YBitcoin - Volume 2, Issue 4

VOLUME 2 ISSUE 4

Introducing the Future of Money

18

Banks and Big Business Rush to Adopt Blockchain Technology

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How BitGo Redefined Wallet Security Using Multi-Sig Technology

Learn how banks and large enterprises are integrating Blockchain technology.

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Volume 2

Bitcoin and the Blockchain: The New Normal

From where I sit, everything is changing thanks to FinTech developments flowing daily from the most brilliant minds in the world. Far from being anomalies, advancements in the use of Bitcoin and blockchain technology are now so robust as to affect every aspect of work and life.

The future has arrived, and our team at BTC Media has a front-row seat on the advance of the new normal.

The mission of yBitcoin magazine is to share that front seat with you. Our focus with this issue in particular is to introduce you to many of the key innovators driving the technology– pioneers we know will interest you.

Bringing inspired people together is always the first step in innovation, and it sometimes yields delightfully surprising results. Take a look at what happened recently when Fredrik Voss, formerly deputy head of commodities at the Nasdaq stock exchange, took up his new position as vice president and head of blockchain technology. Voss was a newcomer to all things blockchain before his new appointment in June, and now only a few months later, he is announcing the blockchain’s potential use as a distributed ledger for the exchange’s stock sales.

Brilliance begets brilliance in this brave new blockchain world.

But I really 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.

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.

Now, less than three 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. And literally in seconds, we invoice our global base of customers in bitcoin and receive payment with our payment processor, who guarantees the amount in dollars regardless of fluctuations in the price of bitcoin.

And those guaranteed, risk-proof payments are deposited into our bank account with no transaction fees or costly currency conversions.

The whole world, literally, can and will eventually share the Bitcoin experience. We are all vested innovators working on the front line of our future. We hope you will decide to engage Bitcoin technology similar to the computer and the Internet. Albeit early in its infrastructure, you will find a similar learning curve but be equally awed!

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 next 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

Issue 4

Founder/Editor-in-Chief David F. Bailey Publisher Calli S. Bailey Business Development Tyler Evans Technology Andrew DeSantis Senior Consulting Editor Andrew Hidas Copy Editor Ellen Sullivan Design Julia Hoven Jennifer M. Taylor Circulation/Logistics Alex Gum Contributing Writers Andreas Antonopolous Jonathan Chester Tuur Demeester Anthony Di Iorio Tony Gallippi Alex Lawn Sterling Ledet Trace Mayer Ken Miller MushkinLaw.com – Bitcoin Law Team Stephen Pair David Perry Kirk Phillips Alan Reiner Alan Silbert Erik Voorhees Sales Curtis Fenimore Cindy Taylor 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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How do I buy bitcoins?

Bitcoins 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.

Is Bitcoin a good investment?

What makes Bitcoin valuable?

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

How do I store my bitcoins?

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 is Bitcoin?

Bitcoin is both a digital currency and a payment system.

It is used to send funds around the world in seconds, at almost no cost.

Is Bitcoin safe to use?

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.

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.�

What is the most secure way to store large amounts of bitcoins?

Do any well-known merchants accept Bitcoin?

There are a number of things you can do 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!

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How are bitcoins created?

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!

How long has Bitcoin existed?

Bitcoin was born six years ago. From the initial white paper launching the concept to a 3.5 billion market cap, the Bitcoin ecosystem has grown exponentially, involving many of the most brilliant minds in business, finance and computer programming in the world. Despite occasional setbacks, there is no sign of a slowdown.

Where can I spend my bitcoins?

More than 100,000 merchants accept Bitcoin— and more are doing so 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.

How is Bitcoin changing international business?

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.

What is Bitcoin’s legal status?

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 bitcoins for personal use as long as capital gains taxes are paid to the IRS.

Why do merchants want to accept bitcoins?

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.

How can I implement Bitcoin in my business?

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.

Are there other types of cryptocurrency?

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.

Who runs Bitcoin?

No one! This is one of its greatest advantages! 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 protocols. yBitcoin.com 13

What Is Bitcoin?

Welcome To Cryptocurrency

by ERIK VOORHEES

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DWhen most people hear about Bitcoin, whether for the first or the tenth time, they ask one simple question: “What is it?”

Like an automobile, Bitcoin is technically advanced, and it can appear complicated, depending on how much you want to know about it. But also like an automobile, it doesn’t require you to be a technical expert in order to use it—and for it to change the way you interact with 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” from and to other people.

To clarify, take a look at the relationship between PayPal and U.S. dollars. PayPal is a payment network, but not a currency. In contrast, the U.S. dollar is a currency, but not a payment network. You use the PayPal payment network to make transactions in U.S. dollar currency.

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

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“Bitcoin is two things: (1) A payment network (“Bitcoin”), (2) The currency unit used on that network (“bitcoins”).”

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, revolutionary—and a little weird.

The Bitcoin payment network, unlike anything else before it, is decentralized. It is not controlled by any company or organization.

That fact alone is its core “value-add.”

Bitcoin's decentralization is why it's unique and revolutionary.

The Bitcoin network is like file-sharing: it’s a network of computers that talk to each other, but nobody controls the network itself (there is no central server).

The bitcoin currency unit itself is similarly not created or controlled by any central party.

Bitcoins are created by the network itself over time, in a 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 according to a clear mathematical schedule. As of this writing, there are roughly 14 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?”

It’s a payment network, and a currency used on that network, which are controlled by no central party. People control their own bitcoins. The number of bitcoins in existence is limited by the rules of the protocol.

“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 is, “Why should I care?”

While computer engineers and mathematicians might find Bitcoin’s technical details fascinating, most people don’t really have the time for those complexities—just as most people don’t spend time worrying about exactly how the Internet works.

We trust that it does, we enjoy its benefits, and we know enough about it to use it.

And while it’s true that Bitcoin permits financial transactions that have essentially zero cost, that can 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.

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 entirely 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. The only rules of their exchange are those they set between themselves.

With Bitcoin, there is no third party presiding over the economic activity of the users. With Bitcoin, you don’t need anyone’s permission when you make a financial decision. This means people can contribute to 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. It means the wealthiest and the poorest of the world now have the same authority over their money – beholden neither to banks nor bureaucrats. It democratizes finance just as the Internet democratized speech.

“Bitcoin enables any two people, anywhere on earth, to transact with each other freely.”

With Bitcoin, economic relationships are set and regulated by markets instead of 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 a

profound impact on human society, just as all great technological achievements do.

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 offers privacy in an age of surveillance, and honesty in an age of manipulation.

So what is Bitcoin? It is a payment technology, sure. But more than that, it is a social and economic experiment. It is a project that, if successful, will change the relationships 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.

The changes will be beneficial, especially if you know something about them in advance.

Remember the dawning of the Internet.

And educate yourself now on the 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.

yBitcoin.com 15

Why Bitcoin Has Value Notes on the “Network Effect”

by DAVID PERRY

We all have what feels like an intrinsic understanding of value, for very long, they’re not particularly divisible, and depending on though it is actually learned as we come to know our world. the exchange rate, you might have to carry a truly absurd amount of A gold bar has value, an empty soda can, not so much. When we them to make your day’s purchases.

On the other hand, silver coins have their inherent problems encounter new things it’s usually fairly easy to assess what kind of value they might hold, but Bitcoin is a different beast. Bitcoin is too, when traded on extremely large or extremely small scales. harder to define and understand, and for many beginning This is what is truly valuable about Bitcoin: It’s better money.

Bitcoiners the question of value is one of the most puzzling.

The Evolution So why does Bitcoin have value? to Bitcoin To begin, we really need to understand why anything has value.

Fans of post-apocalyptic fiction will often point out that in the end, It’s been a long time since those first “hard” monies were developed, the only things of real value are those that sustain and defend life. and today we transact primarily with digital representations of paper Perhaps they’re right on one level, but with the rise of civilized societies currency. We imagine bank vaults filled with stacks of cash, but that’s things got a bit more complex, because the things that sustain and almost never the case these days—most money exists merely as numbers defend those societies also gain a certain degree of value. It is in this in a database. There’s nothing wrong with this type of system, either; it works fantastically well in an age where physical context that all monies, Bitcoin included, gain their “Bitcoin is instead a presence during a transaction is not a given. value. Since our societies rely heavily on trade and commerce, anything that facilitates the exchange of simple, elegant and The problem is that the system is aging and far too goods and services has some degree of value. modern replacement often plagued by incompetence or greed.

Every IT guy knows that from time to time you for the entire From Barter have to take a drastic step: throw the old system concept of money.” in the trash and build a new one from scratch. to Money Imagine, for example, a pre-money marketplace where the barter system Old systems, such as our current monetary system, have been is king. Perhaps you’re a fisherman coming to market with the day’s patched so many times they are no longer functioning as efficiently catch and you’re looking to go home with some eggs. Unfortunately as they should.

We previously patched our problems with gold and silver by for you, the chicken farmer has no use for fish at the moment, so you need to arrange a complex series of exchanges to end up with something introducing paper banknotes. We patched further problems by removing the egg seller actually wants. You’ll probably lose a percentage of your the precious metal backing those banknotes, then patched them fish’s value with each trade, and you also must know the exchange rate again and again to allow wire transfers, credit cards, debit cards, direct deposit and online billpay. All the cornerstones of modern life of everything with respect to everything else. What a mess.

This is where money saves the day. By agreeing on one intermediate are just patches on this ancient system.

But what would you do if you had the chance to start over? commodity, say, silver coins, two is the maximum number of exchanges anyone has to make. And there’s only one exchange rate What if you could make purely digital money based on modern technologies to solve modern needs? What if we didn’t need those for every other commodity that matters: its cost in silver coins.

In truth there is more complexity involved—some things, like dusty old systems or the people making absurd profits maintaining your fish, would make very poor money indeed. Fish don’t stay good them? This is Bitcoin.

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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.

“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.”

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.

yBitcoin.com 17

The Year of Blockchain Integration for Banks and Large Enterprises

by ANTHONY DI IORIO

n 2015 the blockchain entered a new phase of public awareness. Bitcoin, which once generated all public comment on cryptocurrencies, took a backseat to the larger subject of blockchain technology. Major magazines like The Economist featured stories on the amazing potential of the blockchain.

Their comments have followed a similar narrative: while Bitcoin is an innovation, it is a product and application of the blockchain, while it is the blockchain itself that offers a genuinely new innovation with huge implications for financial institution infrastructures.

I

Earlier this year, Nasdaq announced it would incorporate the technology into its operations All the comment and activity surrounding the blockchain has been more than just speculative or academic: major financial institutions, banks and stock exchanges have been investing time and money into adopting blockchain technology into their infrastructure.

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That same month, Barclays announced it currently is home to over 45 bitcoin and blockchain related experiments.

Similarly, Deloitte has a cryptocurrency group that numbers around 100 people across 12 countries in which the company operates.

Earlier this year, Nasdaq announced it would incorporate the technology into its operations. At the time of the announcement, Nasdaq CEO Bob Greifeld stated the blockchain’s benefits to the industry are immense and cannot be ignored.

In September, 22 major banking institutions—including Barclays, RBS and Goldman Sachs—announced they had joined an initiative led by financial innovation firm R3 to standardize the use of distributed ledger technologies. The goal of this partnership is to establish an industry-wide protocol consistency, marking the first significant commitment by the banks to collaboratively evaluate and apply this emerging technology to the global financial system.

That same month, Barclays announced it currently is home to over 45 bitcoin and

blockchain related experiments. Similarly, Deloitte has a cryptocurrency group that numbers around 100 people across 12 countries in which the company operates.

Other entrants into the space from the traditional banking system include UBS, Citi and USAA. These projects now underway can be grouped under the heading of 2nd generation or Blockchain 2.0 initiatives.

These developments underline that the blockchain has now entered an intermediate, corporate test phase. There are many use-cases being explored by both startups and large financial institutions. This is a process that is expected to be ongoing well into 2016, with viable products in the space becoming operational within the next year. While none of these are currently deployable, we expect that to change over the coming months.

Company acceptance of blockchain integration will require vision from the top…

While it’s never easy to predict the future, and while this is by no means a complete list, what follows are some of developments we are currently seeing: Security Settlement - Many financial institutions and startups are currently working to improve the securities settlement process using blockchain technology. The most significant gains would be a system in which the security is embedded directly onto a blockchain (most likely, a private “contractual” blockchain managed by known participants). This would allow for near-instantaneous settlement, and eliminate much of the friction and risk associated with post-trade operations.

Syndicated Loans - It can take up to 20 days to settle syndicated loan trades, making this a prime market for disruption using fast and efficient blockchain settlement. There are companies currently developing offerings in this space.

KYC (Know Your Customer) - Cryptographic ID could reduce KYC friction by enabling a more efficient verification process. However, existing regulatory constraints and the fact that most ID must be government-issued could stifle development in this area.

Derivative Trading - Blockchain 2.0 projects with advanced scripting capabilities could enable financial institutions to flexibly create derivatives matching their immediate needs and risks, with all the standard advantages of blockchain-based assets, specifically automatic execution and cryptographic security.

With all the talk of disruption in the financial sector, many companies looking to leverage blockchain technology are faced with dizzying numbers of competing claims and pie-in-the-sky predictions. The chance to pull the rug out from a competitor has dazzled many a chief innovation officer.

While it is important businesses embrace the opportunity the blockchain presents, they must proceed with caution.

This is more than just boilerplate advice.

Blockchain technology has gained significant attention in a relatively short period of time, leaving many financial institutions without the expertise needed to sift through competing claims. Business should approach change in the following way: Seek out people who have the expertise but are not trying to push any particular product or platform; thoroughly vet your options before deciding who to work with, and then again when selecting products; take an agnostic attitude when considering different platforms; and look for advice from a professional who has sufficient depth of background in the space to cut through the hype.

As a general rule, while waiting to see which movers in the space are proven winners, businesses should start the process of adoption in-house with test products — remembering also that entrenched aspects of a company’s culture will have to be nurtured towards change before adoption can happen.

Company acceptance of blockchain integration will require vision from the top, and this will need to be clearly communicated to staff throughout your workplace.

Anthony Di Iorio

Anthony has been building the Canadian Bitcoin, cryptocurrency and decentralized technology community since 2012.

Based in Toronto, he works with the city’s major innovation hub, MaRS, organizing events and advising startups. As CEO of Decentral Consulting Services, he and his team help small business, major banks, as well as other financial enterprise clients navigate these disruptive times.

yBitcoin.com 19

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Bitcoin: Why It Now Belongs In Every Portfolio

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.

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 an average of $3.5 billion in 2015 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,

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by TUUR DEMEESTER

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 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.”

This entails a decentralized global platform, smartphone-accessible, 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.

Which 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.

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 an average of $3.5 billion in 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 Q2 2015, there are 11 million bitcoin wallets (+100%), Bitcoin is accepted by 106,000 merchants (+100%), there are 475 Bitcoin ATMs (up from 238, and the hashrate of the network is 484 pth/s (+100%).

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 almost three times that, $800 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 1 2 3 4

“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.

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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.

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 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.

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Bitcoin’s Innovation at Enterprise Scale

by STEPHEN PAIR

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When most people think of innovation, they think of Oculus Rift's virtual reality devices or Google's self-driving cars. With a technology like Bitcoin, it’s easy to see why consumer applications also get the most attention from new adopters. At least on the surface, advances that closely touch daily life have the most to offer people who are discovering a technology for the first time.

What this causes most new observers to miss is that many of Bitcoin's significant innovations will happen—and are happening— within firms that aren't featured in TechCrunch or based in Silicon Valley. While these uses of Bitcoin technology may not be public, they're also the ones that can transform how the world’s most important companies work.

A Payment Network Built for Growth Since its creation in 2009, Bitcoin has had more success as a payment method than any other digital currency. Today more than 100,000 merchants worldwide accept bitcoin. As with any new technology, adoption has begun at the edges. Now many large-scale enterprises are embracing Bitcoin payments—and for good reason.

The Internet has made obsolete what used to be acceptable for companies using traditional payment networks: high fraud rates, interchange fees and country-to-country settlement limitations.

Now these companies have a currency and a payment network that meet the realities of online commerce. With Bitcoin, it’s possible to receive payments in any size and amount for low settlement costs, all with the global scale that enterprises need.

Globalized Business Payouts Globalization has made international hiring and remote work common features of enterprise workforces. It has also extended supply chains and business relationships around the world. On the other hand, there has been little globalization of traditional payment networks, which are still limited to the developed world. Even within the reach of these networks, international transfers are often expensive and unreliable due to the cost of maintaining and securing a multi-step settlement process.

With Bitcoin’s peer-to-peer network, money can be moved directly to payees via the Internet. It's not limited by borders, and its costs remain flat whether a company is paying a supplier in Thailand or a developer in Argentina. This is the fastest fund settlement network in history, and enterprises can already begin to use it to effectively cut wait times, red tape and costs in payouts.

Asset Management on the Blockchain The same problem that plagues the payments industry affects how companies manage their assets. Many financial institutions and other businesses still rely on analog processes to maintain digital ledgers and databases across borders and across branches. The costs of the human oversight, human error and fraud in these systems add up.

Now even traditional players in finance and banking are coming to appreciate Bitcoin's underlying technology—a distributed digital ledger called the blockchain—as the solution. Using the same worldwide network of computers that verifies Bitcoin transactions, this ledger can allow firms to make and record transfers of any digital asset, title or token across systems in a matter of minutes. Spanish banking group Santander has already estimated that blockchain technology could save banks up to $20 billion per year. Whether through direct adoption or a more modern financial infrastructure, the blockchain is set to have the same impact for the broader business world.

Bitcoin as an Enterprise Platform In the past decade, cloud-based solutions have allowed small companies to grow their operations faster than ever before. Until now, financial technology has lagged behind. Businesses have had to use systems made for a pre-digital world, from bank transfers to credit cards.

Now Bitcoin promises to beat the cloud in providing scalable financial tools for any company with access to the Internet.

The enterprises that are adopting Bitcoin’s payment and asset management technology are beginning to find solutions to the toughest problems with doing business in an online world. That’s something more newcomers to Bitcoin should note. While this innovation may be happening at enterprise scale, it’s certain to affect the way we all live and work.

Stephen Pair

Stephen Pair is the co-founder and CEO of BitPay, the global leader in bitcoin payments. He has over 20 years of experience building software systems in the financial and telecommunications industries.

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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 different. Instead, it functions very much like digital cash or gold. Once sent to your Bitcoin address, it is entirely within your control; you maintain it, and when you want to use it for a purchase, it is there for you—yours and yours alone.

With Bitcoin, possession gives 100 percent control. With this great power comes great responsibility.

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 “back up” 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.

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What should end users do to secure their Bitcoin wallets? Here are five guidelines: 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.

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/google-authenticator/; See “Authy” at https://www.authy.com/)

Bitcoin is different enough from anything that has come before that we need to think about its security in a novel way, too.

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 percent— of his 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.

Use Physical Storage or Hardware Wallets 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 are many free tools that can be used to create them.

Another way to store bitcoins securely is in “hardware wallets”: devices designed to securely store bitcoins. These hardware wallets allow non-expert users to attain an almost foolproof level of security.

Unlike a smartphone or desktop computer, a purpose-built Bitcoin hardware wallet has only one purpose and function— to hold bitcoins securely. The devices don’t run general purpose software and have simple interfaces that work to limit opportunities for compromise. (See https://www.bitcointrezor.com/, https://choosecase.com/, https://www.ledgerwallet.com/)

Use Multi-Signature Wallets Multisignature, or multi-sig, is a powerful feature that was added to the Bitcoin core protocol in 2012. Like a bank safe deposit box, where two keys are simultaneously used to unlock a single box, Bitcoin’s multisig feature allows users to secure their bitcoins using multiple keys.

Unlike a bank safe deposit box, which offers limited configurations (typically two of two keys), Bitcoin can currently support up to fifteen total keys with any configuration of required signers.

Currently the most popular multisignature configuration is 2-of-3, where you hold two keys and a wallet provider or some third party holds the third. The most popular configuration for businesses is 3-of-6, where three executives in a company each hold one key, two keys are stored at different off-site cold storage locations, and the last is held by a third party for recovery purposes only.

In summary, Bitcoin is a completely new, unprecedented and complex technology. The industry has grown considerably over the past six years, demonstrating an incredible rate and breadth of innovation. 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 the author of “Mastering Bitcoin” (published by O’Reilly Media), considered by many the definitive technical guide to Bitcoin. He 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 more than two decades.

He can be contacted on twitter as @aantonop or at http://antonopoulos.com.

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Assuring Bitcoin security is a challenge.

The most secure ways to store large amounts of bitcoins are also the least convenient.

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. 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 its capabilities without writing a custom application.

These problems do not exist in traditional banking services. Banking customers are not expected to understand cryptography, certificate authorities or hardware security modules (HSMs). Big banks have the resources to create, deploy and maintain security systems, and customers 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 average bank customer remains blissfully unaware of all the complexity going on behind the scenes.

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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.

However, in the world of Bitcoin, neither the users nor institutions know what to do to assure Bitcoin security, 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, and 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

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lack of insurance options. Early adopters would like to believe that the majority of users will hold their own bitcoins, but I believe that is not a realistic option when life-changing quantities of digital currency are involved.

We should not trust Grandma to personally secure her own retirement savings via complicated computer maneuvers.

More to the point, she should not trust herself or anyone else to hold it, unless she has strong protection against loss. Right now the best solution is for Grandma to avoid keeping her money in Bitcoin. That situation will change only when Bitcoin has 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 the gap? Well, a few big companies have already been able to acquire insurance on their holdings. This is a huge first step, but it is no small feat to convince insurance companies to come along. Those companies who are entering the field have set premiums very high, because insurance companies cannot efficiently assess the risks.

Luckily, many of the problems with Bitcoin security already have long-established solutions in the world of financial and institutional security. Not only do these solutions protect digital assets from external threats, they guard against 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 Bitcoin storage system.

Presently, all the available secure Bitcoin storage methods use single-signature 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 security-hardened, 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 resist all kinds of physical and electronic tampering, including the destruction of key material if any abnormalities that resemble tampering are detected. HSMs can be programmed to enforce access control policies, 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.

Transitioning from offline consumer PCs to offline HSMs for Bitcoin key management is a no-brainer for large institutions. But it might be awhile 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. Documented procedures for configuring signing devices and distributing backups, along with strong access-control procedures with proper segregation of duties, should together form the foundation of operational security.

by ALAN REINER

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 signature needed to authorize transactions.

For instance, the institution may enforce 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 welldefined 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. In this case, an attacker only needs to access the CEO's email account to authorize a transaction to steal the funds. Physical security is irrelevant if social-engineering attacks make the system vulnerable.

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 procedures 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, a company may find this burdensome, but it has the flexibility to make its Bitcoin storage every bit as secure as its insurance company, regulators or internal protocols require.

Multi-sig provides even more flexibility 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 individuals are required if the CEO participates in the signing process, otherwise three individuals are needed.

Furthermore, an insurance company itself could hold a key for the funds it insures. In the event that multiple signers perish 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 insured funds instead of having to pay a claim.

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 multi-sig 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.

Alan Reiner

Alan Reiner is founder and CEO of 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.

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Bitcoin Security: A Best Practices Primer

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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 regardless of whether you're an individual, microbusiness or a Fortune 1000 company.

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.

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.

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Seven Steps to Digital Security

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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 a 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.

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.

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

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. 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 cont. was able to rally together and retrieve some of the stolen NXT tokens.

Step 2: ADD SITES 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.

Step 3: TEST SITES 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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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 ultra-paranoid crypto-nerd says, “Holding your own bitcoins is like harnessing fire,” and then adds: “Sometimes the biggest threat to users is themselves.”

Dancing Barcode Clef ’s a 2-factor mobile app that eliminates database storage of usernames and passwords by generating a unique digital signature every few seconds using RSA public key cryptography with essentially nothing for hackers to steal.

Users are blown away by the ease of use when they hold a mobile phone up to a computer screen while the app syncs with a dancing barcode called the wave.

Clef increases registration conversion by 30 percent while eliminating forgotten passwords. In addition, only 15 percent of users set up traditional 2-factor, leaving the other 85 percent exposed to a greater hacking risk. Clef solves the website login problem; however, Bitcoin private keys, passphrases etc. still have to be secured. Websites set up Clef and conversely, end users set up password managers, so Clef can only be used when implemented by the website itself.

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.

Conclusion Every hack starts with a breakdown by one or more responsible individuals working as part of a large company or just managing their personal affairs.

Every size organization should follow the golden thread rule of emails, which states that companies should issue one email for communications and at least one email for account login credentials per employee. This separation exponentially reduces the surface area for attacks with the highest return on security than any other measure. The cost of an additional email is close to zero while the benefit of being out of the public domain—as would happen with a single-use email address—is priceless. There are many great password managers.

LastPass has multiple 2-factor authentication options, with a free version available for individual users and an enterprise-paid version for businesses, with access controls scalable from a microbusiness of one to hundreds of users.

Eventually these types of defense measures used to better secure session-based authentication will be replaced by message-based authentication thanks to the gift of Bitcoin's blockchain. For example, Tradle.io is transforming identity management by offering banks a KYC network on blockchain to reduce the amount of KYC due diligence checks, while giving bank customers co-ownership of their verified identities, which can be adapted for accessing websites. In the old model, companies stored all their customer usernames and passwords in a centralized database. This one giant attack vector required significant resources in the futility of constant defense. The new model eliminates the database silo and the millions of dollars used to maintain it. In the meantime, 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.

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yBitcoin.com 35

Convincing Aunt Nancy 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:

Bitcoin Enthusiasts Tech Savvy Users Average Consumers (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

by Ken Miller

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.

BW is a branch of Bitbank

by ALEXANDER LAWN

B

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.

“Bitcoin mining is in fact reliant on individuals sharing computer hardware in a collective effort to decentralize and streamline this process.”

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

Bitcoin’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 becomes for the general

yBitcoin.com 37

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 demand for power. 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 percentr 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 on the cryptocurrency scene. He is responsible for not only the fundraising and building of 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. 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.

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

Sponsored Content

was approximately 16 cents per kW. I was getting about .015 BTC per day.” But what he was also getting 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.

bitmaintech.com

Ready to 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 bitcoins.

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 bitcoins online is by using a consumer site like Coinbase, 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 bitcoins you can buy, and they charge transaction fees.

The bitcoins you purchase through these companies are held in an online wallet linked to your account. From there, you can send bitcoins to another user, make an online purchase of items that sell in bitcoins, or transfer them to a different wallet. Many of these companies offer insurance for your bitcoins 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.

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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 bitcoins with other traders using the exchange.

The exchange doesn’t actually sell you bitcoins directly, instead it 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 bitcoins that other traders are willing to buy or sell. For example, if you want to buy bitcoins, 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.

Find an Over-The-Counter Seller Another way to buy bitcoins 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.

There are also brokers who will connect you directly with a seller if you’re looking to buy a large amount of bitcoins at once.

These brokers, such as Binary Financial, itBit and SecondMarket, specialize in transactions over $100,000.

In addition to matching you with other sellers, some of these brokers offer financial products that function similarly to buying bitcoins directly. For example, you can purchase shares of the Bitcoin Investment Trust, which trades with the ticker symbol GBTC on the OTCQX public exchange. These shares can be purchased with a brokerage account and held in some IRA and retirement accounts. The shares represent the underlying Bitcoin asset which is purchased and held on your behalf by the Bitcoin Investment Trust.

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.

Buy In-Person There are a growing number of locations worldwide where you can purchase bitcoins directly from a convenience store or ATM. A Bitcoin ATM will let you exchange local currency for bitcoins directly—often the fastest and most convenient option. A map of all Bitcoin ATM locations can be found online at http://bitcoinatmmap.com.

In addition to using an ATM, you can also trade directly with other people. 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 bitcoins. This allows you to contact friends directly and negotiate a transaction without a middleman.

One of the most popular ways to find other people to trade with is the site LocalBitcoins.com, which allows you to search for people in your city who are willing to sell you bitcoins 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.

Companies such as ZipZap in the UK and Ripio in Argentina allow you to purchase bitcoins 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 bitcoins online.

These services usually include substantial transaction fees, but are a convenient way to get started.

Conclusion While this guide covers some of the most popular ways to buy bitcoins, 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 bitcoins and increase investment opportunities, including the ability to buy bitcoins 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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Buy/Sell Directory*

BITONIC BITCOIN.DE

Netherlands

Germany

https://bitcoin.de/en

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

BTC, EUR

BTC, EUR

CEX

CIRCLE

London, UK

Boston, MA USA

https://cex.io

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

BTC, LTC, NMC, USD

BITSTAMP Slovenia

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

COINBASE San Francisco, CA USA

https://coinbase.com BTC, USD

BTC, USD

GEMINI

HUOBI

ITBIT

New York City, USA

Beijing, China

Singapore

https://gemini.com hello@gemini.com

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

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

BTC, 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

*Every effort has been made to ensure accuracy of information presented here – see disclaimer page 10

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BITQUICK Cincinnati, OH USA

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

Freeland, WA USA

http://expresscoin.com support@expresscoin.com BTC, LTC, DOGE, BLK, DRK, STR, ETH, USD

KRAKEN 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

I

by ALAN M. SILBERT

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 beginning of October, there were around $3.5 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.

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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.

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.

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.

The Growing Market • 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.

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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A

by Trace Mayer, J.D.

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.

Bitcoin users now range from individuals to large publicly traded companies.

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.

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.

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.,

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.

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Companies need a Bitcoin strategy just as in the mid-1990s they needed an Internet strategy.

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.

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!

yBitcoin.com 47

by TONY GALLIPPI

B

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

Credit Cards: Designed for an Offline World Credit cards were never designed for the Internet. These lovely pieces of plastic with a magnetic stripe were popularized in the 1950s.

Actually the magnetic stripe was added in the 1970s, but that’s still a long time ago, when commerce operated very differently from the way it does today.

These cards still work well 60 years later when you are paying in person, but they don’t work well when you are trying to pay or accept payments online. Customers expect a seamless payment experience – they don't want to fill out credit card information forms for every purchase. Merchants are still being hit by multiple-percentage-point processing fees for the cost of securely settling customer payments through the multiple antiquated layers of the card network.

The costs of the security failures of this system have the most impact on online businesses. Online payment fraud continues to hit record highs year after year, and it shows no signs of slowing down.

“Friendly fraud” is also increasing as consumers learn how to abuse the chargeback system. When an online merchant ships merchandise to a shopper, that merchant assumes a risk for up to 90 days whether that payment is final or not. If the payment is disputed by the cardholder at any point during that time, the merchant is usually forced to reverse the payment and pay a penalty fee.

Merchants bear the cost of this fraud, and ultimately this cost is passed back to honest consumers in the form of higher prices.

As businesses use the Internet to meet demand from consumers around the world, this weakness is sapping time and money from the online economy – one that should have a payment method of its own.

Bitcoin works like cash for the Internet.

It’s sent from person to person in a push transaction, not drawn from accounts by third parties.

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Bitcoin: The Solution For Online Payments Bitcoin was invented in 2009 using everything we know about the Internet and online security. It’s a payment system designed for Internet purchases from the ground up. While credit card companies spend tremendous resources trying to make the online payment card experience better, they'll never match the simplicity and security of Bitcoin.

Bitcoin works like cash for the Internet. It’s sent from person to person in a push transaction, not drawn from accounts by third parties.

It uses cryptography to provide proof-of-ownership – bypassing the traditional multi-party routing and authorization processes that transmit sensitive customer information. With this native solution for payment security, Bitcoin functions without a chargeback mechanism like the one today's card system is built on. Customers and merchants alike are protected from fraud and its costs.

If your business accepts a large number of payments over the Internet, accepting Bitcoin might make sense for you. Here are three areas of online payments where accepting Bitcoin can have the most impact.

Micropayments: Payments Under $10.00 Payments under $10 are becoming popular among Bitcoin adopters, especially for businesses selling entertainment, games and fast food.

The gross margins on these micropayments, when managed traditionally, are getting squeezed due to the ever-increasing cost of acceptance by credit card.

Because Bitcoin payments can be sent without the traditional minimum interchange fees of card transactions, they are highly efficient and cost-effective for amounts under $10.

Macropayments: Payments Between $1,000 & $10,000 Credit cards also make payments between $1,000 and $10,000 more difficult. At this scale, interchange fees of up to 3 percent on card transactions can quickly add up to larger amounts.

These macropayments are also at a higher risk of fraud. When criminals obtain stolen credit card information, they try to buy the most expensive things they can find before the cards get deactivated. Merchants selling items in this price range are at the forefront of the battle against payment fraud, and Bitcoin provides a much-needed solution.

International A/R Billing Businesses that need to receive payments from international clients are often hit with elevated interchange rates, which vary country-by-country, and can easily be over 10 percent per transaction.

In many of the world's fastest-growing economies, businesses may not have access to card networks at all.

Wire transfers can be received from more countries, but they are inefficient solutions. Bank wires rely on a large network of corresponding relationships, leading to unpredictable costs and transfer times to simply get money from point A to point B. Payees end up with little or no information as to the delays and fees incurred along the way.

Bitcoin changes that. There is tremendous potential for companies to offer Bitcoin as a payment option for their international receivables. It’s faster, lower risk and costs less than any other payment method. If your business has international clients, then accepting Bitcoin might be worthwhile for you.

There is tremendous potential for companies to offer Bitcoin as a payment option for their international receivables.

It’s faster, lower risk and costs less than any other payment method.

Bitcoin works especially well for payments under $10 and over $1,000.

Getting Started With

Bitcoin Payments

I

ntegrating 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.

Most Bitcoin payment gateways allow you to set your prices in your local currency. More important, they can settle incoming Bitcoin funds in your local currency and local bank account. 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. In fact, due to the lower cost of accepting Bitcoin payments and the publicity it can bring as a byproduct, your business has more to gain than to lose.

Even as Bitcoin matures in its growth as a technology, the opportunities for merchant adoption remain wide open. It is expanding the possibilities for online commerce well beyond the limits of traditional payments. Is your business ready?

Tony Gallippi

Tony Gallippi is the co-founder and Executive Chairman of BitPay, a global leader in Bitcoin payments. The company was founded in 2011 and handles millions of dollars worth of Bitcoin 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 worked as regional sales manager for Industrial Devices Corporation. He holds a bachelor’s degree in mechanical engineering from the Georgia Institute of Technology.

yBitcoin.com 49

Merchant Processor Directory*

Atlanta, GA

bitpay.com info@bitpay.com

Wilmington, Delaware

https://bitpagos.com BTC

BTC

Toronto, Canada

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

Coinify San Francisco, CA Belfast, UK

https://bitnet.io BTC

Copenhagen, Denmark

https://coinify.com BTC

England & Wales San Francisco, CA USA

https://cryptopay.me support@cryptopay.me

https://www.gocoin.com

BTC, EUR

BTC, DOGE, LTC

https://coinbase.com BTC, LTC

BTC

*Every effort has been made to ensure accuracy of information presented here – see disclaimer page 10

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I

Problem: International Payroll Delays and Fees Solution: Bitcoin

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 you’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-userfriendly 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 average time for transfer completion is three to five days, with workers shouldering the bulk of these costs.

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by JONATHAN CHESTER

But why does it take so long for wages to be transferred and exactly how much is lost to intermediaries?

Here’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 client’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.

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

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

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?

Sender $0 Initiation fee Sender bank or payment platform

Receiver $0 Receiver fee

Blockchain Transactions

Receiver Bank

Here is the step-by-step breakdown of the new blockchain-based international contractor transaction above: 1. Client initiates domestic bank transfer for a vastly reduced or zero flat fee.

Uber, the Internet rideshare company, offers a prime example of how Bitcoin can simplify the payroll process.

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.

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

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

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.

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.

yBitcoin.com 53

T

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

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.

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

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By Sterling Ledet

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 number of bitcoins 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.”

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 bitcoins 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 jobs.

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.

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.

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.

A Four-Step Plan

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

Consider your options and set a budget.

Create a shared vision.

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

Execute your plan.

Develop a structured plan and schedule.

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 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. cont.

yBitcoin.com 55

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 organizationspecific content and strategic objectives.

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.

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.

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.

Type of Learning

Budget

Certainty

Motivation Value

Technical Value

Ease of Scheduling

Adaptability

Free Self Study

$0

Low

Low

Low to Med.

High

Low

Paid Self Study Organizational Library Conferences Formal Classes

$375/year

Low

Low

Low to Med.

High

Low

$250

Low

Low

Medium

High

Medium

$2,000/each + travel

Medium

Medium

Medium to High

Low

Medium

$895/each + travel

High

High

High

Medium

Medium

$5,000 to $10,000

High

High

High

High

High

(publicly scheduled)

Formal Classes (private on-site)

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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BITCOIN – The Regulators Are Here

R

More to Come

By MushkinLaw.com Bitcoin Law Team

Bitcoin Friendly Bitcoin Neutral Bitcoin Conflicted Bitcoin Hostile

Regulation has started! Like it or not, Bitcoin and all cryptocurrencies publicly available will be regulated to some extent.

The reason for regulation is to make sure that people dealing in other people’s money do so honestly and with due regard for fiduciary standards.

Blockchain technology has been used to produce the bitcoin, a cryptocurrency which works as an alternative to fiat currency.

The vaunted beauty of the blockchain, and hence the bitcoin, is that once a transaction is accepted into the chain it is immutable— the block is there forever, right or wrong.

Of course if you know the key, another transaction can be entered into the chain referring to the old immutable item and “correcting” it, but the original stuff remains. Only the transferee knows the key, and he may be just an anonymous email address. If he will not cooperate, the transferor is stuck.

Unfortunately, misuse of blockchain keys has also produced massive frauds on occasion.

When bad things happen, even those among us who want no government involvement are likely to look to government to fix the problem. After all, frauds are perpetrated by people, and governments deal with people’s acts.

In his famous white paper introducing Bitcoin, founder “Satoshi Nakamoto” states:

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“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 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 how Bitcoin’s operators were going to be adequately regulated, so that we laymen would have trust that we are dealing with “honest nodes”, i.e. the people entering those immutable transactions. So here comes government—like it or not.

Decades ago, the governments of the leading financial centers set up regulatory anti-money laundering systems (“AMLs”) to stop drug dealers, terrorists, gun runners, human traffickers, child pornographers and the like from transferring money among themselves and laundering the money so it looked like clean cash. Banks and other financial players must comply with “know your customer” (“KYC”) rules to stop money laundering. Lists of notorious bad actors are available on the web. Cash is bulky to move. Along comes Bitcoin and BINGO-money, i.e. value, can be

transferred anonymously in minutes in a way that eludes established AML/KYC regulations. And along with that comes the fraud that nobody wants to be the victim of.

The Federal Government is Here The prime federal player in the Bitcoin world is the Financial Crime Enforcement Network (“FinCEN”). This agency of the U.S. Treasury enforces the Bank Secrecy Act, portions of the Patriot Act, and other laws.

These laws are the primary regulatory sources of the AML/KYC rules. The rules require all kinds of dealers in currency and alternative currencies to register with FinCEN. This is true regardless of where the Bitcoiner is located, within or outside the United States—if he deals with U.S. residents. Among those who must register are banks, thrifts, savings and loans, credit unions, credit card companies, money services businesses (like check cashers, traveler’s check issuers, currency exchanges, and money transmitters), securities and commodity futures dealers, insurance companies and gambling casinos. There are exemptions from registration for those who take Bitcoin solely as a user’s exchange for goods and services, for chips or gift cards which cannot be converted to money and other similar uses.

Bitcoins are “currency,” so whether a Bitcoiner must register can be a difficult question.

Bitcoin regulations are constantly evolving.

This map reflects information available at the time of publication.

Martin Mushkin, Joseph Sahid, Joseph Taub and Rony Guldmann

Once it is decided that registration is necessary, registration with FinCEN is easy.

The forms are online. However, the registrant needs to know in what category to register.

And once the Bitcoiner has registered, compliance must be undertaken. There’s the rub. The regulated business must establish a sophisticated structure to keep track of all transactions, to comply with the AML/KYC rules, to refuse to deal with known bad guys, and to automatically report certain transactions. They must even file SARs, “Suspicious Activity Reports.” Even structured financial transactions—those intended to avoid regulation, must be reported. Tens of thousands of transactions are reported annually.

Fortunately, the regulations provide exemptions for small transactions and payments to sellers of legitimate goods and services.

It can get even more complicated. There can be securities legal issues. Bitcoin options and swap markets have appeared and the federal Commodities Futures Trading Commission (“CFTC”) has ruled that it has jurisdiction over this activity. That opens up a whole other regulatory area.

The States Are Coming The states are promulgating their own regulations. These are to protect their residents and to make sure that the state does not become a pirates’ haven for bad guys preying on good guys. Cryptocurrency regulation is in its infancy, so these regulations are only beginning.

New York is in the forefront. On August 8, 2015, New York’s regulation of cryptocurrencies became effective. Many of the same Bitcoin businesses that must now register with FinCEN will also have to register with the State of New York. But the registration process is much more complicated and expensive. The registration fee is $5,000 and the registrant must show up front that it has all the necessary structures in place—ALM/ KYC rules, compliance personnel, net worth, a bond, audits, outside confirmation of the background of the officers. It’s a big deal.

The regulation provides for registration of cryptocurrency businesses which conduct transactions “involving New York or any resident of New York.” “Involving” is a very broad word. A few years ago, under the Alien Torts Claims Act, the federal court in Brooklyn took jurisdiction over cases where New York residents were hurt while in Israel in attacks by Hezbollah terrorists.

The defendants in these cases were a Jordanian Bank and a Canadian bank.

In each case they had transmitted funds to the terrorists through their New York correspondent banks. Those transactions took seconds to pass through the system on their way to the recipients, but that was enough to establish jurisdiction. If a Bitcoin transaction took a similar route, New York regulators might claim jurisdiction. After all, New York residents would be involved.

Some companies have decided not to deal with New York residents. Others are registering and the regulators have announced that they will work with the registrants. The New York rules have the word “reasonable” in many sections. After all, New York has years of experience with registering money transmitters. Nevertheless, cryptocurrency regulation is as new for them as it is for the registrants. Registrants must label their materials to show they are registered in New York. That should become a badge of integrity, much as banks advertise they are members of the FDIC. California California is not far behind. A bill somewhat like the New York regulation has been entered in the California legislature. It has been changed many times to meet various objections. Only the future will tell what form it will finally take.

Connecticut Connecticut passed a law this summer authorizing its Department of Banking to regulate some Bitcoiners. It remains to be seen how stiff the regulations will be.

North Carolina North Carolina’s assembly has passed a bill to regulate cryptocurrencies. It requires a minimum $150,000 surety bond, and a net worth of $250,000. It has been sponsored by a member of the assembly who is also a Vice President of Wells Fargo. The bill expressly provides for registrants to appoint approved agents to work under the licensee’s control, somewhat like the way Western Union appoints agents, like news/candy stores, to operate its moneytransmitting business.

Other States Are Investigating One state has taken a “no position” position.

Some have suggested that Bitcoiners may have to register as money service providers.

See the categories of possible money service providers above. Others have simply warned that people dealing in cryptocurrencies have to be wary of rip-offs.

What Is a Bitcoiner to Do? Bitcoin is in the infancy of its regulation.

No doubt common honestly is required.

Bitcoin cannot be used to deal in drugs or any of the other crimes noted above. That needs no new laws. What is not so obvious is when a Bitcoiner has to register—and where.

Does the Bitcoiner simply mine or maintain a wallet? Does he exchange fiat currencies for bitcoins or transmit value from Ms. A to Mr. B, whether within a country or between countries? The lawyer’s first answer to these kinds of questions will usually be “IT DEPENDS – let’s look at the details.”

The regulations use and define words like user, transmitter and exchanger. However the definitions in the regulations are of little help in many situations. The following are some hot areas of inquiry.

The creation of a bitcoin is obviously the first step in its existence. The bitcoin miner must first buy a mining computer. As with the purchase of any product, the miner must make sure he is dealing with an honest seller, and check out the machine. Much purchasing is done online and sometimes paid for

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in Bitcoin, an irreversible transaction.

Sometimes, machines are simply not delivered, particularly if purchased from allegedly overseas sources —check it out. The remedies for non-delivery or for faulty machines are those for the bad purchase of any product.

When the miner mines enough bitcoins to create a block accepted by the blockchain, he has created a product much like an ingot of gold or any precious commodity. At first he will keep it in his own wallet. Maybe he will set up a wallet on another person’s site, a person who acts as a bank maintaining virtual wallets for other people. Does the depository have to register?

To get any use out of them, the miner must sell his bitcoins. That may mean exchanging for other goods, for services or for fiat currency. In doing so he must transmit the appropriate amount of bitcoins to the key number supplied to him by the counter party of the transaction. Thus he has exchanged his bitcoins for goods, services or fiat currency.

Is he a user, transmitter, or exchanger under the applicable regulations? Does he have to register with FinCEN and perhaps one or more states? Hmmmmm.

Suppose she trades bitcoins over the web.

She buys bitcoins on one site and sells them on another, hoping to make a profit. Is she a mere user, or an investor? Suppose she does this, not only for herself but also her husband, mother, father or best friend. She is successful and soon she and her friends meet regularly to decide how they will individually trade. They then pool their money (crypto or fiat) and authorize one person to trade for the group and distribute profits, while requiring the members to contribute funds to cover losses. Putting aside

securities laws issues, is the organization just a user or investor or has it become a money service provider? The answers will vary with the details of the organization and activity.

It has been reported that thousands of Bitcoin ATMs will be set up in Greece.

Their purpose will be to permit people to deposit fiat currency into the machines which will credit them with bitcoins.

They can then deposit the bitcoins into a wallet located anywhere. That is, transmit the value represented by the bitcoins.

The transaction can also go the other way— deposit bitcoins and get cash. The system can be used to transmit money (value) anywhere in the world in short order without passing through the normal banking system encumbered with all its controls, third parties, regulators and high fees. The ATM will have sold bitcoins, exchanged it for fiat currency and transmitted it who-knows-where. Or vice versa. The need and/or desire to regulate is legion. Is the owner/operator of the ATM some kind of money service provider and if so, what kind?

In what jurisdictions must he register—if at all? We have dealt only with U.S. law.

But what will Greece have to say about this?

Another hmmmmm.

Suppose the seller of the ATM has nothing more to do with the machine once it is sold? That appears to be like selling a car. The answer will not always be obvious.

For we are dealing in the financial world where the transmittal of value is highly regulated and constantly scrutinized.

Now suppose he is the owner of the ATM and sells it with a contract to maintain it for a flat fee—no share in any profit or loss. Or suppose the fee is a percentage

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 works in a variety of litigation and transactional matters. 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.

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Martin Mushkin

of the gross value of any transaction.

Or suppose he fully owns, operates and controls the ATM to the point of maintaining its Bitcoin and/or fiat money inventory.

Now suppose he buys the machine and carries out one or more of these activities from and in the U.S. At what point does he have to comply with U.S. federal and/or state laws?

Add to that the possibility that he is outside the U.S. but the machines are in the U.S. How is this activity any different from standard fiat currency transactions for the deposit of checks via your mobile phone, the withdrawal of currency from an ATM at a 7/11, or paying for a cup of coffee by holding your mobile phone up to a handheld scanner at Starbucks? Who must comply with the AML/KYC laws and/or register with the authorities? And yet another hmmmmm.

The blockchain is the key. Bank of America has filed a patent application for the use of blockchain technology to keep track of its funds and transmit them from account to account. A committee of the Conference of State Banking Supervisors has recommended regulation much like that of New York.

The legislature of one state has before it a bill to authorize the use of blockchain technology to record land title transactions.

It is reported that Ecuador is setting up a blockchain currency to replace its use of U.S. money as the basis of its internal currency.

In Russia, one company is attempting to establish a bitruble. The state prosecutor has stated it is criminal since it could be used in various transactions in place of legal tender.

The central bank has taken a different position, and a Duma committee continues to debate what to do about cryptocurrencies.

Putin is reported to have shrugged.

Joseph Sahid

Joseph Taub

Rony Guldmann

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H

Human history is a story not only of adaptation but of the innovation that carries history on its back and takes it to unimagined places. Restless, visionary individuals are the source of such innovation; they function as Great Disruptors of the status quo, pushing on to questions others do not even think to ask.

This special section of yBitcoin features key innovators who are propelling the Bitcoin revolution as it seeks to fulfill its destiny: the creation of a new paradigm for money and its secure exchange.

From the cool logic of engineers to the soaring vision of entrepreneurs, these innovators’ individual stories are part of the collective unfolding of Bitcoin. We are pleased to help cast a well-deserved spotlight on them.

V E N T U R E 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”

D

eep 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 blockchain-enabled technologies and currencies. 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,

Bloq, Blockstream, ChangeTip, Factom, MaidSafe, Noble Markets and Romit 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 institutionalgrade 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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was always trying things.”

That simple declarative sentence stands as perhaps the perfect reflection of the entrepreneurial spirit, so it is not surprising that it surfaces multiple times in a discussion with Darin Stanchfield, the 35-year-old founder and CEO of Bitcoin hardware wallet KeepKey. Stanchfield utters the phrase at different points of a recent interview, first remembering the tinkering he engaged in as a child growing up in Southern California after successfully wresting away the family’s IBM 386 from an older brother with whom such access was a constant flash point.

(For the record, the two are close today.)

“I was absolutely a nerd,” he remembers.

“This was even before the Internet boomed, in the early ’90s. I was always trying to see what the computer could do, so I had my face in it all the time. My parents even had me talk to a counselor. They told her, ‘The kid doesn’t have any friends, all he wants to do is play on the computer.’

“Now,” Stanchfield jokes, “I rub it in their faces.”

Stanchfield parlayed his childhood obsessions into a degree from Utah State University in business and computer science, then landed a backroom engineering job with tech marketing company Oversee.net just as the dot.com bust was starting to turn in a more positive direction.

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He had also by then turned the corner on his childhood nerd-dom, with Oversee soon moving him to the R & D department where he reported directly to the CEO. “Then I realized this was all something I could do on my own, with more flexibility and fewer constraints,” he says.

Score another one there for classic utterances of the entrepreneurial spirit, leading to Stanchfield’s breaking away at the tender age of 25 for the more self-directed waters of company ownership. He has been swimming happily there ever since.

Stanchfield and his cohorts at Bothell, Washington-based KeepKey started shipping the company’s sleek black Bitcoin wallets in late September 2015 after a 19-month ramp-up. The effort called on the same combination of systematic analysis and preparation mixed with the requisite entrepreneurial daring that fueled his two previous company launches. One of those, the lead generation company Engage Traffic, is still going strong under the daily guidance of a longtime business partner while Stanchfield tends to the considerable requirements of a new product to serve the growing Bitcoin community.

And by “Bitcoin community,” Stanchfield does not mean the like-minded computer engineering world where he himself is rooted. His target customer is instead the non-techie layperson who is drawn to

Bitcoin but daunted by talk of “hot” and “cold” wallets and all the rest of the insider lingo that is second nature to Bitcoin devotees but may as well be an obscure tribal dialect to the outside world.

“Our customer is not the computer engineer; they can store their own bitcoins without any problems,” he says. “It’s the non-technical people who need help.

Two words guide us: ‘security’ and ‘simplicity.’ We wanted a way for regular people to easily store bitcoins. It’s easy to make things complex, but hard to get all the complex factors out of the way to make them easy. We think we’ve done that with KeepKey.” Indeed, the whole look and language of KeepKey brings to mind the elegant simplicity of an Apple computer, about whose inner workings 99 percent of users know next to nothing while happily enjoying its technological benefits. A barely two-minute video on KeepKey’s website features engineer Kenneth Heutmaker walking viewers through the setup of a wallet.

The process more resembles a consumer ATM transaction than it does an advanced algorithm for engineers. That’s exactly the way Stanchfield envisioned it when his research into Bitcoin wallets led to a kind of graveyard where smart, well-intentioned ideas get buried in a blizzard of obscure technical overkill.

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“

Two words guide us: ‘security’ and ‘simplicity’. We wanted a way for regular people to easily store bitcoins.

One person, using one device, ensuring ultimate security is the basic KeepKey formula. “I always said if we have to use the term ‘multi-party signatures,’ we’re not doing it right,” Stanchfield says. “That takes people down a rabbit hole. But they understand ‘wallets’ and ‘joint accounts’ and ‘co-signers.’ They can build in multi-party security if they want, but it’s not required, and nothing needs to be online for customers to safely store their bitcoins.

We call it ‘your private bitcoin wallet.’”

Stanchfield admits to going “all obsessive” upon discovering Bitcoin in 2011. And though work consumes a great deal of his imagination and energy, he has adopted the practice of closing up his laptop Friday afternoons until Monday morning, the better to be fully present to his wife and daughters, ages 1 and 3. “When I get home, it’s playtime,” he says. “As obsessive as I can get about business, I’ve learned how to separate.”

So there it is: a simple solution to the challenge of family time for busy entrepreneurs—perfectly aligned with the tenets of KeepKey.

Mike Belshe

B

itGo co-founder and CEO Mike Belshe remembers when the fascination with computer engineering that began for him in childhood made its most emphatic statement and claim on his life. He had just left old warhorse Hewlett-Packard, his first job out of college, to join Internet browser pioneer Netscape as it was poised to launch its initial public stock offering in 1995. (His departure was rather too sudden to suit the sensibilities of his “HP Way” bosses, but that’s another story.) Commencing to work almost non-stop through long days and nights “not because of deadlines, but because I loved it so much,” Belshe was driving across town with fellow computer geek and visionary Rob McCool one day when they were simultaneously awe-struck by the same sight: a large billboard with “http:” sprawled across its face, followed by a web address.

“Whoa!” McCool exclaimed. “I never thought I would see that.”

“The billboard spoke to him,” Belshe remembers. “That’s when I realized that what we were doing really matters.”

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This theme of engagement with things of import is a recurrent theme in Belshe’s life. It partly explains the intriguing mix of five-star companies and start-ups dotting his resume. After HP and Netscape, Microsoft was another major stop; from there he migrated to Google just in time to help lead the development of Chrome. He stayed there for a half-decade.

Start-ups included Good Technology, Remarq and his own Lookout Software with partner Eric Hahn. All of them were successes in their own right, though it was neither money nor conventional pride that drove Belshe’s journeys along the tech frontiers of his day. It has always been more about using his supple intelligence and imagination to help bring something interesting and important into the world, most always with highly technical solutions that ultimately filter down into the usefulness and parlance of everyday users who have no particular technical skill.

And now there is Bitcoin security company BitGo, steadily picking up market share as the first “multi-signature” wallet in the Bitcoin world. The platform

“

The challenge is always this: How do you improve security in a way users understand?

makes use of Belshe’s problem-solving and programming ingenuity to bring greater ease and utility to the thorny problem of securing bitcoins.

It is a kind of gift, this ability to bridge the worlds of software engineering via complex, exacting code and an end product that the proverbial Iowa Grandma can manage with ease from the comfort of her kitchen table.

As Belshe himself freely admitted in a recent plain-spoken blog post at belshe.com, Bitcoin isn’t anywhere near reaching Grandma yet.

“Bitcoin in Denial” ran the headline on his post, which conveyed a “Slow down, this is gonna take a while” message to those who envision Bitcoin triumphing over fiat currencies and the credit card industry and reaching Grandma by next week or

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next year. But if anyone will eventually be able to carve the road to her, it will be Belshe.

Two decades into a tech career that he remembers being ignited by a computer magazine that his electrical engineer father brought home, he now finds himself at a mid-career sweet spot. With deep experience behind him, industry contacts and resources galore, and still copious energy, he is committed to making Bitcoin the most secure digital asset tool ever devised without its users, in his words, “having to learn how to operate a digital asset vault.”

Belshe co-founded BitGo in 2013, just a year after discovering Bitcoin and loading up on a bunch of coins for himself and various friends on a dedicated offline laptop he kept under

his couch. “With Bitcoin’s price going up, I realized I had a staggering amount of money just sitting there on a laptop. I was following best practices, but I felt scared enough to look for a better way to store all these coins.”

A quick survey found him surprised that there really weren’t any better security mousetraps at the time, so he set about to invent one. Anyone who knows Belshe could have predicted it wouldn’t take him long.

BitGo launched the world’s first multi-signature wallet last August, created by Belshe himself using a “P2SH” protocol that was developed

by Gavin Andresen, chief scientist of the Bitcoin Foundation and Bitcoin’s lead core developer. (See http://www.belshe.com/2013/12/15/p2 sh-safe-addresses/ for a quick tutorial.)

While his service won’t quite reach Grandma yet, it has given Bitcoin holders an unparalleled means of securely holding their funds without fear of either being hacked or suffering some human error of forgetfulness or misplacement. It turns out, by the way, that error is a far more common cause of lost bitcoins than is the more feared specter of malevolent hackers.

“We wanted a system that doesn’t depend on anyone else and wasn’t vulnerable to theft, a lost hard disk or paper wallet, or a forgotten-andnow-gone password,” Belshe says.

“The challenge is always this: How do you improve security in a way users understand?”

Belshe & Co. appear to be meeting that challenge with growth figures ($1 billion transacted in the third quarter) and a corporate profile for which less substantive startups would no doubt hand over a good portion of their Bitcoin vaults. P2SH or pay to script hash addresses have grown more than 84 percent over the past 90 days, and BitGo controls the majority share of market for P2SH Bitcoin addresses.

It’s all big-time fun, which is one crucial metric Belshe applies to virtually all his professional endeavors.

But even more important, if he were advising young people just launching their careers, is this: “Do something that matters.”

One gets the sense that having fun and doing things that matter have become almost one and the same thing for Belshe. That’s just one more sweet spot in a career from which the Bitcoin world is now benefiting in ways that matter greatly to it.

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“

It’s a very fast-moving field, very exciting. Many companies have already come and gone, but we’re just getting bigger, launching new mining technologies and really pushing the innovation envelope.

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MARCO STRENG Built to Last: Genesis Mining CEO

trange as it may seem to many people who have still barely heard of Bitcoin, the cryptocurrency has been busy maturing in the fashion of all new technologies.

That means a steady shakeout of early players and the consolidation of companies whose assets and brands have stood the test of the sector’s early, tumultuous months and years. That’s where Genesis Mining Co-Founder and CEO Marco Streng finds himself, four years after he dropped the pursuit of an academic/scientific career in his native Germany to heed the siren call of Bitcoin, which he had stumbled upon while conducting networking research online.

Like many people in the Bitcoin world, Streng has an outsized math-and-physics oriented 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 all of 21 years old.

“Bitcoin was just too attractive to resist,” Streng says.

“It’s a very fast-moving field, very exciting. Many companies have already come and gone, but we’re just getting bigger, launching new mining technologies and really pushing the innovation envelope.”

Streng launched Genesis late in 2013 with partners Dr. Marco Krohn and Jakov Dolic. The trio has built the company into the largest cloud-based Bitcoin miner in the world. It built and operates 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.)

Recently, Genesis launched a cloud mining protocol named X11, based on a fundamentally new algorithm that makes it more efficient and lucrative for miners, who can mine all other “alt currencies” and then cash them into Bitcoin for optimal returns. “Our service is not technically difficult either, which makes it a major innovation given how technical cryptocurrency mining has been in the past,” Streng says.

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“I love what I do, and when you love what you do, you can’t get enough of it.”

Another innovation with which Genesis hopes to reduce mystery, further transparency and shake up the Bitcoin world in a fun way: a live streaming website of life inside abitcoinmine.com that shows a Genesis mine in full operative mode. While it won’t make viewers forget their favorite Academy Award winners, the site does help demystify the whole notion of “mining” as it might be popularly (mis)understood.

Streng 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 muses. “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 work. “I’m always telling her we’ll be going on holiday soon, and though we do manage to get away sometimes, it’s not as often as we’d like. Things move so fast that planning much ahead is just not possible. Meanwhile, we get a few hours in the evening or an occasional day off.

But almost never two in a row.”

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“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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ike probably most Bitcoin insiders, Justin Newton grew up with a seemingly natural penchant for the math and science that undergirds so much of the computer world. He tinkered with computers as a child, with one oft-told family tale about a technician coming to the house to install a system and Justin pointing out, with all his ten-year-old authority, how one line of code in particular simply wasn’t going to work.

“Yeah yeah, this is adult talk here,” he remembers his father, an electrical engineer with GM at the time, saying.

Only thing was, the kid was right; that code wasn’t launching anything without serious adjustment.

“I’m not one to be shooed away easily,” Newton muses, many years removed now from his childhood tinkering but no less confident in his discernment abilities, which are now directed to helping the Bitcoin world find its way through the challenges still facing it.

The challenge for him currently is to help simplify the arcane language and protocols that dominate conversations and procedures in the blockchain space. His goal is for regular people to be able to use bitcoins with confidence and the all-important security that will be required if mass adoption is ever to take place.

He and his business partner and wife Dawn Newton, looking to repeat their successes at NetZero, are putting that and associated goals into practice with Netki, a digital wallet naming service that, among other attributes and more still to come, does away with the impossibly imposing wallet addresses requiring 30-40 characters of mixed letters

L

and numerals, upper and lower case, in favor of a simple customized address such as: wallet.JustinNewton.me.

Sure, you can forgive yourself for thinking, “Now why didn’t I think of that?” The fact that Newton did—and then had the technological chops to make it work—stands as just one more testament to his pioneering role in helping to make the obscure, obtuse and strictly academically oriented Internet into the most transformative mass technology since the printing press. And he’s done it all along with the grace and humor revealed in his company’s website, with its simple navigation, clean language and design, and photo blurbs of the “Team” that includes the group’s three dogs and their important titles: “Chief Building Security Officer,” “Chief Morale Officer,” and “Chief Warning Officer.”

“I always gravitated to computers but went to college at Northwestern with the idea of becoming a physicist,” he says. “I wasn’t yet convinced computers would be transformative, and I was looking to make an impact. But a mentor there, Phil Draughon, who contributed to key Internet monitoring standards, caused me to reconsider. He showed me that just as the printing press democratized information, the same thing would happen with the Internet.

It’s just too difficult for tyranny to develop in the face of the free flow of information. I realized then I could be more impactful with the Internet than anything I’d be doing in the physics lab.”

So off from Northwestern he went after three years, since academia could not possibly adjust its knowledge base and course offerings as fast as things were changing in the industry

itself. Newton distinguished himself almost immediately by proving his mettle in both the wonky engineering side and the public policy side of the Internet. As an engineer, he helped to build the “backbone of the Internet” in crucial positions with AboveNet, Digital Gateway Systems, Erol’s Internet and NetZero.

On the policy side, at age 23 he co-founded what became the largest trade association for independent (non-telco) ISPs, the Internet Service Providers Consortium, where he served as a board member and public policy director. He parlayed that role into carrying the torch for critical early legislation that included the ten-year moratorium on taxing the Internet (including taxes on both ISP services and online sales). The first part of the act is still in existence today.

Newton is now bringing those same multiple perspectives and skill sets to the Bitcoin world, which he sees as a transformative technology in finance wholly on par with the Internet’s disruption of information.

“Bitcoin felt right away to me like the early days of the Internet,” he says. “Literally everything we do in the future will be affected by what the blockchain brings to our lives.

What’s impossible to know is exactly how it will manifest. The things we’re doing now in technology would have seemed like science fiction not long ago. The key for everyone is to build flexibility into our systems, so we can support the trends no matter which direction they go.”

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ne would be hard-pressed to find a more thoroughly international phenomenon than the borderless nature of Bitcoin, so it is fitting that it also attracts people for whom internationalism is not only a core value, but a mark of their personal identity. Meaning people like Fabio Federici, he of the musical-sounding name, who took a hot idea in hand to create a Bitcoin-related company, and leveraging an international, multi-lingual background into a kind of personal melting pot that makes him truly a citizen of the world.

Federici, a 25-year-old wunderkind CEO of the Bitcoin blockchain intelligence company Coinalytics, was born in Switzerland to an Italian father and a Spanish mother.

He earned an undergraduate degree in Germany, did graduate work in Spain and Switzerland, attended an entrepreneurship school in Belgium, won “Most Innovative Idea” honors at a German “start-up weekend,” and got a recent major round of funding from the U.S., where he launched “Coinalytics” in Palo Alto, smack in the American tech heartland, with co-founders James Edwards and Bill Gleim.

Not coincidentally, he writes and speaks fluent German, English, Spanish and Italian, with much more than a smattering of French thrown in for good measure.

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One other language in which he shows exceptional facility: Bitcoin, and all the specialized engineering vocabulary that it requires as Federici goes about his self-appointed task of helping it change the world.

“We’re entering a new paradigm with Bitcoin as the world’s first open financial network,” he says. “It’s very exciting to be part of this growing industry, and to be able to play a role in something I think will become as big a thing as the Internet itself.”

Federici plans to use the multiple tools of Coinalytics to “analyze transactions so that people can better understand what’s happening on the blockchain.” Despite the transparency of Bitcoin transactions on the public ledger, the parties behind them remain pseudonymous. Coinalytics analyzes data on those transactions for a variety of purposes, the most basic one being to detect potential risks, such as money laundering and problems in compliance with reporting requirements among various nations.

Additional applications include providing clients with business and operational intelligence.

“What we do requires a very robust infrastructure combined with machine learning to better capture metadata about each transaction,” Federici says. “As we continue to build that out, we are able to

derive more and more intelligence that leads to actionable insights. We’re helping companies do business globally in a way that leaves them less naked and vulnerable in the marketplace.”

Federici caught wind of Bitcoin early in 2013 when he was still in school in Madrid.

“My career path was leading me toward product management, but I realized I’d have to ramp up my technical know-how and skills,” he says. That’s when he signed up for an online course in “startup engineering” with Stanford Professor Ballaji Srinivasan, who, among numerous other dazzling career interests and accomplishments, has a passion for Bitcoin, which Federici readily absorbed.

“He did an entire section on Bitcoin and sent out the Satoshi white paper. I had done some programming, but my focus had been digital and online marketing. I decided right then to understand the technology and cryptography behind Satoshi’s paper in a lot more detail. That got me down the rabbit hole, and the potential applications seemed very powerful to me.”

How powerful? “Six months later, I decided I wanted to be part of the Bitcoin world. I went to a ‘startup weekend’ for entrepreneurs in Berlin so I could meet people and get involved. I got placed into a three-person group, and together we came

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“

We’re helping companies do business globally in a way that leaves them less naked and vulnerable in the marketplace.

up with the basic idea for Coinalytics. It was literally born that weekend.”

The notion got some immediate legs under it by winning “Most Innovative Idea” to emerge from that weekend, which compelled Federici to inject some seed money into the venture, followed by more from his family, still more from the “500 Startups” accelerator program, and just recently, a tidy $1 million dose of inspiration and affirmation from noted venture capital firm The Hive.

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All the while, Federici has continued to seek and profit from the counsel of his father, an electrical engineer and longtime CEO himself in the semi-conductor industry.

“I think I incorporated my dad’s DNA and mindset,” he says. “I have a number of trusted advisors and mentors, but he’s still my first source of advice.”

So: humble (and mature) enough to continue seeking his father’s counsel.

Adventurous enough to go overseas to launch a global company at an age when

many of his peers find it a challenge just leaving their childhood bedrooms. And now, both competent and inspiring enough to land serious venture capital money for the next phase of his company’s build-out.

That’s a history whose forthcoming chapters the Bitcoin world will be awaiting with great anticipation.

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

M

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 almost a year of stable bitcoin prices and the currency crisis in emerging markets, Bitcoin suddenly looks like a respectable, lasting solution—maybe not ready to replace 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.

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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