anyone else to hold it unless there is strong protection against loss events. Right now the solution is for Grandma to avoid keeping her money in Bitcoin. Bitcoin needs a strong backbone of insured storage options so that Grandma can confidently participate in this new technology. So what does Bitcoin have to do to bridge this gap? Well, a few big companies have already been able to get insurance on their holdings. This is a huge first step, but it is no small feat to convince insurance companies to come along. The premiums are also very expensive because the insurance companies have no idea how to assess the risks. Luckily, many of the problems faced in Bitcoin security already have longestablished solutions in the world of financial and institutional security. Not only do these solutions protect digital assets from external threats, but also from dishonest insiders in privileged positions. Merging Bitcoin with established security

infrastructure will make it easier to both assess and mitigate the risks associated with a secure storage system. At the current time, all the available secure Bitcoin storage methods use singlesignature wallets. By definition, these methods all have a single point of failure, and the goal has been to make that single point as secure as possible. Vaulted cold storage systems combined with fragmented backups go a long way toward achieving this goal, but they have to be deployed on consumer PCs which are not securityhardened, and it is difficult for organizations to enforce segregation of duties on the employees managing the funds. One critical advance needed by Bitcoin is to adopt the use of Hardware Security Modules (HSMs). The entire security of the Internet flows down from a small number of high-value cryptographic keys, each protected by HSMs. Commercial-grade HSMs cost tens of thousands of dollars and are capable of resisting all kinds of physical and electronic tampering, including destroying the key material if any abnormalities are detected that resemble tampering. They can be programmed to enforce any kind of access control policy, usually paired with smartcards given to authorized users. These devices represent single points of failure for systems of immeasurable value, so the cost of this protection is usually irrelevant.

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Transitioning from offline consumer PCs to offline HSMs for Bitcoin key management is a no-brainer for large institutions. But it might be a while before we see HSM-based cold storage solutions for the broad commercial market, and their cost may always make them prohibitive for consumers. Another important piece of this puzzle is the availability of well-defined operational security procedures. There needs to be a set of documented procedures for configuring signing devices and distributing backups, along with strong access-control procedures with proper segregation of duties. For instance, there may be a requirement that no signing devices can be accessed without at least three people present to ensure proper handling and documentation of an operation. This not only limits the opportunity for dishonest employees to steal funds, but also guarantees that proper security procedures are being exercised— such as verifying serial numbers on tamper seals, checking transaction data before signing, and guaranteeing that all sensitive devices and documents are properly secured after use. This approach also creates an auditable paper trail. Operational security also includes well-defined authorization channels to ensure that employees do not execute the secure signing procedure for malicious/theft transactions. A super-secure wallet split between seven HSMs in vaults managed by company employees could be bypassed if authorization to execute the signing process only requires an email from the CEO. Then an attacker only needs to access the CEO's email account to authorize a transaction to steal the funds. Physical security is irrelevant if the system is vulnerable to social-engineering attacks.

The most important advance in Bitcoin security is the proliferation of multi-signature storage systems. This is usually referred to as an “M-of-N” storage scheme. For instance, in 3-of-5 multi-signature storage, five devices will be designated as signing authorities for the funds and the network will require signatures from any three of them to move the money. This not only provides extra security, but also redundancy—any two of the devices can be lost or destroyed without losing access to the money being protected. The versatility of the multi-sig enabled by the Bitcoin protocol is astounding. It allows organizations to manage funds with varying calibrations of security, redundancy and convenience. Petty cash can be managed with 2-of-3 storage requiring hot wallet signatures of any pair of three company officers. Capital accounts for large purchases could be stored in a 3-of-5 using a combination of hot and cold wallets. Large investment funds holding $100 million or more could be stored using 5-of-7 offline HSMs kept in vaults around the world, each one requiring physical access by a different company executive. Yes, companies would find this to be an awful lot of trouble, but the point here is that it’s possible to make Bitcoin storage every bit as secure as you would like it to be. Multi-sig can be even more flexible if you consider that some parties or devices could be giving multiple signing keys for asymmetric signing authority. For instance, the CEO of a company might have two keys of a 3-of-6 storage scheme, and four other officers could each hold one. Only two signatures are required if the CEO is one of them, otherwise three signatures are needed.

Another interesting idea is that the insurance company itself could hold a key for the funds it is insuring. In the event that multiple signers die in a plane crash or simply lose access to their keys, the insurance company may be able to provide a critical signature to restore the funds instead of having to replace them. In all cases, the devices can be configured and maintained completely independently, with no knowledge of security profiles of the other devices. The creation of wallets and all subsequent operations using them never requires direct communication or co-location of sensitive data. From start to finish there is never a single point of failure in the system. Combine this with HSMs and solid well-defined operational security procedures, and we might finally have a Bitcoin backbone that can be trusted not to lose your money Gox-style—and thus be ready for prime time on Main Street.

QUICKIE GLOSSARY • Hot Wallet: A wallet for which the signing authority is on an Internet-connected computer. • Cold Wallet: A wallet on a device that has never had an Internet connection and never will. • Full Cold Storage System: This gives you the ability to create a cold storage wallet on an offline computer, yet monitor the funds online. Funds are moved by taking a transaction to the offline computer to get it signed and bringing it back online to finalize it, with the signing keys never touching an Internet-connected computer at any step. • Single-Signature Wallet: All funds in the wallet are associated with single identities on the network, and thus only one signing key is needed to move them. Anyone with access to the signing key is authorized to do what they would like. • Multi-Signature Wallet: The network has multiple signing keys associated with the funds, and some threshold of signatures needed to authorize transactions.

Alan Reiner

Alan Reiner is founder and CEO of Fulton, Maryland-based Armory Technologies, Inc. and core developer of Armory Bitcoin Wallet, an open-source wallet application focused on security for enterprise business and advanced users. He has degrees in applied mathematics and engineering mechanics, and additional background in statistics, data mining and cryptography. yBitcoin.com

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Security

by KIRK PHILLIPS , CPA, CMA, CFE

Bitcoin Exploration The Bitcoin ecosystem has many different types of platforms such as exchanges, payment service providers, reporting platforms and an array of other supporting services. Every time you create a new account your online profile expands, increasing the risk of breach with one or all of your accounts. Private keys and passphrases should be managed as securely as possible, and the same for login credentials. The following tales are filled with valuable lessons for stepping up your game with digital identity management.

Gone Phishing Paul Boyer, creator of the “Mad Money Machine” podcast on the “Let's Talk Bitcoin” network, learned a tough lesson recently. Paul happily received donations totaling 3.3875 bitcoins, about $2,000, from loyal listeners until he discovered a zero balance in his wallet at the end of June 2014. He collected donations using a payment service provider normally paying out bitcoins in U.S. dollars on a daily basis, but he never submitted a bitcoin payout address, so the coins just accumulated, awaiting the attention of hackers. That was his first mistake. It turned out that a creative BitPay look-alike phishing scheme had cleverly disguised an email with a “View Invoice” link requesting the refund of a customer payment. Unfortunately, Paul took the bait by clicking the link and unknowingly handed his password to the hacker who changed the payout address and received 3.3875 bitcoins the following day.

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Seven Steps to Digital Security

Best practices for digital identity management are encompassed in the following seven steps. Let's put some golden security nuggets to use before we end up as another cautionary tale. Best practices for digital identity management are encompassed in the following seven steps.

Step 1: CHOOSE PLATFORM Select a password management system such as LastPass or Secret Server, create an account, activate two-factor authentication and start adding website and login credentials. Browser-based password managers should not be used, so just do a Google search for reviews on the best password managers. Businesses should create an enterprise level account with an admin console for managing users. You are 100 percent responsible for managing your bitcoins, so reducing the risk of compromising your entire online profile starts by managing one account at a time.

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One last mistake: Paul hadn’t activated a security feature for his account known as “2-factor authentication,” which would have prevented hackers from cashing in his bitcoins, even if they had hacked into his computer. Fortunately, 2-factor authentication is becoming more widely used on Bitcoin platforms. After a standard username and password login, a 2-factor box pops up asking for a code generated by a smartphone app such as Authy or Google Authenticator. If hackers obtained your login credentials, they couldn't log in without your smartphone and the code. The lesson here is to activate every 2-factor authentication available upon setting up a new account—and beware of downloading overhyped free software.

Step 2: ADD SITES

When the same email is used for all accounts it effectively weaves everything together with a single thread.

Step 3: TEST SITES

Identity Ransom Longtime Bitcoin evangelist Roger Ver was attending a conference when friends started messaging their suspicions of a Facebook imposter. Someone hacked into his old Hotmail account using it like a master key to retrieve logins for other accounts. The hacker demanded a 37.6-bitcoin identity ransom worth $20,000 at the time. Roger offered up a 37.6 bitcoin table-turning reward via Facebook and Twitter for info leading to the hacker's arrest. The viral bounty was too much for the hacker to bear, so he or she quickly bowed down, handed over login credentials and disappeared. No bitcoins were stolen, but this tale shows how a single email account can be an attack vector or weak point for exposing an entire online digital identity. When the same email is used for all accounts it effectively weaves everything together with a single thread. In addition, the more well-known and the more perceived wealth someone has, the greater the risk for getting attacked. A Tale of Social Engineering Bitcoins Reserve CEO Sam Lee and his company were victims of a creative social engineering attack starting with the U.S. Marshals’ public email leak of the Silk Road Bitcoin auction list. Hackers were licking their chops over a juicy list of high rollers handed to them with a white glove. Sam then got an email from a hacker asking for a media interview while proceeding to open a Google docs link supposedly containing interview questions. The link unleashed malware that sucked out all the usernames and passwords from his Chrome browser, leading to control of all the company's email addresses. The hacker then sent an email from Lee's account to the CTO requesting a client withdrawal of 100 bitcoins— worth about $65,000. In this case the “client” was actually the hacker and the bitcoins evaporated. Browser-based password managers are convenient but non-secure ways to store passwords. The hackers took over Lee's entire digital identity but still couldn't penetrate the company's securely stored bitcoins. However, it's hard to defend against a hacker falsely posing as a trusted party, one of the slickest tools in a hacker's toolbox. “This is a weakness in our internal processes and procedures; it has nothing to do with weaknesses in Bitcoin because frankly Bitcoin so far has none,” says Lee.

Once the password manager is set up, you can easily add sites by logging into an account as you normally would. Most systems will prompt you to save the site with a simple click. You can also add sites manually with the URL, site nickname, username and password. If you previously saved all your usernames and passwords in a spreadsheet, adjust the columns to the import format and upload. Easy tutorials are usually available for mastering the setup.

Always go back and test-click the site after saving it whether you save sites one by one or import a list. Sometimes little nuances like the login URL or username need to be adjusted. When you create new accounts the URL automatically picked up by the system is often not the login URL, so testing and correcting helps to avoid frustration.

Step 4: DELETE THE OLD LIST After you've successfully transitioned from a password list it's time to delete the file. If you set up a password manager and keep your old file then you have not reduced any risk. If you’re among those who have a difficult time parting with the old for fear of losing access to something or wanting to keep it just in case, you can get over the hump by copying your old password list and pasting it into a secure note available in most password managers.

Step 5: CREATE A UNIQUE EMAIL Email is the golden thread that weaves your entire digital identity together, and unfortunately, most folks use the same email and the same or similar passwords for all their accounts, including social media, financial accounts and everything in-between. The critical distinction is understanding how email is used for both communication and account creation. Securing your online identity means that these two roles must be separated by using two different email addresses. In other words, the email you use for communication should be different from the one you use for new account setup. Create a new second email account without using your own name or a word that could be associated with you. For example, set up an email like (any word)admin@gmail.com or use the random password generator to create an email “prefix” such as 3rxyHk4p98@gmail.com rather than JohnSmith@gmail.com. Then swap the email on each site with the new email the next time you log in. It will be easier to change accounts one by one instead of turning it into a major all-at-once project.

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Security Keys to the Kingdom Androklis Polymenis, a.k.a klee, is an early Bitcoin adopter and NXT stakeholder who recently discovered his $1 million stash of bitcoins and NXT, another cryptocurrency, had vanished. The breakdown likely came from a hacker who found klee's unencrypted plain text password file sitting in Dropbox, where klee had left it exposed. He responded by putting out a 500-bitcoin bounty, worth nearly $300,000, for return of the stolen crypto and identification of the hacker, who eventually returned 462 of 1,170 bitcoins while keeping the rest as the bounty in exchange for klee calling off the hunt. In the meantime, the NXT community was able to rally together and retrieve some of the stolen NXT tokens. Although about two-thirds of the cryptocurrency wasn't recovered, it could easily have been a total loss. The keys to the kingdom were practically sitting on a park bench waiting to be picked up. It's a painful lesson highlighting the importance of safeguarding bitcoins and other cryptocurrencies. Armory founder Alan Reiner, a self-proclaimed ultraparanoid crypto-nerd says, “Holding your own bitcoins is like harnessing fire,” and then adds: “Sometimes the biggest threat to users is themselves.”

Step 6: CHANGE PASSWORDS Hackers can simply use brute force to break an easy-to-remember password. Change all of your passwords to a minimum 16-character, hard-to-break random password using the random generator provided within the password management software. Password resets should be done in conjunction with the new email resets described above. If you can't remember the password then it's harder to break. If you use a password manager you no longer have to remember passwords because the system keeps them encrypted.

Step 7: SECURE BITCOIN WALLETS Bitcoin-related sites may require special attention beyond standard login credentials. Sometimes a passphrase, a group of random words, is required to access your bitcoins. If you lose the passphrase you lose your bitcoins, period, so it must be handled very carefully. Some sites don't have standard login credentials and only require a passphrase. In either case, the passphrase should be saved in the encrypted password field in the password manager. Also consider writing down your passphrases and keeping them in a safe. There are many other advanced techniques that are beyond the scope of this article, but these strategies are meant to significantly reduce risk for people who would otherwise keep login credentials in a text file, spreadsheet, on scrap paper or in draft emails.

Dancing Barcode Clef is a 2-factor login solution allowing websites to eliminate username and password database storage. The Clef mobile app generates a unique digital signature every few seconds using RSA public key cryptography with essentially nothing for hackers to steal. Simply hold your mobile phone up to a computer screen and the app syncs with a dancing barcode called the wave. Users are blown away by the experience when they realize traditional login password combinations are obsolete. Clef increases registration conversion by 30 percent while eliminating the forgotten password problem. In addition, only 15 percent of users set up traditional 2FA security like Authy or Google Authenticator, leaving the other 85 percent exposed to a greater hacking risk with traditional logins. When it comes to Bitcoin platforms Clef solves the website login problem; however, Bitcoin private keys, passphrases etc. have to be secured as described above. Website platforms set up Clef and conversely, end users set up password managers, so Clef can only be used when implemented by the website itself. Clef and other innovations will continue to gain traction by delivering superior security and ease of use. Conclusion There are many great password managers, however LastPass has multiple 2-factor authentication options with a free version available for individual users and an enterprise paid version for businesses. The paid version, only $24 per user per year, has an admin dashboard for multiple users and access controls. It even has a security scorecard showing the strength of your overall password profile. The free personal version can plug into a separate enterprise account for a seamless user experience. In addition, you can install anti-virus and anti-malware software on your computers. You can't afford to waste another day. If one account gets hacked they can all get hacked. Your password manager contains the keys to your kingdom so create and remember a good password. Start securing your digital identity and your bitcoins with these seven easy steps and go on more vacations with all the time you save. The average person has 25 logins per day, so one minute of fumbling per login multiplied by 250 working days equals 2.6 wasted weeks per year logging into websites. Enjoy peace of mind on your newfound vacation instead! Kirk Phillips

Kirk Phillips is an entrepreneur, certified public accountant (CPA) and a certified fraud examiner (CFE) who is passionate about technology and the possibilities for Bitcoin to disrupt, decentralize and bring transparency into the business world. Author of the forthcoming book, The Ultimate Bitcoin Business Guide, an inspirational reference for entrepreneurs and SMBs, he weaves risk management into business process outsourcing, crypto-business consulting and education. He can be reached at TheBitcoinCPA@gmail.com. 30

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Mining

by ALEXANDER LAWN

Bitcoin mining is how the cryptographic information distributed within the Bitcoin network is secured, authorized, and approved. It is in essence a colloquial term to describe the processing of payments that have taken place once they occur. What makes this different from traditional electronic payment processing is that there is no need for an issuing bank, an acquiring bank, merchant accounts, or mandatory centralized clearing houses, such as Visa and MasterCard holding on to funds until they process transactions at the end of each day. Bitcoin mining is in fact reliant on individuals sharing computer hardware in a collective effort to decentralize and streamline this process. Each piece of Bitcoin mining hardware is a supercomputer that maintains a ledger of every transaction that has ever taken place. As a consequence there is no need for many layers of intermediaries, delayed payment confirmations, and a syndicate of corporations dictating associated transaction fees. With so many people dictating a percentage of the fees incurred, and an archaic system too bloated to refine without

rebuilding itself from scratch, the resulting cost to the consumer is vastly greater than an instantaneous payment secured, authorized, and approved by Bitcoin mining.

â&#x20AC;&#x153;Bitcoin mining is in fact reliant on individuals sharing computer hardware in a collective effort to decentralize and streamline this process.â&#x20AC;? In fact the customer can currently choose to not pay any fee, or voluntarily pay an amount to facilitate a more expedited payment confirmation. What do the miners gain from dedicating the use of the hardware and electricity they have purchased? They gain a block reward equal to a predetermined amount of Bitcoins as specified within the Bitcoin protocol. The current block reward is equal to 25 bitcoins, or 3,600 coins each day distributed among the entire network, and this reward halves every four years. This reduction in reward is believed to behave in an inversely proportional manner to that of

Bitcoinâ&#x20AC;&#x2122;s value as its adoption increases over time to a wider audience. The cryptographic Bitcoin protocol may sound like a mouthful, but essentially it's a security related function based upon a complex mathematical algorithm that needs to be solved, and the mining hardware completes that task autonomously. It authenticates the wealth transfer as sales take place, or money is sent from one wallet to another. For all intents and purposes it is a digital signature hidden behind code that authenticates the originator and the recipient of the transaction that has taken place. The mining hardware must solve an algorithm to create a block, and that occurrence is then verified by other miners. A block is solved about every 10 minutes on average, with slight variance as an increasing or decreasing amount of computational power comes online. As a result, the complexity of the problem varies with the cumulative amount of computational power of the Bitcoin network. Simply put, the larger and more widely distributed the network, the more secure it

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Mining

becomes for the general public to utilize as a means of payment. Unlike traditional banking, it is incredibly open, as everybody knows, and eventually confirms every transaction that has taken place. Each transaction that occurs is recorded within a block, and each block is represented in the blockchain: a digital ledger of every transaction that has ever happened between every wallet and every bitcoin. As this ledger grows over time, so does the demand on the computational hardware responsible for maintaining and updating the blockchain. The hardware itself has undergone various iterations, starting with using the humble brain of your computer, the CPU. The processor found solving the complex 3D imaging algorithms within a graphics card became the subsequent evolution for miners. Aside from being able to process Bitcoin's transactions faster and more efficiently, their arrangement within desktop PCs meant more than one graphics card could be housed on a motherboard. This was already a feature of high-end gaming and 3D design rigs. As such, Bitcoin’s popularity grew with those associated within such fraternities, as they could dedicate their machines to mine bitcoins, and thus cover the cost of their hardware. Alas, this wasn’t the most power-efficient option, as both CPUs and GPUs were very efficient at completing many tasks simultaneously, and consumed significant power to do so, whereas Bitcoin in essence just needed a processor that performed its cryptographic hash function ultra-efficiently.

“The cryptographic Bitcoin protocol may sound like a mouthful, but essentially it's a security related function based upon a complex mathematical algorithm that needs to be solved, and the mining hardware completes that task autonomously.” Enter the Field Programmable Gate Array (FPGA), which was capable of doing just that with vastly less power demands. There was one issue: due to the reprogrammable nature of the chip, it had a significantly high cost-per-chip outlay for something that solved blocks on par, somewhat greater than a GPU. Its real virtue was the fact that the reduced power consumption meant many more of the chips, once turned into mining devices, could be used alongside each other on a standard household power circuit. As Bitcoin’s adoption and value grew, the justification to produce more powerful, power-efficient and economical per-chip devices warranted the significant non-recurring engineering costs that entail developing the final and current iteration of Bitcoin mining semiconductors: the Application Specific Integrated Circuit, or ASIC. ASICs are super-efficient chips whose hashing power is multiple orders of magnitude greater than the GPUs and FPGAs that came before them. Succinctly, it’s a bespoke Bitcoin engine capable of securing the network far more effectively than before. The year 2013 was very much a land race for Bitcoin ASIC technology. Two years later, we find ourselves in the midst of an ensuing race for the mining of alt-coins using the Scrypt algorithm.

Unlike Bitcoin’s SHA-256 algorithm, Scrypt requires memory available to hash the encrypted data. This requirement was developed as a means to limit the disruptive aspect of ASIC technology. This time around the disruptive effect of ASIC technology on the alt-coin network should be less dramatic. However, with a larger variety of coins using the Scrypt algorithm, with varying popularity, liquidity, age and consequent market capitalization, the risk of a 51% attack on some of these coins is far greater than Bitcoin experienced. In fact some companies have been asked to accept orders from entities intent on doing just that. On this occasion it won’t be the fastest to the market that wins the race, but those competent enough to offer refined and optimized silicon design. This is something that wasn’t a necessity in Bitcoin due to the effect ASIC-utilizing cutting edge silicon could have on a non-memory intensive hashing algorithm with minimal competition. Whatever the outcome, we are currently experiencing the twilight hours of GPU mining, as many miners still using GPUs cannot profitably justify the electricity expenditure required to run their old equipment.

Alexander Lawn, MSc.

Hailing from London, Alex Lawn is a well known character in the cryptocurrency scene. Responsible for not only the fundraising and building some of the most successful branding in Bitcoin, specifically in hardware, but for bringing journalists in many of the world’s financial and tech press up to speed on the subject of cryptocurrencies. An effort to ensure a balanced and fair foundation within the subject exists. Currently Lawn works within disruptive finance alongside the principals of Bourne Capital.

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How One Farmer Used Bitcoin to Grow His Crops and Increase His Profits You’ve heard of Bitcoin miners, but Chris Ryan might be the first Bitcoin farmer. Ryan, co-founder of Chris and Kristina’s Market Garden in Rhode Island, found a way to nurture both seedlings and currency. In the growing process, providing the right amount of heat is necessary to maximize the seed germination process. Many growers use space heaters or, depending on the size of the operation, much larger industrial heating units. And with that, the farmer has one input— electricity—and one output—heat.

“I would say that the amount of money I was spending on electricity was being paid back by the bitcoins the Antminer was generating.” Chris spotted an opportunity to subsidize the cost of his growing by using a Bitmain Antminer C1. By using the miner to create heat, Chris suddenly had two outputs, bitcoins and heat, for the cost of only one input. “We have electric heat at home, and I picked up the miner last year to heat the apartment,” explained Chris.“The miner was still kicking around in the spring, so I figured I’d put it on the rack for the seedlings, rather than using the space heater.” What Chris found was that the miner provided a sufficient amount of heat for his seedlings to germinate. However, it was the secondary output—bitcoins—that made it even more worthwhile. “I would have been spending the money on the heat anyway. I would say that the amount of money I was spending on electricity was being paid back by the bitcoins the Antminer was generating,” he said.“When I first started, our cost for electricity was approximately 16 cents per kW. I was getting about .015 BTC per day.” But what he was also getting Sponsored Content

Fruit and vegetable seedlings kept warm by mining equipment was 2,729 BTUs of heat based on the wattage of the C1. The potential is there for other farmers (or any industrial heat user) to increase their heat generation while also increasing their Bitcoin rewards.While Chris was only running a solitary heating unit, it would have been easy for him to scale up his heat—and bitcoin—production. The current model Bitmain offers is the Antminer S5, which sells for $378. Each machine requires only 590 watts of power and hashes at 1,155 GH/s. Based on that wattage, the S5 could generate 2,013 BTUs of heat.While it produces slightly less heat than Chris’ C1, it results in an increase in hashing power; therefore, more bitcoins can be generated for much less electricity. Jacob Smith, the Overseas Marketing Manager for Bitmain, offered a theoretical implementation of using S5s for power generation. He suggested that a farmer might look to acquire an electric unit heater that costs $729 and gives off 17,000 BTUs based on the 5kW of required electricity. To simplify the calculation, he suggested that each kW costs ten cents per hour.

His proposed implementation would use ten S5s, which would require 5.9 kW and mine bitcoins at a total rate of 11,550 GH/s. The farmer would generate 20,131 BTUs of heat and approximately 3.4356 bitcoins per month, based on the current network difficulty. Based on the cost of both devices, by the end of the year, the farmer would have completely subsidized the cost of his electricity and walked away with an additional $2,379 in profit. Even if the machines did not generate enough bitcoin to cover the cost of electricity, they could still be useful.“If you were paying ten cents per kW to run the machines but only making five cents per kW of miners running, you’re still spending 50 percent less on heating than you would just running a standard heater,” Smith explained. “But assuming ten cents a kilowatt, the power cost is $2.40 per day and the revenue per kilowatt per day at current network difficulty and exchange rate is $5.43.” As Chris explained, he would have been spending the money anyway on the heat. “If you have electric heat, I don’t see why you wouldn’t use a bitcoin miner,” he said. And along the way, his heat paid for itself. yBitcoin.com

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Merchant Adoption: Full Speed Ahead!

Almost every introduction to Computer Networking course once taught that the “Byzantine Generals’ Problem” was impossible to solve. In simplified terms, the “problem” is how multiple generals are able to arrive at consensus on when to attack when they are able to communicate only through messengers, with the possibility that some of the generals are malicious or the messengers are compromised. Then Satoshi Nakamoto released Bitcoin. Thus was born the innovative solution to a previously impossible computing problem, one that created the world’s first practical implementation of triple-entry bookkeeping. Assuming the same gross revenue percentages for Bitcoin transactions, a $3,000 per month merchant processor fee on $5 million or more of volume with 2 percent average credit card processing costs, handled via Bitcoin, would result in annual savings for Target of about $75 million, Walmart of about $150 million and Amazon of $60 million with no downside risks. When any business can now implement Bitcoin and save proportionately, why cede cost advantages and profitable market demographics to competitors without a fight? Bitcoin users now range from individuals to large publicly traded companies. Here is why increasing numbers of people and businesses are adopting its advantages: • Transactions are instantly verifiable and irreversibly settled within a day (usually an hour). • There can be no fraud by way of chargebacks.

• Counter-party risk is nonexistent in contrast to a bank operating with fractional reserves, foreign currency settlement risk or credit card processing problems. • Identity protection is built in to keep users safe from identity thieves. • Fees are extremely low or non-existent. A prominent example: On July 18, 2014 Michael Dell tweeted, “Received PowerEdge order @ dell.com for more than 85 #bitcoin (~$50K USD).” One can assume Dell did so in order to announce his ability to receive payment from anyone anywhere in the world, thus expanding his market from a mere 50-60 countries where credit cards or PayPal currently function. If Dell used a feeless Bitcoin processor, this would result in a savings of about $1,000 when compared to credit cards.

It appears that lawmakers and regulators are cognizant of the tremendous benefits to be gained from digital currencies like Bitcoin but are also aware that like any technology, it can be used for nefarious purposes. The merchant processor does its part by processing Bitcoin transactions, converting them into the fiat currency of choice, and making a direct deposit to a merchant's bank account the same day.

by Trace Mayer, J.D.

Another advantage: Everyone has heard of the massive data breach of customers’ personal information at Target stores. With Bitcoin transactions there is no personal customer information. There is even a YouTube video of someone making a Zynga Bitcoin payment in two clicks. No more hassle using obsolete technology for which you have to input your name, address, zip code and all the other information an identity thief would need to go on a shopping spree under your name. Bitcoin has identity protection built in. In December 2014, Microsoft began accepting Bitcoin so it is reasonable to suppose that eventually Target, Amazon, Walmart, etc. will all be forced to accept Bitcoin. Why? Because publicly traded Overstock along with major electronic retailers TigerDirect and Newegg began accepting Bitcoin in 2014. At Overstock, Bitcoin transactions accounted for 4.7 percent of gross revenues for the month, and the average order amount was about 30 percent higher than transactions using other payment methods. The most popular item ordered? Sheets! Which leads us to the next major point. Target, Amazon et al. will want to know they are on solid legal ground when being innovative and accepting Bitcoin. Lawmakers and regulators around the world, from Germany to Singapore to the U.K. and U.S., have all started to weigh in. April 1, 2015 the Proceeds of Crime Act took effect in the Isle of Man which specifically legalizes Bitcoin use by financial institutions.

Trace Mayer, J.D.

The author hosts the podcast Bitcoin Knowledge (www.bitcoin.kn); is an early Bitcoin thought leader, entrepreneur, and investor with companies such as Armory, BitPay, Kraken, and Netagio; journalist, monetary scientist and ardent defender of the freedom of speech. He holds accounting and law degrees, and has studied Austrian economics. 38

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Companies need a Bitcoin strategy just as in the mid-1990s they needed an Internet strategy. The highest profile cryptocurrency lawmaking event was the United States Senate hearings in November 2013, which included testimony from major Bitcoin service providers, venture capitalists, investors and law enforcement on how regulation of this nascent industry should move forward. Edward Lowery of the U.S. Secret Service said: “Digital currencies provide an efficient means for moving large sums of money globally for both legitimate and criminal purposes.” It appears that lawmakers and regulators are cognizant of the tremendous benefits to be gained from digital currencies such as Bitcoin but are also aware that like any technology, it can be used for nefarious purposes. Jennifer Shasky Calvery, director of the Financial Crimes Enforcement Network at the United States Department of the Treasury, told the Senate: “The meetings are designed to hear feedback on the implications of recent regulator responsibilities imposed on this industry, and to receive industry’s input on where additional guidance would be helpful to facilitate compliance. … We are very encouraged by the progress we have made thus far. We are dedicated to continuing to build on these accomplishments by remaining focused on future trends in the virtual currency industry and how they may inform potential changes to our regulatory framework for the future.” So: where does Bitcoin go in the remainder of 2015 and into 2016? Well, my cautious prediction is we will at least see more merchant acceptance. Companies need a Bitcoin strategy just as in the mid-1990s they needed an Internet strategy. Meanwhile, lawmakers and regulators seem to recognize the possibilities and, at least in word, appear willing to encourage this new flower to grow and bloom. Consequently, while the financial world at large continues to experience commotion, the Bitcoin industry appears to be in forward motion like never before!

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Commerce

Four Reasons Why Your Business Should Accept Bitcoin

by TONY GALLIPPI

Bitcoin is a digital currency that is growing in popularity every day, offering unique advantages to businesses in a wide range of industries around the world. But does it make sense for your business to accept bitcoin? Let’s explore why it may.

Businesses That Adopt Bitcoin Benefit in at Least Four Unique Ways

Bitcoin payments happen instantly, so the funds are in your account (known as your “wallet”) and available for your use as soon as you receive the payment. There is no waiting or settlement period, so it stands to improve your business’s cash flow and bookkeeping. The moment you receive your customer’s bitcoin, the digital transfer of value is immediate and final, without the risk of chargebacks sitting on your books. For businesses that handle a great deal of physical cash, it makes sense to accept bitcoin. With your data cryptographically secure, there is nothing an employee or a thief would gain by stealing your computer or accessing other data.

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Bitcoin payments carry no risk of the identity theft or payment fraud that are common to online businesses, so both you and your customers benefit. With bitcoin, your customers can shop your store or purchase your services without having to enter any sensitive financial information that thieves can use to access your customers’ bank accounts. That also could mean reductions in the PCI DSS costs that ensure you are in compliance with security measures for accepting credit cards in your business.

Bitcoin can help expand your international audience. It is no secret that the Internet plays an integral role in almost every company’s efforts to expand its customer base. While the United States has the dollar and Europe the euro, bitcoin is quickly becoming recognized as the currency of the Internet. Because Bitcoin is borderless by design, you can accept payment from someone in China just as easily as from someone sitting in the same room. If your company already relies on international business, consider how instant, borderless transactions can enhance your customers’ experience. Accepting your customers’ bitcoin does not require exchanging to a local currency, and it does not come with the hassle of processing foreign credit cards. Your customers’ shopping experiences are quick and seamless no matter where they are in the world. They’ll remember you for that.

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Bitcoin dramatically reduces your transaction costs. When bitcoin is transferred in a payment or trade, it goes directly from sender to receiver—without the need for a middleman. That means greatly reduced transaction fees. Credit card companies charge you up to 3 percent or more per transaction to ensure that the payment changes hands. With as many credit card sales as there are in an increasingly “cashless” economy, that adds up to a severe hit on the bottom line. The number of businesses accepting bitcoin worldwide grows every day as more consumers realize its benefits. Given that accepting bitcoin at your business can enable instant payments, eliminate the risk of fraud, open you to an international market and reduce the costs associated with simply accepting your customers’ money, the question is no longer why or how, but when will you begin accepting bitcoin? Many of your competitors are choosing today. Will you?

Getting Started With Payment Processing

Integrating bitcoin payments into your business is a fairly simple process. If you have a small business or online store, you can start accepting bitcoin in just a couple of hours. Billion-dollar enterprises take a little longer, but even TigerDirect, the huge tech retailer, was able to integrate bitcoin payments in as little as four days. Once you decide how you want to accept bitcoin, the matter of integrating it is both simple and free. There are two ways to accept bitcoin for payment: directly or indirectly. If you choose the direct route, customers can send bitcoin to your wallet by scanning a QR code. You can set up a “business wallet” using a free wallet service, and you can store it on your computer, tablet or smartphone. If you then intend to hold bitcoin as an asset and watch its value rise over time, it would be your responsibility to convert the bitcoin to cash to cover your expenses, which can be done on an exchange. Accounting for any capital gains and assuming the risk of the price volatility would also be up to you. Some businesses find it more convenient to accept bitcoin indirectly, through a bitcoin payment processor. These processors can offer services to make bitcoin use more effective, from bitcoin-to-currency settlement to sales and accounting integration. Each bitcoin payment processor has different service models, so be sure to shop carefully for what you need.

Most payment processors allow you to set your prices in your local currency. There’s no need to peg your prices to bitcoin’s exchange rate. The payment processors offer point-ofsale systems that can easily calculate the bitcoin price at the point of checkout. More important, they can settle incoming bitcoin funds in your local currency to maintain value stability. This way, the rise or fall in the price of bitcoin doesn’t affect the price of your product or service. A partnership with a payment processor can essentially eliminate any risk with bitcoin. These processors will ensure you receive the USD value (or your local currency) of your invoice and are not exposed to the price fluctuations of bitcoin. In fact, due to the lower cost of accepting bitcoin payments and the free publicity it can bring as a byproduct, your business has more to gain than to lose. Most payment processors allow you to receive a daily settlement in your local currency, and many can enable you to receive a mix of bitcoin and your local currency, depending on your preference. If you elect to receive a portion or all of your bitcoin transactions in bitcoin, it would be up to you and your accountant to report any capital gains. If you receive 100 percent of your transactions in your local currency, no additional reporting would be necessary. Be sure to discuss this with your accountant before making any changes to your settlement preferences.

The Bitcoin Neon Sign – www.cryptocables.com

Tony Gallippi

Tony Gallippi serves as the co-founder and Executive Chairman of BitPay, which was founded in 2011 and is a premier Bitcoin payment processor handling millions of dollars worth of transactions per month. He has 15 years of experience in sales and marketing working in the robotics industry, was a district sales manager for Aerotech and a regional sales manager for Industrial Devices Corporation. He holds a bachelor’s degree in mechanical engineering from the Georgia Institute of Technology.

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Commerce Merchant Processor Directory*

Atlanta, GA

bitpay.com info@bitpay.com

Wilmington, Delaware

https://bitpagos.com BTC

BTC

San Francisco, CA Belfast, UK

Hungary

https://bitnet.io

http://bitsofproof.com

BTC

Toronto, Canada

Coinify Copenhagen, Denmark

https://coinify.com BTC

https://coinkite.com connect@coinkite.com

San Francisco, CA USA

https://coinbase.com BTC, LTC

BTC

*Every effort has been made to ensure accuracy of information presented here â&#x20AC;&#x201C; see disclaimer page 11

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https://www.gocoin.com

BTC, DOGE, LTC

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Insurance & Financial Services for Companies in the Bitcoin Community BitSecureTM, our proprietary bitcoin theft insurance policy, is a first-of-its-kind insurance policy specifically designed to protect against bitcoin theft. The policy, customized to meet your unique needs, combines bitcoin theft insurance with cyber, crime and professional liability insurance.

Services: • Bitcoin Theft Insurance • Directors & Officers Liability • Professional Liability • Key Man Life

Advisen, Ltd. nominates BitSecureTM as its 2015 Cyber Risk Innovation of the Year.

In the words of Bitcoin Magazine, BitSecureTM is “ushering in a new era in Bitcoin security”.

Additional Products: • Employee Benefits • Employment Practices Liability Insurance • Employee Dishonesty or Crime

BitSecureTM is “a first for the digital currency industry” according to the Wall Street Journal.

• General Liability and Umbrella Liability Insurance • Pension Plan or ERISA Fiduciary Insurance • Property Insurance

Bitcoin Financial Group’s new insurance product called a “Watershed Event” by CoinDesk.

• Worker’s Compensation Insurance

www.bitcoinfinancialgroup.com 62

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Commerce

by JONATHAN CHESTER

If your business is required to make even a small number of international payments to contractors or employees, you are all too aware of the delays and fees involved. One of the greatest benefits Bitcoin brings to the table for businesses like yours is the elimination of these issues. Using Bitcoin for international payments, your payroll process becomes streamlined to a degree that will make you wonder how you ever did it any other way. The delays, bank transfer fees and miscellaneous charges youâ&#x20AC;&#x2122;ve experienced using traditional payment transmission methods will disappear forever. Uber, the Internet rideshare company, offers a prime example of how Bitcoin can simplify the payroll process. Uber has two choices to pay their contractors. They can either incorporate and build banking relationships in every country, working with non-user-friendly interfaces and old, low quality APIs, or they can go through several slow and costly integrations of multiple platforms. Either way, the contractors are left with no choice but to accept high FOREX costs and slow, unreliable transfer times. According to the World Bank, the average of cost of sending funds across borders is 8 percent, and the

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average time for transfer completion is three to five days, with workers shouldering the bulk of these costs. But why does it take so long for wages to be transferred and exactly how much is lost to intermediaries? Hereâ&#x20AC;&#x2122;s a step-by-step breakdown of a simplified international contractor transaction: 1. Client initiates the international bank transfer from their bank account and pays a $45 flat fee. 2. Their bank forwards the funds next business day to a large correspondent bank with the resources to maintain international correspondent banking relationships. 3. The large correspondent bank removes $25 from the total amount. 4. The large correspondent bank sends back $7.50 to the clientâ&#x20AC;&#x2122;s bank for initiating the transfer. 5. The large correspondent bank forwards the funds next business day to their large multinational correspondent bank with a presence in Brazil and the capital to facilitate a foreign exchange. 6. The large multinational correspondent bank exchanges the USD to BRL and takes 7.5 percent in the spread between the interbank rate and the retail exchange rate.

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Commerce 7. The large multinational correspondent bank forwards the funds next business day to the contractor’s local bank account.

1. Client initiates domestic bank transfer for a vastly reduced or zero flat fee.

8. The contractor receives the international bank transfer into their bank account three business days later and pays a $15 fee.

2. Domestic bank forwards funds to Bitcoin Payroll & Payments company’s domestic bank next business day.

These costs and delays are a result of the current financial system’s reliance on sending funds through a system called the correspondent banking infrastructure. Banks do not actually have direct relationships with the banks receiving the funds on the other side. Instead, funds flow through a series of correspondent banks, where one bank somewhere in the middle will make the conversion from one currency to the next. While many people tend to focus on the flat fees levied on both sender and receiver, the main cost burden is accrued through the currency conversion, where the spread is often over 8 percent. Unlike the simplified version of the correspondent banking system provided above, the real process is actually very opaque. The sender and receiver typically do not know how many banks are within the chain of correspondent banks, and there are currently no good mechanisms for tracking funds. So banks cannot provide an exact date for when funds will arrive at their destination. In fact, many wires end up getting lost in the process, often delaying international payments by one or two weeks. For the receivers, this creates the stress of not only not knowing when the funds will hit their accounts, but also not knowing where the funds are or even whether the funds will ever reach their destinations. For the sender, this typically results in increased customer support costs and less time to hold onto the working capital used to pay employees and contractors. This is clearly not an ideal situation for any of the participants other than the intermediary banking institutions who are generating additional revenues. So what would an international payroll solution look like if it used Bitcoin and the blockchain?

3. Bitcoin Payroll & Payments company facilitates near instant international blockchain transaction.

Here is the step-by-step breakdown of the new blockchain-based international contractor transaction above:

4. Bitcoin Payroll & Payments company takes a nominal fee depending on the service. 5. Contractor receives domestic bank transfer from Bitcoin Payroll & Payments company’s domestic bank in the receiving country, forwarded one business day later, and pays vastly reduced or zero flat fee. This means that Bitcoin payroll and payments companies now have full control over the entire payments process. Fees and transfer times can be dramatically reduced by removing intermediaries and directly accessing all the players involved. In many circumstances, employers receive better rates than the interbank rates, saving them money, and the employees and contractors have access to their local funds next day. And unlike the current financial system, both the employers and their workers can actually track the funds, providing insight into when the funds will arrive and assurance that the funds will actually reach their destinations. It is obvious why both individuals and corporations are looking to Bitcoin for a better payroll solution. Some people are using pure “Bitcoin payroll” systems, while others are working with systems that leverage Bitcoin as an intermediary step. There is even a service that allows employees and contractors to receive their wages through Bitcoin without requiring their employer to sign up. Market research carried out by Bitwage, one international payroll services provider, suggests that even among the Bitcoin community, many people don’t know that they can receive a chosen percentage of their paychecks in Bitcoin even when their employer has not signed up for a Bitcoin payroll service. It is surely only a matter of time before more employers and employees transition away from antiquated traditional payment systems to the vastly superior solution that Bitcoin provides. In the near future, the everyday pain of international payroll payments will be a thing of the past.

Jonathan Chester

Jonathan Chester is founder and Chief Operating Officer of Bitwage, the leading international Bitcoin payroll company in both volume and users. He has been featured in Entrepreneur magazine and has spoken at various blockchain and payment conferences around the United States, including Transact15 and Inside Bitcoins NYC.

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Commerce

By Sterling Ledet

The number of businesses using and accepting Bitcoin continues to grow. This increased utilization brings with it a need for businesses to train their employees on the use, management and security of Bitcoin-based processes and workflows. Employers and managers can’t afford to assume basic literacy among their staff when it comes to understanding the basics of this new technology. Just as previous disruptive technologies such as email, social media and the Internet itself have brought new training needs to organizations, Bitcoin also requires that we train staff on how to maximize the advantages of the technology while minimizing the risks that attend a poorly implemented Bitcoin strategy. Beyond Knowledge Transfer

When considering organizational training as it relates to a Bitcoin integration strategy, the first thing many leaders might focus on are Bitcoin’s technical aspects. While technical details and factual background are certainly of high value and need to be carefully considered, often the most substantial result obtained from formal training initiatives is not technical but cultural and psychological.

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That’s because effective training programs do more than just transfer knowledge. Strategic training initiatives can also instill confidence, enhance buy-in and develop enthusiastic champions in an organization, turning skepticism or resistance into support and cooperation. The result can be a long-term competitive advantage in an environment of rapid change. As the pace of massive change increases, organizations that are more effective at learning are better able to adapt and thrive. Achieving this goal requires looking at the training objective from more than a content-delivery perspective. The Charismatic/Structured Divide

Let’s compare two hypothetical organizations as they prepare to introduce Bitcoin literacy training into their workplaces. Both organizations’ leaders are enthusiastic about Bitcoin, are personally invested and have confidence the technology will provide substantial benefit to both their organizations and the larger community. The first leader approaches accomplishing this objective in an unstructured way, primarily relying on his natural leadership talents, his organizational role and the power and respect that comes with that

position. He uses his personal charisma and reputation in the industry to promote and encourage employees and colleagues to learn more about Bitcoin. He is enthusiastic and frequently talks about Bitcoin in company meetings. If anyone asks him questions about Bitcoin, he is quick to explain how confident he is that it will bring value, and why he is a proponent. He encourages his associates and employees to explore the technology on their own, and he even makes a practice of helping his team members open wallets by giving them a small amount of bitcoin to play with. The second leader takes a more structured approach. She thinks through what she is trying to accomplish and comes up with a written executive summary statement that clearly encapsulates her mission. In her case, she defines her objective as: “Develop both technical fluency and cultural enthusiasm in our organization around Bitcoin technology so the team is capable of both implementing Bitcoin-related pilot projects and capitalizing on opportunities as they arise.”

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Rather than overtly promoting the technology using her personal charisma, she decides to work closely with a subordinate who is respected in the organization as a conservative, careful planner who is relatively risk-averse. She meets with that subordinate one-on-one and appoints that person as project leader rather than spearheading it herself. She asks the person to help her plan a structured training initiative to accomplish her written objective. The two of them work together to both develop the list of tasks that need to be accomplished, and then schedule these items on the calendar with specific milestones and deadlines. Because she selected someone who tends to keep her grounded and has the managerial courage to ask tough questions, the interaction between the two of them sharpens the leader’s ability to predict areas of skepticism and resistance in the organization, and to prepare potential responses to objections or roadblocks that may arise. Shaping the Pace of Change

Over time, both organizations make progress on their Bitcoin initiatives, but each organization evolves a bit differently. The first organization starts off with a lot of excitement. The leader is effective at getting a high level of buy-in, especially among his closest circle. Several team members open wallets, and a few even invest some of their own money into Bitcoin. Besides the intellectual fun of team members simply learning about this inherently interesting new protocol, they get an additional boost when they see a rapid 20 percent rise in value in the first couple of weeks after they invest. Alas, disappointment follows when the dollar value of their bitcoin eventually drops 25 percent. This has the effect of momentarily dampening their enthusiasm, but may actually serve the purpose of simply adding to their learning about the reality of Bitcoin price variations as they tackle the multiple initiatives and projects they are responsible for implementing in their job.

Under an unstructured charismatic leader, though, emotional energy can ebb and flow, and Bitcoin can become just another project on a worker’s to-do list. The initial burst of enthusiasm and excitement fades—along with a small amount of the trust and confidence workers had in their leader. While they still respect and admire him, they may come to feel that Bitcoin is hardly as transformative as the leader led them to believe.

step1

A Four-Step Plan

Create a shared vision.

step4 Execute your plan.

1 4

After a year of structured training, the leader is able to look back at a substantial increase in both the general support of Bitcoin technology and the deep level of understanding that begins to percolate through the organization as concepts such as “distributed ledgers,” “smart contracts” and the "Internet protocol for money, trust and value” become part of the organization’s internal dialogue and lexicon. Most would agree that the second leader took the wiser approach.

I see four basic steps in the organizational training process for Bitcoin fluency:

2 3

step2 Consider your options and set a budget.

Create a shared vision.

2 Consider your options and set a budget.

3 step3 Develop a structured plan and schedule.

The second organization starts off slower. From the beginning, everyone involved knows this is a long-term initiative that is unlikely to achieve instant results. Team members view the Bitcoin training initiative as preparing for the future, as opposed to hopping on a fast-moving train today. The plan has a year-long timetable with specific events such as attendance at a conference, scheduled participation in webinars and a series of formal classroom training initiatives. As time elapses and the plan is executed, the build-up of enthusiasm is much more gradual than in the first organization. Every once in a while a lower level team member catches a bit of Bitcoin fever and it becomes a good-natured positive joke around the water-cooler, but organizationally the team has its mind set on a longer-term goal.

Develop a structured plan and schedule.

4 Execute your plan. The shared vision may be the most important step. Long-term success in an organization requires more than just leadership carrying the torch. While that’s critically important, it’s only a first step. The fire needs to spread from that torch—and that means organizational buy-in. It’s not just the leader’s vision that sustains and enhances successful teams. It’s what the individual team members and performers think and believe that shapes the innumerable little interactions that ultimately lead to success or failure. That’s true whether it’s a minor project or a major organizational change initiative such as developing your organization’s Bitcoin fluency and skill base. It’s important to keep in mind that the shared vision should not be fixed, but must evolve and develop its own momentum as

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Commerce the plan unfolds. It’s critical to start with the shared vision as a primary objective, though, because any training program’s effectiveness is closely tied to the level of motivation and enthusiasm among the participants. People rarely learn much in a training class they don’t want in the first place, and purchasing self-study training resources that remain unused is a sad waste of time and money. There are plenty of options for various components of the training plan. It helps to have some basic categories, though. Self-Study or Formal Class?

One useful approach is to consider options on the scale of self-study vs. formal structured study programs. These exist on a continuum rather than separate poles, because good self-study programs have formal structure and good formal study programs have self-study components as well, e.g. in preparatory work or self-directed exercises. The best trainers adopt the perspective of a coach who is focused on supporting your people’s efforts at taking charge of their own learning as opposed to viewing themselves as experts downloading their knowledge for the benefit of your team members. Therefore, a great plan typically includes both self-study and formal training elements. Some options to consider when it comes to Bitcoin training: • Free self-study resources such as those available at www.bitcoin.org and various webinars. • Paid self-study courses such as those offered by lynda.com. • Assembly of a corporate book and resource library. • Conferences and trade shows. • Formal training classes, either publicly scheduled or custom-delivered for your organization.

There are pros and cons to these alternatives, and selection should be made based upon the circumstances and priorities in your organization. The chart below addresses an appropriate budget for several options, as well as how each one tends to rate in several categories as compared to the other alternatives. “Certainty” refers to the level of certainty that the resource will actually be utilized. How confident can management be that the investment will not be wasted and that the purchase will result in measurable change? “Motivational value” refers to how much that training alternative moves the needle when it comes to cultural buy-in and enthusiasm, in addition to the technical skills transfer objective that workplaces sometimes overemphasize. “Adaptability” refers to the ease with which that resource can be customized and directed toward incorporating organization-specific content and strategic objectives. Type of Learning

Budget

Free Self Study $0 Paid Self Study $375/year Organizational $250 Library $2,000/each Conferences + travel Formal Classes $895/each (publicly scheduled) + travel Formal Classes $5,000 to (private on-site) $10,000

Things that get scheduled onto a calendar tend to get done. Things that don’t get scheduled, don’t get done. It’s as simple as that. While it’s very rare that someone won’t attend a scheduled formal class, the utilization of self-study resources is typically abysmal. That means it is critical—if you want to make sure your organization gets its money’s worth from an investment in self-study resources—that you take the step of assigning a scheduled date and time for the people in your class to spend going through that resource. Ultimately, the return on any project or initiative is about how well the people in the organization execute on the plan. Training projects are no different than any other project when it comes to this truth. Good project management means execution is observed and measured. Formal or informal evaluations on the effectiveness of the training initiative on accomplishing the original objectives are an important part of the management process.

Certainty

Motivation Value

Technical Value

Low Low Low

Low to Med. Low to Med. Medium

High High High

Low Low Medium

Medium

Low

Medium

High

Medium to High High

Medium

High

Once the specific alternatives are chosen and budgeted, the difference between success and failure can often come down to the diligence applied to the scheduling of the resource on a calendar. This is of particular importance when organizations attempt to accomplish their objectives internally using less formal methods.

With the thoughtful application of the principles and tactics discussed in this article, your organization should be able to make substantial progress on its Bitcoin-related organizational development objectives.

Sterling Ledet

Sterling Ledet is the founder of Ledet Training, a chain of Adobe, Apple and Autodesk authorized training centers with locations in Atlanta, Chicago, Denver, Houston, San Diego and Washington, D.C. He is a Certified Bitcoin Professional and Certified Technical Trainer in addition to holding multiple training certifications from various software vendors. He's been a leader in the software training field since 1996. His organization offers technical training classes in his training centers, onsite at client locations, and online at http://www.ledet.com.

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Ease of Adaptability Scheduling

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Spend

Growing The Market A Bitcoin Shopping Guide by ALAN M. SILBERT

I I

If years ago someone were to guess what products would kick off Bitcoin adoption, alpaca socks might not make the top of the list. Fuzzy socks to launch a disruptive technology and global currency? Yet that’s exactly what occurred when alpaca socks were among the very first consumer items to be purchased with bitcoins. Similar feelings were no doubt engendered when early enthusiasts were directed to make their initial Bitcoin purchases using an ominous red phone at a grocery store, speaking to an operator to route U.S. dollars through an intermediary to a Bitcoin exchange. This was the future of currency? But just as the red phone led the way to many international exchanges, alpaca socks helped launch a burgeoning Bitcoin consumer ecosystem. With over 100,000 transactions per day and that number growing, it is evident that bitcoins are making headway in the world of consumer purchasing.

Consumer Market As of the end of May, there were around $3 billion worth of bitcoins in circulation that are ripe for spending. In the evolving Bitcoin market, consumers can now buy electronics, clothing, food, precious metals, Internet services, creative services and even luxury cars and homes.

The Growing Market

David’s Antiques 322 Royal Street New Orleans, LA davidsnola.com

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PayPal, Stripe and Braintree are starting to integrate Bitcoin into their payment networks. Spendbitcoins.com and the Bitcoin wiki show growing lists of merchants. BitcoinShop.us and CryptoThrift are constantly broadening their inventory of electronics, clothing, gifts and other items, as they vie to be the “Amazon of Bitcoin.” Food take-out and delivery service Foodler accepts bitcoins from its 14,000 customers. Microsoft is the largest merchant to accept bitcoin to date.

Bitcoin ATMs are appearing in several countries worldwide. Gyft offers gift cards from more than 200 different retailers. Dell, Overstock, Expedia, DISH Network, 1-800-Flowers, Newegg and Wikipedia’s acceptance of Bitcoin shows that more mainstream businesses are starting to adopt it. Entire communities, such as Berlin’s Kreuzberg neighborhood, are embracing Bitcoin and accept it in many of their local businesses. Bars and restaurants and even luxury goods purveyors are now accepting Bitcoin worldwide.

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“In the evolving Bitcoin market, consumers can now buy electronics, clothing, food, precious metals, Internet services, creative services and even luxury cars and homes.” Lower Prices and International Barriers The frictionless, low-cost nature of Bitcoin allows for lower prices to be passed on to consumers. (The Bitcoin network is fee-free, albeit for a voluntary nominal fee that benefits the miners who support the Bitcoin network.) These economics mean that Bitcoin merchant processors offer lower fees than the VISAs and PayPals of the world, enabling merchants to deliver lower prices to consumers. Similarly, due to the borderless and peer-to-peer characteristics of Bitcoin, consumers can bypass costly middlemen altogether and go directly to the source. Roast Station Coffee is but one example, as consumers can buy coffee beans directly from a grower in Bali, bypassing the barriers and costs of middlemen, and have the product shipped to them anywhere in the world. An American family renting a home in France can send bitcoins to the property owner without concern for intermediary or currency exchange fees, and without waiting for PayPal to release their funds. A foreign worker can send bitcoins back home to his or her family abroad, and avoid the 8-9+ percent fees traditionally charged, thus providing the family with more bitcoins to spend in their local economy. Additionally, Bitcoin can reach many countries where traditional credit cards and PayPal aren’t accepted, giving more reach to consumers, especially those who are “unbankable” by traditional banking. East Africa is a perfect example of where this is taking hold.

More Safety Consumer security is another benefit of Bitcoin. Giving out a credit card number and associated information involves divulging an uncomfortable amount of personal detail while opening consumers up to future charges, possibly illegitimate, as long as the credit card is valid. In contrast, each Bitcoin transaction is a one-time, irreversible event that uses only your pseudonymous

Bitcoin address. Escrow services, such as the one offered on BitPremier, mitigate the risks of large-ticket transactions. Bitcoins can be held in escrow by a trusted third party until both parties to the transaction consider it final and binding.

Maintenance of Purchasing Power Inflation protection is another benefit to the Bitcoin consumer. The purchasing power of the U.S. dollar has been almost halved in the last 25 years due to inflation, with a $100 basket of goods and services in 1989 costing nearly $200 today. The limitation on the number of bitcoins ultimately placed into circulation provides protection to consumer purchasing power.

Dangers for the Consumer While Bitcoin may be almost perfect, it does have its challenges. As the ecosystem evolves and develops, it will naturally attract nefarious characters. Consumers should deal with trusted merchants, perform their due diligence, and use escrow services for large transactions. And while the irreversible nature of Bitcoin has its positives, it leaves little margin for error. Bitcoins should be treated like cash in that once you walk away from a transaction you and your cash have parted ways. Buying from a business that uses a trusted merchant processor like BitPay or Coinbase is a good start toward secure shopping. So is shopping at e-commerce sites run by reputable names in the Bitcoin community, or using local brick-and-mortar merchants. As always, transactions that seem too good to be true should be viewed cautiously.

To the Future While the choices for the Bitcoin consumer are growing, the Bitcoin economy is still in its infancy. With some help from the Bitcoin community, and as the benefits of Bitcoin become more well known around the globe, the consumer market for Bitcoin should grow into a thriving global merchant economy.

Alan M. Silbert

Alan Silbert is founder and CEO of BitPremier, the first-of-its-kind Bitcoin luxury marketplace, and a senior vice president at GE Capital. He has more than 18 years experience in commercial finance. Previously, he was a vice president at Merrill Lynch Capital and held various positions at Heller Financial, Access National Bank, and HealthCare Financial Partners. He holds a B.S. degree in finance from Towson University, and currently resides in Maryland with his wife and two children.

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Legal

Bitcoin’s Ever-Evolving Legal Status

Bitcoin Friendly Bitcoin Neutral Bitcoin Conflicted Bitcoin Hostile By MushkinLaw.com Bitcoin Law Team Martin Mushkin, Joseph Sahid, Joseph Taub and Rony Guldmann

Congratulations, virtual currency world—New York is regulating you! Some of you may have to apply for a NY Bitlicense. California may soon follow. That’s how important Bitcoin and other digital currencies have become in recent years. And as we know, what happens in New York’s financial world often has implications for the wider world. All the recent attention New York, California and even North Carolina have paid to virtual currency (more on that below), is raising many important legal questions, with potentially profound implications. But first, let’s explore the basics. A Cryptic History of Money Bitcoin is the latest and best known in a long line of digital currencies. The basic premise of digital currencies is that they try to establish a medium of exchange based on immutable mathematics, putting the currency beyond the control or manipulation of any government. Not long after the computer was invented people started discussing the development of currency based on that series of zeroes and ones called “bits.” But mediums of exchange go back to the first bartering by cave people. When A and B first exchanged goods, each was getting something from the other that he wanted. Soon, there came a point

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when B didn’t really want more apples but knew that he could exchange them with C for the tomatoes B really wanted. Shortly thereafter he had an inventory waiting to be bartered. And soon after that, B needed some means of storing his accumulating wealth other than in the tomatoes and other produce he had bartered for. Initially, B’s accumulated wealth might have been represented in certain beads or special rocks. Next came smelted copper and eventually gold and silver. Then there was the problem of storage for this wealth inventory. So here came banks and coins minted by governments, followed by the age of paper or fiat money, checks and credit cards. Today, instead of masses of paper moving through the banking system, all this transfer of wealth—debiting and crediting—takes place electronically. That means we are already in the digital currency era. A Few Legal Questions Bitcoin founder “Satoshi Nakamoto’s” introduction to his white paper states: “What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without

Bitcoin regulations are constantly evolving. This map reflects information available at the time of publication.

Virtual Currencies Hit the World Stage:

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the need for a trusted third party. Transactions that are computationally impractical to reverse would protect sellers from fraud…. The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes. “ What Nakamoto could not address at the time was Bitcoin’s legal status in the currency and taxation worlds. What exactly is Bitcoin for legal purposes? This is a critical question, because Bitcoin’s legal characterization determines whether it is regulated, how it is regulated and who regulates it. Thus far, Bitcoin has been regarded as both a currency and a commodity. A federal court in Texas held that since Bitcoin could be used to buy things other than Bitcoin itself, it was money. The court found that paying in bitcoins for shares in a business run by others for profit was buying a security and subject to SEC regulation. The court did not concern itself with what the business planned to do with the “money.” The court could have classified the transaction as an investment in commodities, as a Bitcoin trading business or as trading in FOREX (foreign exchange). The case presented different ways of looking at Bitcoin, along with several possible regulatory schemes: currency, securities, commodities and FOREX. Incidentally, the Texas business said it intended to deal in Bitcoin, but it turned out to be a Ponzi scheme. All of this suggests another question: Who has legal jurisdiction over Bitcoin transactions? Suppose Company A, physically in country X, uses the Internet to find an exchange, GiveandTake, upon which it can offer its shares. It only accepts payment in Bitcoin. The exchange is only virtual and Company A does not know where the exchange is located. Company A offers its securities, and investors pay for it by depositing bitcoins into Company A’s electronic wallet. The wallet is administered by Maybesafe, thought to be in country Y. Company A does not have the physical name and address of Maybesafe or the investors. All it has is email addresses. Of course, the securities the investors purchase are really electronic entries. Later, Company A pays dividends to the investors by sending the dividends to their virtual wallets via their email addresses. These recipients could be anywhere in the world. Suppose things go wrong. Perhaps some of Nakamoto’s “honest nodes” succumb to “attacker nodes.” Maybe the business simply goes bankrupt. What government(s) can take jurisdiction? To what court can the injured party go to seek justice: where the physical offices of the various participants are located, or the location of their servers? The New York Story New York State, Wall Street’s home, has promulgated regulations defining its jurisdiction as covering any transaction “involving New York or any resident of New York.” There are stated limits to “involving.” Chips or the like used on gaming platforms, gift cards, and credits that can only be used with a designated merchant or set of

merchants are exempt so long as they cannot be converted to fiat money. However, “involving” is so broad that anybody whose Bitcoin transactions are even tangentially related to New York will have to carefully consider whether they are legally obligated to get a New York license. The only meaningful exclusions are for “merchants and consumers” who “utilize Virtual Currency solely for the purchase or sale of goods or services,” software developers and those using Virtual Currency solely for investment purposes. The regulation does not expressly cover miners unless they are deemed to be “issuers,” who must be licensed. In the banking world, New York’s highest court ruled that its courts had jurisdiction over Lebanese Canadian Bank when it was sued by U.S., Canadian and Israeli citizens resident in Israel who were victims of Hezbollah rocket attacks. The claim was that the bank assisted Hezbollah by “facilitating international money transactions” using its New York correspondent bank to transfer money to Hezbollah agents. This approach could be applied to Bitcoin. Beware Bitcoiners! In our hypothetical case, New York’s regulations could require that Company A know the physical address of the exchange, that the exchange and wallet be licensed, and that all parties know with whom they are dealing beyond mere email addresses. However, the word “reasonable” appears so often that the regulations do not look like absolutes. Only legal interpretations over time will settle this. New York’s regulation is not for the faint of heart. It costs $5,000 just to apply. Applicants must submit fingerprints and pictures of employees having access to customer funds, extensive personnel background information, certification of an outside investigator, a detailed business plan and audited financials—much like a bank. Once in business, a licensee must have a written compliance plan, maintain compliance personnel, be audited and report frequently to the regulators. For example, if $10,000 in Bitcoin or money is transmitted in “one day by one person,” in a transaction “involving New York or any resident of New York,” the licensees will have to report the transaction to the New York regulators within 24 hours. Importantly, the regulators can grant conditional licenses under limited circumstances. The regulation requires all advertisements by Bitlicensees to include their names and a statement that they are licensed to engage in “Virtual Currency Business” by New York. The Bitlicense will serve as an advertised badge of integrity, like a bank saying it is a member of the FDIC. Hopefully, there will be no Mt. Gox or Silk Road fiascos by New York Bitlicensees. Will a New York badge of integrity be worth it? A bill before the California legislature would regulate Bitcoiners similarly. We predict that some variant of these regulations will pass in California.

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Legal Federal Laws Also Apply The Treasury’s Federal Crime Enforcement Network (FinCEN) requires U.S. financial institutions to assist U.S. government agencies to detect and prevent money laundering and other criminal activity. Under the Electronic Funds Transfer Act, any transfer of funds, other than a transaction originated by check or similar paper instrument, which is initiated through an electronic terminal, telephonic instrument or computer, must be reported. “Money transmitting” includes transferring funds on behalf of the public by any and all means within this country or abroad. These laws ostensibly cover Bitcoin transactions--honest transactions as well as the illegal drug dealings in the infamous Silk Road case. FinCEN has opined that certain Bitcoiners are “money transmitters.” Bitcoiners, like all businesses, will have to comply with the securities laws, privacy, tax, health and social security laws, and honor their contracts (or risk being sued). For Bitcoiners, regulation will greatly compromise the vaunted anonymity of the currency. This is a matter of more than a little concern to many in the Bitcoin community. And About the Rest of the World ... New York isn’t the only jurisdiction with an interest in regulating Bitcoin, but with New York being the 800-pound gorilla of the financial world that it is, you can bet that the rest of the world is watching very closely. Given Bitcoin’s endurance and ever-evolving prominence on the world’s financial stage, governments everywhere are considering regulation, and they will most certainly be closely observing what happens in New York. As it stands now, Russia and others may criminalize Bitcoin in the future. Russia continues to dither on Bitcoin. On the other hand Russia and others may find that criminalization is unsustainable and a bad move for their own financial systems. The best advice from here is to stay tuned. Bitcoin remains an ever-evolving legal quandary.

Martin Mushkin

Bitcoin Snapshot: Ecuador and Russia Ecuador has banned Bitcoin while preparing to institute the world’s first state-run digital currency, which will be running parallel to the U.S. dollar, upon which the country has relied since its banking crisis in 2000. This currency will not strictly speaking be a virtual currency, because every unit of it will have to be backed up with dollars. Nevertheless, it is intended to provide many of the same benefits that have been associated with Bitcoin, such as allowing people like the rural poor, who do not have access to traditional banking, to conduct transactions through their cell phones. The situation in Russia has been shifting and ambiguous since the beginning of 2014. In January 2014, the Bank of Russia issued a statement discouraging the use of bitcoins, warning that Russians who use them risk becoming unwittingly involved in illegal activities. After a meeting with the Bank of Russia, Russia’s Prosecutor General announced in February 2014 that with the ruble being the official currency of the Russian Federation, existing Russian law categorically prohibits Bitcoin. The Bank of Russia, however, came away with a different interpretation of that meeting and in March 2014 clarified that it had not concluded that all cryptocurrencies were prohibited and that the meeting was merely intended to develop a regulatory framework to combat illegal operations and protect the rights of users. It seems that the matter will be settled soon enough, though, as Russia’s Finance Ministry is now backing a bill that would fine individuals involved with virtual currencies the equivalent of between $100 and $840, according to the nature of the offense. Officials and legal entities would face substantially higher fines, up to $12,500. While the Finance Ministry has backed off its earlier attempts to impose more severe fines, its underlying hostility to virtual currencies remains intact. Its position is, however, opposed by the chair of the Duma’s Committee on Financial Markets. Some other players in the Duma, however, are demanding that the law include draconian fines, and Russia’s equivalent of the FCC has banned several Bitcoin-related websites. On the other hand, the country’s Ministry of Economic Development has pushed back against the Finance Ministry’s draft law, arguing that it lacks precision and would prohibit non-cash payment systems like bonus points and gift certificates. Whether the Ministry of Economic Development’s resistance to the present draft of the law indicates any new sympathy for Bitcoin itself remains unclear, though. Given Russia’s well-documented ambivalence on the matter, the bill’s exact fate remains uncertain as a vote looms later this year. On a brighter note, Russian courts have recently declared illegal the government’s attempts to ban several Bitcoin-related websites, indicating that on matters not of major political importance Russia can be a nation of laws.

Joseph Sahid

Joseph Taub

Rony Guldmann

The authors are the Virtual Currency Law Team at MushkinLaw.com, located in New York, Connecticut and California and concentrating on corporate finance, business regulation and litigation. Martin Mushkin was an SEC Senior Trial Attorney, has published extensively, and has been listed in Who’s Who in American Law. Joseph Sahid is a litigator handling commercial and financial disputes, was a partner in Cravath, Swaine & Moore, and is listed in Who’s Who in America. Joseph Taub has counseled in many business litigation and corporate matters. Rony Guldmann is the latest addition to the team and works in a variety of litigation and transactional matters. 54

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2008 GENESIS Bitcoin first appears as an academic paper and a computer program in late 2008. Very little is known about its creator, Satoshi Nakamoto, as his only presence on the Internet consists of a profile on the P2P foundation listing him as “36, Male. Japan” and his posts on the Bitcoin forums and the cryptography mailing list. He has since disappeared from the Internet entirely, and while some continue to speculate as to his physical identity, most are content to leave the legend as it is.

Oct. 31

Satoshi Publishes the White Paper: Bitcoin’s seminal concept paper, “Bitcoin: A Peer-to-Peer Electronic Cash System,” is first published, describing the technical and economic foundations of the currency in detail.

2009 THE BLOCKCHAIN BEGINS Bitcoin’s year starts on January 3 and an official Bitcoin client is released soon after on the cryptography mailing list. The Bitcoin community itself grows slowly in the first two years, picking up new members by word of mouth. New members begin mining, causing the Bitcoin network’s hash power to increase, with mining difficulty increasing exponentially.

Jan. 3

2011

2010

INITIAL GROWTH Bitcoin begins to fulfill Satoshi’s vision as a store of value and transactions begin on several online exchanges. The community grows slowly throughout this year, which is marked by technical innovations such as the first hosted wallets and mining pools. GPU mining is also developed, leading to a large increase in the network’s hashing power.

May 22

Bitcoin for Pizza: The first known Bitcoin transaction for a physical item occurs when a forum user pays 10,000 bitcoins, then worth $25, for another forum user to order a pizza for him. At current bitcoin prices, the cost of that pizza would be equivalent to approximately $1 million.

Dec. 12

Satoshi Disappears: Bitcoin founder Satoshi Nakamoto makes his last forum post before disappearing, and Gavin Andresen quickly assumes a more central role in Bitcoin development.

The Genesis Block: The original “genesis block” is mined by Satoshi, officially starting the Bitcoin blockchain.

A DEVELOPING ECONOMY

A large number of new businesses appear, growing to meet the needs of the Bitcoin economy. Bitcoin gains more and more prominence in the media. This year is also marked by a number of technical developments and innovations, but also a number of hacks and thefts. The price of bitcoin rises as high as $32 before dropping back to $10 in a period of high volatility.

Apr. 20

Bitcoin in the Media: An article on Bitcoin by Forbes appears online and in print, and is translated into many languages around the world. The online release on April 20 and print release on May 9 are immediately followed by sudden rises of nearly 50 percent in the price of bitcoin, bringing the price up from $1.20 on April 20 to nearly $6 on May 10.

Jun. 8

Rising to New Highs: The price, after peaking at an all-time high of $32 on June 8, drops precipitously to $10 and bounces back up and down several times before stabilizing at $17.

2012 GLOBAL EXPANSION At the beginning of June, Bitcoin finally breaks out of its nearly four-month-long period of extreme stability as prices shoot past $6. News attention is once again positive and a speculation-induced bubble begins to fester, leading to another price crash in August. During this time period, a number of the original Bitcoin companies and exchanges begin to be replaced by new challengers. Blogging site WordPress begins to accept bitcoin, and Bitcoin Magazine publishes its first issue.

Jan. 16

Bitcoin’s TV Appearance: Bitcoin is featured on an episode of The Good Wife, creating a threefold blip in Bitcoin’s prominence as measured by Google search volume.

May 26

Growing Chinese Bitcoin Adoption: The volume of international Bitcoin users continues to increase, and Bitcoin makes a sudden appearance in China as BTCChina becomes the world’s second largest exchange for one day. Bitcoin price begins rising shortly afterwards.

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2013 BOOM AND BUST Days after the beginning of the new year, the bitcoin price begins picking up once again. Bitcoin business also booms; gambling sites like SatoshiDice are the first to post unprecedented returns, and merchant providers and mining companies follow soon after. Soon enough, the Bitcoin economy is right back to where it was in spring 2011—except this time with ten times the force. The Bitcoin network hashing power increases exponentially as the first ASIC Miners come online.

Conferences: The San Jose Bitcoin Conference, held in May, brings together more than 1,200 Bitcoin users from around the world to discuss the technical, legal and business issues around the currency. It’s followed by a number of similar conferences in London, New York, Atlanta, Amsterdam and Latin America. Merchants: This year, mainstream companies including OKCupid, Shopify, Virgin Galactic, Overstock and Reddit begin accepting bitcoin for payment. Startup Activity: Silicon Valley begins to get involved with Bitcoin as several leading venture capitalists announce investments in Bitcoin companies. The BoostVC accelerator launches in San Mateo to invest specifically in Bitcoin startups. The New York Bitcoin Center opens its doors to provide a central location for education and trading on Wall Street.

JANUARY 2013 Jan 13

Mar. 16 Apr. 9

Oct. 2

Nov. 18

Nov. 28

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Cyprus Freezes Bank Assets: Residents of Cyprus, a small island nation east of Greece, wake up to find that their bank accounts have been frozen and 10 percent of deposited funds will be seized to pay for a bailout for a failing bank. The Bitcoin price shoots past $50 for the first time two days later and will soon top $100. Bitcoin price hits high of $266, and promptly crashes back down to $50 before making a partial recovery. However, this time there is something unusual in the aftermath of the bubble: hope is not lost. At the Bitcoin conference in May, the community is as excited as ever, a feeling that continues to dominate even in the London conference at the beginning of July. The main challenge will prove to be government regulation, especially in the United States, but businesses step up to handle the challenge. Silk Road Shut Down: The Silk Road, the largest black market site on the Tor network, is shut down by the U.S. FBI, and its alleged owner, Ross Ulbrecht, is arrested in San Francisco. Amidst fears that Silk Road is responsible for a large part of the Bitcoin economy, the bitcoin price briefly falls from around $127 to a low of $85 before almost immediately recovering to $110; one week later, the bitcoin price is back exactly where it was before Silk Road went down. First U.S. Senate Hearing on Bitcoin: The Senate Homeland Security and Governmental Affairs Committee summons witnesses from the Bitcoin community and the U.S. Government for the first Bitcoin-related hearing on Capitol Hill. The hearing is entitled, “Beyond Silk Road: Potential Risks, Threats, and Promises of Virtual Currencies.” The hearing starts off with the first panel of representatives from branches of the U.S. Government, including the Treasury Department, Department of Justice and Secret Service. Driven by consistent media attention, merchant adoption and steady growth, the bitcoin price begins to increase. Increased media coverage and speculation drives the price to $1,200, its highest price ever, before falling back down into the $800s. Many attribute the steep decline to uncertainty about the Chinese government’s stance on Bitcoin amid rumors of a ban. Contributed by

.com The original source for frontline coverage of breaking Bitcoin news and in-depth features on people, ventures, deals and developments. yBitcoin.com

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A MATURING INDUSTRY The year begins with a period of increased interest and media attention even though the price has fallen from its November highs. The concern of regulation is weighing on everyone’s minds as Bitcoin undergoes a transition to mainstream consumers. Bitcoin is a growing topic of discussion for traditional financial institutions, investment banks and central bankers worldwide. Conferences: Bitcoin conferences and meetups are held all over the world. From Singapore to Toronto, Indonesia to Dubai to Tel Aviv. Bitcoin also begins to make appearances at consumer tech and finance conferences, including the Consumer Electronics Show, South by Southwest® and Money20/20. Merchants: TV Provider DISH, electronics retailer TigerDirect, and charities United Way and Wikipedia all begin accepting Bitcoin donations and payments. PayPal announces that it will integrate Bitcoin into its payment processing software for merchants.

Jan. 3

BITCOIN CELEBRATES FIVE YEARS! Five years ago the first Bitcoin block was mined, and at one time, had grown in value to over $1,000 per coin. Thousands of companies are accepting Bitcoin for payment and individuals around the world are utilizing it as a form of transaction and a store of value. This makes Bitcoin the best performing investment in history.

Feb. 20

Exchange Mt. Gox Fails: Mt. Gox, one of the oldest and most popular exchanges, announces that it is filing for bankruptcy as a result of hacking, mismanagement and theft. While the closure of Mt. Gox is unfortunate, it represents the failure of a single business, not of Bitcoin. Mt. Gox’s closure also serves as a wake-up call for Bitcoin community members to not place trust in one centralized exchange, but to diversify where their bitcoin is stored and even which exchanges are used.

Mar. 6

Newsweek Claims to Identify Satoshi Nakamoto: Newsweek reporter Leah McGrath Goodman writes a cover story claiming that a 64-year-old engineer is Satoshi Nakamoto, the creator of Bitcoin. However, he denies any involvement in Bitcoin and after further investigation, it appears that Satoshi’s true identity is still unknown.

Mar. 25

The IRS issues tax guidelines on Bitcoin: Less than one month before Tax Day in the U.S., the Internal Revenue Service issues guidelines as to how users of virtual currencies should treat these currencies and report gains and losses. The Bitcoin community’s reaction is less than enthusiastic due to the IRS stating Bitcoin will be treated as a commodity and not a currency. Further dialogue and negotiations are expected.

Apr. 11

Official Says China Will Not Ban Bitcoin: The Governor of the People’s Bank of China issues a statement clarifying China’s stance on Bitcoin. The Chinese government sees Bitcoin as more of an asset than a currency and a ban is out of the question.

May 15-17

The Bitcoin 2014 Conference: The Bitcoin Foundation hosts the most diverse international Bitcoin conference to date, with attendees from more than 50 countries gathering in Amsterdam, Netherlands. Attendees include Bitcoin enthusiasts, entrepreneurs, investors, and even representatives from Botswana and Kenya.

June 27

U.S. Marshals Hold Bitcoin Auction: The U.S. Marshals Service holds an auction for approximately 30,000 bitcoin seized from Silk Road. After a private bidding process, venture capitalist Tim Draper is revealed as the winner of all auctioned bitcoin.

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2014

2015

(cont.)

July 17

First Draft of BitLicense Proposal Published: The New York State Department of Financial Services (NYDFS) publishes the first draft of their proposal for regulating digital currency companies. It is followed by a 45-day period for the community to comment on the proposal.

Aug. 21

NYDFS Extends BitLicense Comment Period: After numerous responses from the Bitcoin community and business leaders, NYDFS Superintendent Benjamin Lawsky extends the comment period by an additional 45 days and issues clarifications regarding the scope of the proposed regulation.

ECOSYSTEM GROWS DESPITE PRICE DECLINE Jan. 20

Jan. 20 – Coinbase raises $75M funding round from a group of leading venture capital firms, including Draper Fisher Jurvetson, Union Square Ventures and Andreessen Horowitz. The New York Stock Exchange (NYSE), Fortune 500 bank USAA, and Spanish megabank BBVA also participate in the funding round.

Feb. 25

BitGo unveils bitcoin insurance in partnership with the XL Group, a global, A-rated insurance company. Under the terms of this insurance policy, all of BitGo’s users are automatically insured for $250,000 against loss of bitcoins stored using BitGo.

Sept. 23

PayPal Begins Bitcoin Integration: PayPal executive Scott Ellison announces that the company has developed partnerships with leading Bitcoin payment processors to enable all PayPal digital goods merchants to accept Bitcoin seamlessly.

Feb. 25

Bank of England issues research report on Bitcoin, saying that “Digital currencies, potentially combined with mobile technology, may reshape the mechanisms for making secure payments, allowing transactions to be made directly between participants."

Dec. 4

T h e U . S . M a r s h a l s S e r v i c e holds a second auction for an additional 50,000 bitcoin seized from alleged Silk Road owner Ross Ulbricht. The auction winners are revealed to be Tim Draper and a syndicate led by Barry Silbert's SecondMarket.

Mar. 27

The Bitcoin Investment Trust receives approval from the Financial Industry Regulatory Authority (FINRA) to begin t r a d i n g, making it the first Bitcoin-based finanical product available in public markets.

Dec. 11

Microsoft begins accepting Bitcoin for payment using payment processor BitPay. With $87 billion in annual revenues, this makes Microsoft the largest company in the world to accept Bitcoin.

May 18

Bitcoin Tracker One (COINXBT), and Exchange Traded Note with Bitcoin as the underlying asset, begins trading on NASDAQ O M X S t o c k h o l m . It quickly launches in other countries to give investors an easy and secure way to invest in Bitcoin on regulated exchanges.

Dec. 26

Bitcoin St. Petersburg Bowl: BitPay and ESPN have achieved the improbable by merging college football and sophisticated tech. On December 26, Bitcoin experiences its largest mainstream push, introducing the digital currency to 30,000 fans and reaching more than five million American households. The match-up between University of Central Florida and North Carolina State University takes place at the Tropicana Stadium in St. Petersburg, FL.

June

Anxiety from a Chinese Stock Market crash and a potential Greek exit from the Eurozone drives demand for a safe haven asset like Bitcoin. Prices rally more than 50 percent in a four week period.

Contributed by

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Blockchain

Imagine a world where you could be paid for being right— and for helping accurately predict the future as a result. That is the sort of world the Augur Project envisions.

Augur is an open source, decentralized prediction market platform that uses information aggregation—the “wisdom of the crowd”—to project outcomes of future events, and allow participants to buy shares in those outcomes. Augur is built on the Ethereum decentralized Web 3.0 publishing platform. In a blog post, Augur core developer Joey Krug explained, “With Ethereum, we don’t have to deal with low-level networking or security, that all falls under Ethereum’s purview... . It’s also much simpler than building on Bitcoin core; we can write smart contracts… and compile down to EVM opcodes that are more robust than Bitcoin’s opcodes. Finally, building on Ethereum allows extremely quick iterations: instead of taking weeks or months to make small changes we can make and test them within days. This means we can build our software faster and improve upon it quicker than with any other method, which after enough iterations, allows us to build the best possible platform for prediction markets.”

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Vitalik Buterin, founder of Ethereum, has come onboard as one of Augur’s key advisors. He has provided both financial and technical support for the project. “I found out about the Augur project in late 2014, back when it was not even called Augur and was still simply a fork of Truthcoin,” Buterin told yBitcoin. “I had been interested in prediction markets and concepts like futarchy, which bind prediction markets directly to decision-making processes, and was excited to see a project actually implementing them. It seemed immediately obvious to me that this was one of the first few concrete applications of cryptotechnology that was going to be actually useful and potentially quite huge.” In an interview with yBitcoin, Joey Krug and Jeremy Gardner, Augur’s Director of Operations, explained that Augur’s mission is “to create better public forecasting tools” that can be used to enhance decision-making processes. When people have accurate information, they can make better decisions. The platform

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operates on the principles that (a) people will choose event outcomes that will preserve their funds, and (b) the most popular answer in a large crowd is usually the most accurate and truthful when it comes to predicting outcomes.

Gardner and Krug explained that earning and using Reputation is entirely optional; users can simply buy shares of given event outcomes and do nothing more. However, they stressed the importance of having as many “oracles” or reporters involved in the platform as possible, in order to create a decentralized and How Does Augur Work? accurate system. Furthermore, Reputation holders receive a Augur is an open source, decentralized portion of the trading fees in the markets, application platform—not a company— with market makers receiving the rest. that uses bitcoin as its principal token; Should Augur succeed in reaching a large that is, funds go into the platform as audience, reporting payouts could be bitcoin and are taken out as bitcoin. quite considerable. When Augur launches its Reputation Participants can set up prediction token sale later this year, “Our goal is events and/or buy shares in the not to raise a ton of money,” said outcomes of events. All prediction Gardner. “We want to garner as many events and share transactions are Vitalik Buterin, Founder, Ethereum REP holders as possible, in order to recorded on the decentralized Augur sustain the software—the software platform. An example that Augur relies on a large crowd to generate a reliable "crowdsourced" commonly uses is the outcome of the next U.S. presidential consensus on the truth of whether predictions happened or not. election. “Hillary Clinton will be elected president in 2016” a What we do raise will fund our nonprofit, the Forecast Foundation.” market could state. An individual can then buy “Yes” or “No” The foundation provides operational support for Augur, with shares of that event, selling at any point before the market closes. If 63 percent of shares purchased were “Yes,” then the price of the overriding goal of creating and maintaining the prediction such a share would cost 63 cents. That percentage, according to market software.

“

I truly believe that Augur, if it succeeds, can be a very valuable tool for society.

economic and academic research, can also be understood as the probability of the event occurring. People owning shares in the correct outcome can collect the value of those shares, without paying a trading fee, when the market closes. How does the platform recognize the real outcome of an event? This is where Augur’s unique “Reputation” (REP) tokens come into play. Jeremy Gardner explained that your Augur Reputation is like a score attached to your address. The Reputation scoring system relies on the idea that the truth is a "schelling point," or answer people naturally come to: a meeting point of truth. Put another way, the consensus of a crowd tends to gravitate toward the truth. Augur users are required to report the outcomes of events using verifiable Internet sources. If a user reports on events with outcomes that match the rest of the crowd, his or her Reputation score increases. People who make false reports— outcomes that disagree with the consensus—will lose Reputation, and their reporting will carry less weight in the future compared to other, more truthful reporters. Thus the more Reputation you have, the higher the value of your reporting—so as more people report on events and greater voting weight (Reputation) is given to reporters who've proven they're the most reliable in sticking with the consensus, event outcomes will become more trustworthy.

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The Future of Decentralized Prediction Markets “Augur does a good job of showcasing one of the benefits of decentralization beyond the incredibly low-hanging fruit of regulatory avoidance: survivability,” said Vitalik Buterin. Because Augur is fully decentralized, it has no central point of failure. It has no main server; no one owns it; no one controls or operates the market; and its code is open source. Like Bitcoin and other decentralized protocols, Augur is not at risk of being seized or shut down. People who want to use the software simply click on a link to download the Augur client as an app or a Web page. Users must agree to terms of service that prohibit use of the software in violation of their locally applicable laws. At first glance, prediction market platforms may appear to be nothing more than dressed-up betting sites. But Krug and Gardner insist that is a severely limited perspective. As Augur evolves, its founders expect people to find uses for it beyond anything they can imagine or predict today. Augur is a public forecasting tool. With better forecasting tools, people are better equipped to make all sorts of decisions. The implications for political, social and economic policy decision-making are far-reaching.

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Pioneer

The people featured in the following â&#x20AC;&#x153;Get to Knowâ&#x20AC;? section share a capacity for rigorous thinking and the kind of visionary outlook that has helped them lead their respective companies into the thick of the Bitcoin revolution. Behind each of their formidable intellects there also perks a restless imagination, a yearning to take hold of their world and steer it in previously uncharted directions. That spirit of entrepreneurship runs deep in the worldwide Bitcoin community, helping to define a new generation of leaders poised to create a way of commerce and a currency system worthy of these dynamic times. We invite you to meet these outstanding pioneers in the following pages of sponsored content, all of it written by yBitcoin staff after conducting interviews.

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Pioneer

VENTURE

C A P I TA L I S T

Founding Partner Tally Capital “Building and investing in the ‘roads, bridges and tunnels’ of Bitcoin will help foster adoption” Deep into a dream career involved largely with identifying promising tech start-ups and providing just the right strategic and financial nudge to get them rolling down the entrepreneurial highway, Matthew Roszak has noticed a curious phenomenon over the last year as his involvement in the Bitcoin world deepens. “I’ve gotten to where I check Bitcoin news even before I brush my teeth in the morning,” he muses. “I think that says something.”

“Bitcoin presents a generational opportunity for entrepreneurs and investors” Roszak, who began his private equity career with Keystone Capital Partners and Advent International, is founding partner of Tally Capital, a venture capital firm focused on investing in the digital currency ecosystem. He first encountered Bitcoin in 2012, and then took a more serious dip by personally investing into it amidst much study a year later. His funding choices have followed, with over two dozen investments now closed (BitFury, BitGo, Blockstream,

ChangeTip, Factom, Noble Markets, Romit and Xapo among them) and several more expected to fund over the coming months. “Bitcoin presents a generational opportunity for entrepreneurs and investors,” he says. “It has the potential to fundamentally change how we manage, transfer and store value.” Roszak has expanded his direct investing circle in the Bitcoin space as a founding investor with Blockchain Capital. More recently, Roszak founded and launched the Chicago Bitcoin Center to leverage Chicago's rich history and DNA in financial technology with Bitcoin. The Chicago Bitcoin Center is an incubator focused on blockchain-enabled technologies and provides a platform for education, innovation and development. Roszak currently sees adoption and regulation as the key areas to address. “Adoption is still a challenge, as there’s lots of friction, so we need to find ways to enhance the onboarding experience and make it much easier to purchase, store and use bitcoin,” he says. “Building and investing in the ‘roads, bridges and tunnels’ of Bitcoin will help foster adoption—

think multi-sig wallets, convenient ATMs and institutional-grade exchanges. As for regulation, people think investors fear regulation, but that’s not true—investors fear uncertainty. The key is that the amount of regulation doesn’t suppress adoption and innovation (not to mention funding and jobs), and is a thoughtful and calibrated process that helps build added trust on Main Street and Wall Street.” Outside of his direct investments in the ecosystem, Roszak sits on the boards of the Chamber of Digital Commerce and BitGive, and was a producer of the first ever Bitcoin documentary The Rise and Rise of Bitcoin. Roszak cites relationships as one of his supreme values, in both his personal and professional life. His longtime friend and business partner is tech mogul Flip Filipowski. “Relationships matter. To be able to do business with the people you want to do business with—that’s the ultimate luxury for an entrepreneur.”

@MatthewRoszak

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Pioneer

here was something beautifully rebellious about the early days of Bitcoin. Lone desperados playing in fields far beyond the buttoned-up, entrenched financial system. Engineering pioneers exulting in the veritable “license to print money” that was available to them via a personal computer and their hard-won geek skills that helped them wrestle difficult equations into a few precious bitcoins by the end of their day’s labors. They could then take the coins to an exchange, like the gold miners of old clutching their little pouches of precious metal and shuffling up to the town bank in Sacramento, circa 1849. But nothing as revolutionary and lucrative as Bitcoin can stay the province of desperados for long. What first presents as the unkempt frontier eventually needs a town and supporting infrastructure, where cool business heads with a penchant for data and orderly market transactions can make the system work not only for the desperados who set the revolution in motion, but also for the larger society that relies on their accomplishments. Timothy Roberts—businessman, entrepreneur, data center guru— is one of those who has come to fill the infrastructure role on the Bitcoin world’s stage. His recently launched HashingSpace Corporation (OTC: HSHS), which he serves as founder and CEO, provides a comprehensive suite of services that promises to help advance most every player in that world to what is increasingly a matured, systematic and ultimately more practical approach to the extraction and uses of Bitcoin. “I’m relatively new to Bitcoin, directly involved for about a year now with planning

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my company,” says Roberts, an engaging 45-year-old with a far-reaching history of entrepreneurial ventures in the data center field already dotting his resume. “People had been asking me for the past five years, ‘Have you looked at Bitcoin yet?’ But I was always too busy. Then one day I bought a machine and started mining to see what it was all about. That led to five machines, then to ten, then to plans for building a large network once I realized this is essentially what I had been doing for the past 25 years.”

“

…paying 30 cents per kilowatt hour for power/ hosting really put the squeeze on solo miners. That’s when it became apparent to me that they needed data centers with more and cheaper available power than they could get alone. HashingSpace offers hosting for ASICS miners from its large data center in Wenatchee, Washington, home to the cheap hydroelectric power and cool weather so beloved by Bitcoin mining operations. It also aims to be the one-stop solution for a variety of other services, including Bitcoin ATM machines and wallets, cloud mining for which miners can rent hashing power, and other services at various stages of development. In other words, easy-peasy and far less complicated, labor intensive and expensive than Bitcoin mining and related services offered in the past. Quite simply, there has been nothing like it in the Bitcoin space, and Roberts figures to keep it that way

by constantly innovating on top of the infrastructure he has already put in place. “When the early miners saw what Bitcoin could do for them, they started renting houses just to run their computers at sufficient power, but the noise and the heat were really a problem,” he says. “The cost was OK as long as the price of bitcoins kept skyrocketing to $1,000 and more. But when the price came back to $250, paying 30 cents per kilowatt hour for power/hosting really put the squeeze on solo miners. That’s when it became apparent to me that they needed data centers with more and cheaper available power than they could get alone.” Roberts takes pride in offering his customers hashing power at eight cents an hour, made possible by his bulk purchases and negotiating acumen with northwest power providers. That’s no faint accomplishment for a self-professed “high school drop-out” in his native St. Louis who proceeded directly to college courses before moving on from there, too, for want of stimulating offerings. The problem was always the depth and restlessness of his agile mind, aided and abetted by a twin brother and a father who was an accomplished executive in St. Louis for Anheuser-Busch. Dad could only marvel at his sons pulling all-nighters of the cerebral kind. Timothy would take electronic gadgets like phones and early computers apart, noting their inner workings, while his twin Peter explored the byways of video technology. His brother eventually became a video game developer and Timothy proceeded to become eternally fascinated with networks.

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Pioneer

“I would read manuals on electronic switching services cover to cover,” he says. “It was fun to observe all the things you could do with them.” At the tender age of 22, sans any degrees but already experienced to the nines with network technology, he launched Savvis Corporation, dedicated to solving the Internet traffic bottleneck created by the increasing conveyance of audio and video content. “We ran the fastest Internet in the world for ten years,” he proclaims. The company later went public with an initial market cap of $2.2 billion before it was eventually absorbed by CenturyLink. (The Savvis name remains.) Multiple other ventures followed, not all of them the raging success that Savvis was, but all of them growing the not so mini-computer that sits on top of Roberts’s shoulders. That intelligence is fused with a fierce devotion to the troops with whom he goes into battle to slay the dragons of the networking world.

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It is not for nothing that Roberts continues to draw top talent from the technology sphere and recurrent funding from investors. It’s all about “that vision thing,” to recall a term used by one of our recent presidents. Sketch that vision, lay it out for others to see, put your reputation on the line for it, and it’s little wonder you will attract and retain people who share the vision and remain close to you for one and two decades and more. It’s not unlike one of his heroes, Steve Jobs, whom Roberts cites as an influence in being accessible, focused on detail and visionary all in one package. “My dad knew Jobs, and one day I asked him if he could arrange an introduction for me. My dad said, ‘You don’t need an introduction, just pick up the phone; he’ll talk to you.’ So I did, reached his assistant, and a minute later I was talking to Jobs himself. That had an impact on me, and I try to practice the same thing today.

He was a sweet guy, very forthright.” Looking back on a career that seems to have gathered itself for a long second act dedicated to blockchain technology, Roberts is clearly drawing now from many wells. “I took jobs in my life where I thought everyone was smarter than me, but then I found them coming to me for answers on a lot of the things I’d been focused on for a long time,” he says. “That changed my thinking in many ways. As an entrepreneur, I’d always known you have to be willing to fail. I wouldn’t hire anyone who didn’t have some failures on their resume. But what I also realized is you have to be willing to lead. I’m mid-career now, but I feel like I’m just getting going. I have people tell me, ‘You just can’t turn it off, can you?’ “No, I can’t.”

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Marco Streng, Co-Founder and CEO, Genesis Mining Inc.

ome four years ago, Marco Streng had every intention of parlaying his lifelong fascination with math and physics into the completion of university work in his native Germany before going on to an academic or scientific career. But then Bitcoin came into his life via a link to some networking research he was conducting online. And a fateful link it was, compelling Streng to bid adieu to all his previous plans. Like many people in the Bitcoin world, Streng, co-founder and CEO of the international cryptocurrency company Genesis Mining, has an outsized intellect that helped him both gravitate to and quickly grasp the complexity, symmetry and opportunity that Bitcoin’s blockchain technology offers the world. He dove directly into mining on his home computers, first for Bitcoin and then Litecoin. The venture proved to be both lucrative and a dazzling intellectual challenge. He was twenty-one years old. “I had always done very well in school, earning a scholarship to university when I was fifteen and attending classes there with much older students,” Streng says. “I was on track for a promising math and physics career, but Bitcoin was just too attractive to resist. I was going deeper and deeper into emerging networks from the mathematical side, then got very engaged in economics and monetary systems. It’s a very fast-moving field, very exciting. I finally decided to go fully into Bitcoin.”

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Streng launched Genesis late in 2013 with partners Dr. Marco Krohn and Jakov Dolic. The trio has built the Munich-based company into a colossus in the mining world, establishing mining facilities in Eastern Europe, China and Iceland. (The latter’s renowned cold weather is particularly conducive to providing cheap cooling for hot-running mining computers.)

He dove directly into mining on his home computers, first for Bitcoin and then Litecoin. The venture proved to be both lucrative and a dazzling intellectual challenge. Asked about the family tree that may have been responsible for producing a math and physics prodigy, Streng comes up blank. Sometimes the apple, as the saying goes, does fall rather far from the tree. Perhaps the family’s most common ground is how hard each member works— his father in the wine industry as a vintner in the renowned German winemaking region of Franconia, his mother in the restaurant industry, and his younger brother in auto mechanics. No aunts or uncles showed any scientific bent either, he reports. All he knows is that math, science and the theoretical frameworks behind them always came easily to him, and he has been moving along a trail seemingly paved by those fields his entire life.

Streng was born in the Franconia capital of Würzburg. Like most Germans, he speaks flawless English and is at complete ease with international business dealings, a skill set tailor-made for the Bitcoin world’s borderless ethos and structure. He marvels at his luck in finding a way of life so in sync with his passions and interests. “It’s quite funny that when we’re dealing with businesses not involved at all with Bitcoin, all our contacts turn off their mobile phones at 6 p.m. and never do business on weekends,” he observes. “In the Bitcoin world, we work almost all the time, every day, because every day counts! It’s not a problem at all, though. I love what I do, and when you love what you do, you can’t get enough of it.” Still, he concedes, there is such a thing as life outside Bitcoin, though it is spare. What there is of it he spends with his girlfriend, who happily is as flexible as he is regarding the demands of his work. “I’ve told her we’ll go on holiday soon, but it’s very difficult to get much time to go away. Things move so fast that planning much ahead is just not possible. Meanwhile, we get a few hours in the evening or a day off sometimes. But almost never two in a row.”

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Pioneer

“I like to see people make use of what I build,” says Eric Lombrozo, in about as succinct a one-sentence self-description as you’ll ever hear from a corporate CEO. Lombrozo was introduced to computers at an early age and didn’t take long to begin programming them. He was seven years old. “About a year later, when the original Mac was released, my dad brought one home. He showed me how to use it and gave me a programming manual. I was instantly captivated by these amazing machines. I’ve been passionate about computer technology ever since.” Fast forward to 2015. Lombrozo is now the co-founder, co-CEO, and chief technology officer of Ciphrex Corporation, a company that builds premier infrastructure products for Bitcoin and other decentralized consensus networks. He teamed up with his father, Enrique Lombrozo, an MIT graduate with extensive business experience, to co-found Ciphrex in 2013.

A friend at a party introduced Lombrozo to Bitcoin in 2011. Intrigued by what he heard, he went home and over the next weeks applied the considerable repertoire of his nearly 15 years as a prominent software engineer to hack away at the protocol and determine why it ultimately would not work. What he confronted instead was “a breakthrough that started an entire movement,” he says. “Satoshi Nakamoto (Bitcoin’s pseudonymous inventor) deserves serious respect for having solved a major problem with computer networks—namely, how to use decentralized consensus to create a trustless peer-to-peer money transfer system. It is very admirable that he was able to implement the idea and prove it out. That has assured him a place in history.”

“Bitcoin wallets don’t actually store bitcoins.”

“The cryptocurrency movement is at the confluence of computer science, cryptography and cybersecurity,” says Eric. “I’ve spent a good part of my work life acquiring and developing knowledge in those three fields, and we have positioned Ciphrex to take advantage of that.”

Lombrozo has been a longtime member of the Bitcoin core development group and an active participant in the open source effort behind the Bitcoin reference implementation—the software comprising the backbone of the Bitcoin network. “I really enjoy my time with the core developer group,” he says. “Fun people working on a great cause.”

Ciphrex completed the sale of its Series A stock offering in January, raising $500,000 in a fully subscribed initial round. These funds will allow the company to further advance, promote and expand its product line.

As remarkable as he believes Nakamoto’s invention is, Lombrozo respectfully critiques the original protocol’s shortcomings and uses that critique to craft improvements that have directly fed into Ciphrex.

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“There are some flaws in the design of the Bitcoin architecture that make it tedious, slow or risky to make the big changes you sometimes need or would like,” he says. “Our focus at Ciphrex is to push the state of the art in decentralized consensus and blockchain technology and build the infrastructure that will ultimately make these technologies practical and accessible to everyone.” Among the most immediate needs are tools giving people easier and better control over their bitcoins. One such tool is mSIGNA, a next-generation multisignature wallet available for download at Ciphrex’s website (https://ciphrex.com). For individuals, mSIGNA offers an easy-to-use Bitcoin wallet. For businesses, it provides an enterprise-grade foundation for Bitcoin application development. Lombrozo is quick to point out that strictly speaking, the term “wallet” is a misnomer. “Bitcoin wallets don’t actually store bitcoins. The blockchain stores bitcoins. Bitcoin wallets are really tools to help you manage cryptographic keys and view your balances and transaction history.” Ciphrex’s multi-sig platform allows users to develop comprehensive security policies, and it automatically manages the low-level cryptomechanisms enforcing them. “Do you want five different levels of authentication in five different computers in five different cities?” Lombrozo asks. “Ciphrex’s platform easily supports this. You can configure security policies that are like the Pentagon, so that even if the first lines of defense are breached, the others will hold. Our platform allows for

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multiple checks and balances at the institutional level so single points of failure can be avoided.” Lombrozo is also a contributor to the Ripple and Ethereum open source projects. (Ripple and Ethereum are other payment networks that use and extend many of the ideas that Bitcoin pioneered.) Moreover, Ciphrex’s wallet mSIGNA was selected by the Ethereum project for its crowdfunding campaign, being the only wallet that met the strict security and usability requirements. The campaign raised over 30,000 bitcoins, worth more than $7 million at the time of this writing. The Ethereum project

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“Our focus at Ciphrex is to push the state of the art in decentralized consensus and blockchain technology and build the infrastructure that will ultimately make these technologies practical and accessible to everyone.” continues to use Ciphrex’s software to protect and manage these funds. “The way we see it, the Bitcoin of today is like the Wright brothers’ early aircraft—it’s a proof-of-concept. It took several design iterations before we were able to transport hundreds of passengers across the ocean at once…or fly supersonic. Eventually, decentralized consensus protocols will enable anyone

anywhere in the world to contribute resources online, from computing power to storage, connectivity, content, code, contracts on property, goods and services. And these resources will be instantly traded peer-to-peer, without middlemen, using this technology we’re creating today.”

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THE LAST WORD FROM OUR FOUNDER/EDITOR-IN-CHIEF

Most experts predicted Bitcoin would have a volatile ride. Some said it was doomed. Arguably the most accurate prediction would have simply predicted the unpredictability of world finance, and the surprising ability of Bitcoin to ride it all out. That thought may have seemed far-fetched two years ago, but with the economic crisis in Greece headlining today’s news, Bitcoin suddenly looks like a respectable, lasting solution—maybe not ready to become Greece’s national currency, but no longer perceived as just play money for nerds. Its transformation from tulip to safe haven was set in record time. From our position as a repository of education, critical reflection, wisdom and practical know-how about the world of digital currency, we have watched as Bitcoin has survived multiple quakes in the so-called “Wild West of Finance.” It’s interesting that what doesn’t seem to be surviving out there (or what is changing most rapidly) are traditional currencies and methods of financial transaction. But here’s what those in the know also predicted: that transactions would continue to multiply, merchant participation expand, public awareness of Bitcoin compound, and entrepreneurs in the digital currency space continue to innovate and attract funds from well-established venture capital firms who aren’t known for throwing money around haphazardly. It speaks volumes for the increasingly profound impact on mainstream business when our advertisers sincerely apologize for paying via wire instead of Bitcoin. As more companies hang out figurative shingles proclaiming “Bitcoin Spoken Here,” we will see it become more firmly embedded in everyday commercial transactions. Meanwhile, its ultimate impact holds out the kind of promise previously seen only in large-scale cultural transformations such as those triggered by the printing press and Internet. Bitcoin itself is still young and full of entrepreneurial zeal, as are we. Much has been accomplished, and many challenges still remain. This is a source of tremendous excitement in the Bitcoin community, particularly as we see the community growing in every direction, with each passing day. Thrilled as we are to be helping shape Bitcoin’s future, we’ll be even more excited if you’d join us in whatever way might work for you. Bitcoin is, and always will be, a decentralized team effort. Everyone has a say and a role to play. What would you like yours to be? As you think about that, just know that BTC Media and the yBitcoin team will be working to ensure that this will be the friendliest and most productive revolution the technology world has ever seen. And it is well underway.

David F. Bailey david@btcmedia.org

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