yBitcoin Summer 2014 by yBitcoin

2014

SUMMER

Introducing the Future of Money

The Coming Bitcoin Boomâ&#x20AC;&#x201D; Fueled by Wall Street

Dish Network Accepts Bitcoin, as Merchant Adoption Soars

SUMMER 2014

WHAT IS BITCOIN? Everything You Thought to Ask—and More

By Erik Voorhees

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

WHAT MAKES BITCOIN VALUABLE?

14 3 Year: +52,900%

Why Bitcoin Has Value—Notes on the “Network Effect”

By David Perry

Bitcoin has value because of all 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.

IS BITCOIN A GOOD INVESTMENT? Bitcoin: Perhaps the Most Promising Investment Opportunity of Our Age

By Tuur Demeester

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

WHAT DO INFLUENTIAL INVESTORS THINK ABOUT BITCOIN?

Bitcoin & Wall Street—A Conversation With Barry Silbert

By Andrew Hidas

While skepticism remains, some of the world’s most prominent investors and tech innovators tout the advantages and promise of Bitcoin. They include early Internet investors such as Marc Andreessen and Bill Gates, along with Wall Street titans Fortress Investment Group and SecondMarket.

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HOW DO I STORE MY BITCOIN?

How to Ensure Bitcoin Security—Tips on Safety and Accessibility

By Andreas M. Antonopolous

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

WHAT IS THE MOST SECURE WAY TO STORE LARGE AMOUNTS OF BITCOIN?

Getting Bitcoin Security Right—And Ready for Main Street

By Alan Reiner

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

FROM THE PUBLISHER

Welcome to the wondrous world of Bitcoin! It is with immense purpose and pleasure that we pass along yBitcoin, a guide designed to introduce Main Street to Bitcoin basics, its promise, and the innovative people and businesses helping to pave its way! Within these pages you’ll hear from Bitcoin thought leaders sharing their vision for how cryptocurrencies are changing the world as we know it, from Wall Street to the most distant rural village. You’ll read about prominent entrepreneurs pouring their creativity and energy into Bitcoin products and services that are no longer just a promise to enhance life as we know it, but are here already, as accessible as your computer or smartphone. Each and every day at the yBitcoin office is full of surprise and intrigue. We'd especially like to pay tribute to the many passionate Bitcoiners who have reached out to us eager to participate in the movement by requesting bulk magazines to distribute to their community residents and merchants. Their loyalty and commitment to Bitcoin are incalculable and far-reaching—from Miami to Los Angeles, Las Vegas to Little Rock to Toronto. And that’s not even to count the many voices we hear from all over the globe—some of whom you will read about in these pages. From Australia to Canada, England to Israel to Kenya, Bitcoin is making its presence and practical benefits felt, its conversations heard. And let us also celebrate the many college crypto clubs springing up across the nation, and the MIT students who were able to tap into their own networks and beyond to raise nearly $500,000 so they could gift every student with $100 of bitcoin on the first day of fall classes! No doubt about it: Bitcoin is on a roll!

yBitcoin's mixture of timely and timeless articles fits with our mission of reaching new-to-Bitcoin readers with every issue while also offering Bitcoin enthusiasts fresh perspectives to share and an opportunity to become acquainted with the leading intellectual and entrepreneurial figures who are growing the Bitcoin marketplace with innovative products and services. So please read on, and when you’re done, think about passing this magazine along to that special thoughtful friend (or two) whom you know will appreciate these dispatches from the emerging world. Finally, the print edition of this magazine may have reached you on a one-time basis through our strategically targeted distribution to get yBitcoin in front of an audience most likely to be interested in the topic. If you'd like to receive subsequent issues, please sign up at ybitcoin.net, and we will send you a complimentary copy of our fall edition as soon as it rolls off the press. Meanwhile, I wish you very happy reading and all the other pleasures you can glean from the summer ahead.

All my best,

Calli S. Bailey, Publisher

SUMMER

2014

Founder/Editor -in-Chief David F. Bailey Publisher Calli S. Bailey Senior Designer Jennifer M. Taylor Senior Consulting Editor Andrew Hidas We b / D e s i g n e r Scott Seeley Cir c u l a t i o n Christopher Smith Adver tising Associate Zac Corbett Contributing Wr i t e r s Andreas Antonopolous Tuur Demeester Tony Gallippi Alex Lawn Trace Mayer David Perry Alan Reiner Alan Silbert Erik Voorhees Bitcoin Magazine CoinDesk Downloadable Digital Edition:

yBitcoin.net yBitcoin is published quarterly by Bailey Publications, 1115 Eagletree Ln., Huntsville, AL 35801. 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 advertising 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 advertising or editorial content, nor does the publication or its staff assume responsibility if such advertising 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. ©2014, all rights reserved.

calli@ybitcoin.net Advertising Sales Office 256.539.6100

yBitcoin.net

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SUMMER 2014 cont.

HOW DO I BUY BITCOIN?

Guide To Buying Bitcoins—The Basics to Get You Into the Market

By CoinDesk

Bitcoin can be bought, mined or exchanged for goods and services. Buying bitcoin 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.

CAN I SPEND MY BITCOIN?

Growing The Market—A Bitcoin Shopping Guide

By Alan M. Silbert

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

WHY DO MERCHANTS WANT TO ACCEPT BITCOIN?

How Merchants Benefit—Should Your Business Accept Bitcoin?

By Tony Gallippi

Bitcoin offers numerous advantages for businesses. Merchants do not have to pay 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.

DO ANY WELL-KNOWN MERCHANTS ACCEPT BITCOIN? Merchant Adoption: Full Speed Ahead!

By Trace Mayer

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

HOW LONG HAS BITCOIN EXISTED? History and Events

By Bitcoin Magazine

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

ARE THERE OTHER TYPES OF CRYPTOCURRENCY? A World of Cryptocurrency Innovation There are currently more than 1,000 different cryptocurrencies, but Bitcoin is magnitudes larger than its closest peer. Bitcoin pioneered the space and is without doubt the most trusted currency, but new innovations are happening regularly in the space.

HOW ARE BITCOINS CREATED? What is Bitcoin Mining?

By Alexander Lawn

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

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

ON THE COVER Born in Philadelphia, PA, Paul Rufe Received his BA in Advertising Design and Illustration at the Memphis Academy of Arts in 1977. After a long career as a Designer/Illustrator in Nashville TN, Atlanta GA, and Dallas TX, Rufe has returned to Huntsville, AL where he work as a freelance graphic designer. www.paulrufe.com

What Is Bitcoin? Welcome To Cryptocurrency by ERIK VOORHEES

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

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

yBitcoin.net

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

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

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

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

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

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

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

Erik Voorhees

Erik Voorhees is a serial Bitcoin entrepreneur and longtime advocate of “the separation of money and state.” He believes Bitcoin to be one of the most important technological tools ever created by humanity. Current CEO of Panama-based Coinapult, and former head of marketing for BitInstant, he has been at the center of the Bitcoin movement since April, 2011. He has been a featured guest on BBC Radio, The Peter Schiff Show and The Tom Woods Show, discussing the economic and social implications of Bitcoin.

yBitcoin.net

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

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

yBitcoin.net

“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.” dusty old systems or the people making absurd profits maintaining them? This is Bitcoin.

Replacement, Not Repair Bitcoin isn’t another patch, another layer of abstraction added on top of an aging and over-complex system. Bitcoin isn’t another bank or payment processor coming up with new ways to move old dollars. Bitcoin is instead a simple, elegant and modern replacement for the entire concept of money. It has value for exactly the same reason as the paper money in your wallet: It simplifies the exchange of goods and services, not in the antique setting of a barter system bazaar, but in the current setting of modern Internet-enabled life. “But that’s only why it’s useful,” I hear some of you saying. “Why does it actually have value?” The two-word answer is one most economists are familiar with: Network effect. The network effect is a lovely piece of jargon that refers to the quite commonsense statement that networked products and services tend to have more value when more people use them. The most common example is the telephone: During its early days when few people had access to telephones their utility, and therefore their value, were minimal. Today practically everyone has a phone, so their utility and value is so high as to be unquestionable. In this way the value of Bitcoin is directly tied to the number of its users and the frequency of their use. Of course Bitcoin’s value stemming from the network effect is not without its own unique difficulties. When the network is still relatively small, each new group’s entry or egress can create massive price fluctuations, resulting in huge profits for early adopters.

Unfortunately, this makes Bitcoin look, on the surface, too good to be true—a bit like a Ponzi or pyramid scheme. Ponzis and pyramids are distinct and different forms of fraud, but they share one thing in common: The first ones in make a lot of money while the last ones in foot the bill. Both feature initial “investors” being paid out directly from new investors’ money. The return is always too good to be true and the gains (for those who actually get gains) are exponential. Because Bitcoin’s value has risen so dramatically since its 2011 debut, it seems to fit this sort of a profile at first glance, but then so does every new technology. It’s just not normally the case that we get to invest in this sort of technology and profit as it’s adopted. Imagine being able to invest in the concept of email back in 1965 when some clever hacker at MIT found a way to use primitive multi-user computer systems to pass messages. It might have seemed like a silly waste then, but owning even a tiny percentage of the rights to email today would make one wealthy beyond imagining. Technologies follow a known adoption curve, which tends to include a period of exponential rise. Bitcoin is no exception. Ponzis and pyramids both create value for their oldest investors by stealing from the new. There’s no economics involved—just theft. Bitcoin creates value for the old investors and the new by splitting a finite currency supply more ways. That’s not trickery or theft, just good-old-fashioned supply and demand at work— a basic and ancient economic principle applied to the world’s newest currency system.

David Perry

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

yBitcoin.net

1 Year: +436%*

2 Year: +11,718%*

3 Year: +2,943%* 2000 1000 500

100 50 20 10 5

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Bitcoin: Perhaps the Most Promising Investment Opportunity of Our Age

technology is called “disruptive” if it creates a new market that first disturbs and then displaces an earlier technology. Bitcoin is potentially such a technology and much more. The fact that it can disrupt the largest and most interconnected marketplace in the world—money, banking, and finance—makes it perhaps the most promising investment opportunity of our age. Unlike our current increasingly unstable and unpredictable financial system, Bitcoin has 21st century technologies at its very core. The digital currency and clearing network is open source, mobile, peer-to-peer, cryptographically protected, privacy oriented, and native to the Internet. The fusion of these technologies allows for a level of security and efficiency unprecedented in the world of finance. These are some of the areas in which Bitcoin-oriented technology 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. Indeed, Bitcoin has been noted in glowing terms by industry moguls such as: • Microsoft Founder Bill Gates (“A technological tour de force.”) • SWIFT CEO Gottfried Leibbrandt (“Don’t see why we could not send transactions in Bitcoin as a currency.”) • Entrepreneur Marc Andreessen (“Personal computers in 1975, the Internet in 1993, and I believe, Bitcoin in 2014.”) • Legg Mason Portfolio Manager Bill Miller (“If it becomes 10% as popular as gold, you can make 120 times your money.”) • Fortress Investment Co-CIO Michael Novogratz (“Put a little money in Bitcoin, come back in a few years, and it’s going to be worth a lot.”) 16

yBitcoin.net

by TUUR DEMEESTER

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 money.” This entails a decentralized global platform, smartphoneaccessible, on which companies and individuals can issue, buy, and sell stocks, bonds, commodities and a myriad of other financial products. The effect will be to remove much of the current bureaucracy and barriers to entry, presenting a huge opportunity for the world’s 2.5 billion unbanked people.

Since inception of Bitcoin in 2009, its market cap has grown by a minimum of 10 times every year. It now stands at over $8 billion, with an annual turnover of +$50 billion. This raises the question: why Bitcoin, and not some other cryptocurrency? The answer may lie in the network effect: of all the cryptocurrencies, Bitcoin is the one with the highest adoption rate and the strongest security. The combined computing power of the Bitcoin mining industry serves as a protective firewall around the payment network, with a replacement cost of at least $1 billion— and growing quickly. 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

*Source: BraveNewCoin.com

200

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, since inception of Bitcoin in 2009, its market cap has grown by a minimum of 10 times every year. It now stands at over $8 billion, with an annual turnover of +$50 billion. According to Coinometrics.com, this makes the Bitcoin currency stock more valuable than that of 108 national currencies, including Panama, Macau, Ghana, and Malta. Currently over 60,000 merchants accept Bitcoin as payment. Enticed by its great potential, venture capital is also warming up to Bitcoin. In 2013, 40 deals were made that raised a total of $74 million, and the 2014 run rate for the year is currently US $250 million. To put this into context, investments in the Internet of 1995 were an inflation-adjusted $387 million— which is why many Bitcoin investors believe we are at a stage similar to the Internet in 1993 or ’94. Furthermore, the Bitcoin price has been rising at an exponential rate of +1,000% annually. This can be explained mostly by the fact that it is a scarce commodity (maximum supply is 21 million) with a rapidly growing user base. Here are a few possible scenarios for the future value of one bitcoin:

Scenario

Potential value of one bitcoin

Hedge funds allocate 1% to Bitcoin2 Argentines sell USD cash for Bitcoin3 Gold holders divest 1% into Bitcoin4 Bitcoin replaces remittance market5 Becomes global E-Commerce currency6 25% of black market transactions in Bitcoin7 Bitcoin replaces reserve currency8 Bitcoin replaces offshore deposits9

$ $ $ $ $ $ $ $

1,230 2,480 3,500 6,860 11,500 44,000 500,000 800,000

The scenarios projected above are, of course, not cast in stone. Bitcoin faces several risks going forward. These include: • Compromised security of the major exchanges, • The emergence of a much better digital currency that steals its market lead, • An undetected bug in the system, • A sustained attack by an organization with substantial computational resources, • A coordinated clampdown on Bitcoin by a multi-national entity such as the G20.

“Bitcoin does not appear to be a fad or bubble, nor merely a one-off hedge against gold.” How serious of 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. An organized attack on the network is possible but expensive, and there are many potential defense mechanisms. 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. That leaves government clampdown as the most likely risk to Bitcoin. However, with many regulators implicitly or explicitly already accepting Bitcoin, and the robust, decentralized nature of its network, such a move would have little long-term structural impact and is thus unlikely. Because of its strong network effect, the outcome of the Bitcoin story is likely to be binary: either it will experience a downfall as it is superseded by a vastly superior technology, or the value of bitcoins will rise dramatically over the coming years as an increasing share of the global population adopts the currency. In any case, to me it's exceedingly clear that the technology of the cryptocurrencies is here to stay. Bitcoin does not appear to be a fad or bubble, nor merely a one-off hedge against gold. With a risk-reward proposition this attractive, holding a small percentage of bitcoins in one’s portfolio as a speculation on increased adoption may be one of the wisest investment decisions of our age. 1) Sources: http://tinyurl.com/remittance2012 and for volume estimates in BTC economy: http://blockchain.info/charts (the latter also for estimates in footnotes 5, 6, and 7) 2) Source: http://tinyurl.com/HFresearch2013 3) Source: http://tinyurl.com/argentine-USDcash 4) Source: http://tinyurl.com/GMabovegroundgoldstock 5) Source: http://tinyurl.com/worldbank2012remittances 6) Source: http://tinyurl.com/ecommerceglobal 7) Sources: http://tinyurl.com/VOXEUshadowecon and http://tinyurl.com/CIAworldGDP 8) Source: http://mises.org/content/nofed/chart.aspx 9) Source: http://tinyurl.com/HKMAoffshore 10) http://www.coindesk.com/bitcoin-report-q1-2014/

Tuur Demeester

Tuur Demeester is an independent investor and commentator. He has a background in Austrian economics, the school that specializes in the study of boom-and-bust cycles in the economy. He first discovered Bitcoin on a research trip in Argentina, and started recommending it as an investment at $5 in January 2012. yBitcoin.net

yBitcoin.net

BITCOIN & WALL STREET

A Conversation With

Barry Silbert contour/sharkey/gettyimages

By Andrew Hidas

Ever since Bitcoin emerged fresh from the fertile mind of the fabled Satoshi Nakamoto in 2009, the investment world has been watching with its usual guarded—though steadily growing—interest. Over the past year or so, Bitcoin has garnered headlines for its sizzling-though-volatile pricing, accompanied by some high profile faceplants (Mt. Gox, Silk Road). With Bitcoin now a strapping child of 5, all signs indicate that both Wall Street and Main Street have developed interest. But as every sad-eyed pound puppy knows, getting noticed and getting adopted are two different stages on the path to happiness. For Bitcoin to finally earn widespread acceptance and adoption into the everyday economy, it has become clear that Wall Street will have to pave the way with the only important endorsement it knows: its investment dollars. If history is any guide, Main Street will follow. In order to glean some informed perspective on the ever-evolving relationship between Bitcoin and Wall Street, yBitcoin had Senior Editor Andrew Hidas sit down with Barry Silbert, one of the earliest investors in what insiders refer to as “the Bitcoin space.”

yBitcoin.net

Silbert is a longtime angel investor, chief executive officer of the private investment firm SecondMarket, and recipient of numerous awards, recognitions, and media credits. Silbert’s personal investments, coupled with his office address on Avenue of the Americas and most of his workdays invested in Bitcoin, indicated to us that he would be best equipped to inform readers about the relationship status between Bitcoin and Wall Street. The following is an edited version of his comments. yBitcoin: Bitcoin has followed a rather jagged path these first five years. What can you say in general terms about how it has evolved? Silbert: I see the evolution of Bitcoin occurring in five phases. The first phase began with the launch of the protocol in 2009, followed by a period of experimentation, where you had developers and cryptographers playing around with it, with not much value being created. Fast forward to summer 2011, when you had that first price bubble. That was really, I think, the Bitcoin coming-out party. For the first time, we had a number of market forces coming into Bitcoin, and that kicked off Phase II, which was the early

“I’m 100% confident that digital currencies and associated protocols are here to stay. And I’m highly confident that Bitcoin is the winner among those.” adopter phase, when the first generation of companies like BitInstant and Mt. Gox were formed. That’s also when early adopters like myself got involved. Phase II went from 2011 to late 2012, which is when Phase III, the venture capital phase, began. Successful early stage investors started getting more involved, and that lasted through the past year, 2013. And I think we’re still right in the thick of that phase now. I think Phase IV is going to start this year, and it will be the Wall Street phase. Phase V will follow from there—the phase of mass global consumer adoption.

Fast forward to today, given all that has happened, what’s really holding back the money is just that the price has been in decline, and institutional investors tend to avoid anything where there’s a high probability they’ll have to mark their investment down. Most investors I talk to, given the potential that Bitcoin return is likely to be binary—it’s going to be either $5,000 or more per bitcoin or zero—they have no problem waiting for the price to form a new base and turn upwards. They would rather buy at $600 or $700 knowing that the price is likely to increase, versus buying at $450 and running the risk they might have to mark down their portfolio by 5% when it comes to reporting time.

What are the prerequisites for Phase IV to occur? Phase IV has awaited regulatory clarity and some guidance from the IRS as to how gains on Bitcoin are taxed. The IRS guidance was published a few months ago. I think it’s very clear that Bitcoin needs to be regulated, and it has become equally clear that regulators have been paying attention, and that the risk of Bitcoin now being shut down by the government has been significantly diminished. That had to happen before Wall Street would get involved. These recent developments have supplied the proper air cover for institutional investors to get involved. I don’t know if we’re totally there yet for Phase IV to begin, but we’re getting pretty close. When you have the likes of Fortress Investment Group and money managers like Bill Miller, one of the most successful investors on Wall Street, coming out bullish on Bitcoin, that’s a big plus. Again, we’re not quite there yet, but you won’t get laughed off the stage now if you come out and say Bitcoin is a sensible, albeit high-risk, investment.

So institutional investors are in a wait-and-see mode? Yes, but that means it’s very different from even six months ago, when the last Bitcoin price bubble developed. That attracted a lot of attention, and then when the Mt. Gox exchange exploded and the price dove but Bitcoin proved resilient, it attracted investors with hundreds of millions of dollars who are now sitting on the sidelines, who now know about and understand Bitcoin, understand its investment potential, but are not yet ready to commit. So, I think we’re setting the stage for what is potentially a rapid increase in the price as that money starts to move in.

So what will be the prereq for Phase V? Two things will have to happen: 1) the companies that have been on the receiving end of venture capital money will need to roll out their products to make it really easy to buy, sell and hold Bitcoin, and 2) The Bitcoin monetary base, and really more importantly, its daily liquidity, will need to increase dramatically, probably to the tune of 10X what it is today, in order for it to be large enough to attract ongoing institutional attention. I think we’re at the inflection point where Bitcoin has the ability to become a very sought-after asset class on Wall St. Every large bank now has its internal team looking at what Bitcoin is and what is likely to happen with it. And institutional investors have started to dig in, too. Also, the principals—the traders, portfolio managers and bank execs—have personally started to invest in Bitcoin on their own. So you look where that has come from even six or seven months ago, when there was still lack of regulatory clarity, there was no air cover, and most institutions hadn’t really heard of Bitcoin or hadn’t taken the time to really dig into it.

Will that create another price bubble? I don’t know when the next price bubble will occur, but I’m positive there will be more of them. The important thing to remember is that in the last two years, in particular, we have seen some pretty major hits to Bitcoin, whether it’s China’s on-again-off-again bans, or Apple kicking Bitcoin wallets off its platform, the bankruptcy of Mt. Gox, or the shutdown of Silk Road. All of these events had people predicting the end of Bitcoin, and while they have certainly lent to its volatility, they have also demonstrated how resilient Bitcoin really is. So was Mt. Gox ultimately a good thing for the future of Bitcoin? I think it’s really clear to everyone who’s been involved in Bitcoin for more than a year or so that there was no great surprise in the Mt. Gox bankruptcy. I think we would all agree that Mt. Gox going away was a good thing overall, though certainly not for those who lost their money there. But it was just one of those first generation Bitcoin companies that needed to make way for the next generation of companies that are well-funded, well-run and, where necessary, properly regulated. What about your own investment of time and money in Bitcoin. Given the volatility and risk, how confident are you that it will pan out? I think Bitcoin is either going to be very, very successful, transforming our financial system and becoming one of the highest returning investments of our generation, or there could be a total loss of principal. So yes, this is a huge professional, yBitcoin.net

reputational, and financial gamble, but I’m an entrepreneur, and that’s what we do. That said, I’m 100% confident that digital currencies and associated protocols are here to stay. And I’m highly confident that Bitcoin is the winner among those. So, I am about as all in as you can get now. I’ve turned SecondMarket over to my senior management team, and am pretty much spending all of my time on Bitcoin. That includes launching the Bitcoin Investment Trust. I’d also highlight that some of the most respected thought leaders and investors have been, and continue to be, very positive on Bitcoin’s prospects and the investment opportunity therein. Venture capitalists have invested almost $200 million into Bitcoin companies, with the 2014 inflow expected to pass $300 million. And these funds are coming from top-tier VCs like Andreessen Horowitz, Google Ventures, Union Square Ventures, General Catalyst, Accel, etc. While VCs may not always pick the right companies in a particular space, they’re usually adept at picking the right trends and industries. VCs are also very good at identifying ecosystems into which the brainpower and human capital are flowing. All the big tech companies either have internal labs working on Bitcoin projects, or their developers and engineers are working on them nights and weekends. You’re also now seeing top talent migrating to Bitcoin startups from tech giants like Facebook and Amazon.

“I’m highly confident that in 2014, we’ll start the Wall Street phase.”

Tell us about the Bitcoin Investment Trust. The BIT is similar in structure to the SPDR Gold ETF, in that it is an open-ended vehicle that passively holds and returns the price performance of an underlying asset. In the case of the SPDR Gold ETF, the vehicle holds gold, whereas the BIT passively holds Bitcoin. As such, the BIT was designed for institutional and high net worth investors to put meaningful capital in Bitcoin in a safer, more secure way, just like purchasing any other titled security. Consequently, because the trust gives investors title, the BIT is also available for purchase through certain types of IRAs and 401Ks. It’s currently private and open only to accredited investors via our website (www.BitcoinTrust.co). If things go as planned, we will bring the trust to a publicly traded setting in the fourth quarter of this year, where it will trade on the OTCQX, the top-tier electronic

yBitcoin.net

marketplace operated by OTC Markets. We’ll eventually look to transition it to the New York Stock Exchange, but like many ETFs, there is a lengthy registration process. We currently have $50 million of net assets in the trust and expect that figure to increase greatly once it is available to the public later this year. Why do you figure Bitcoin will win out over other digital currencies? There are more than 200 alternative currencies right now. Many of them are kind of get-rich-quick, pump-and-dump schemes, where the creators/adopters launch and promote them, but don’t provide a useful service other than giving people a chance to gamble. Those companies aside, Bitcoin should beat out the rest of its competition for two reasons. One: Bitcoin has the greatest brand awareness and the first mover advantage. There is $5 billion being held in wallets of Bitcoin owners around the world who are unlikely to switch over to an alternative currency unless something catastrophic happens with Bitcoin itself. Second: Bitcoin at its core is technology, and more importantly, it’s an open source project that is going to continue to adapt to the market. So if an alternative currency starts to gain traction, there’s nothing to prevent developers from incorporating into Bitcoin the unique features propelling the new protocol. Bitcoin is not static, so it should just get better and better over time. Are there any viable alternatives? A few. One being Ripple, which, per full disclosure, I have an interest in as an angel investor in its developer, Ripple Labs. Litecoin and Dogecoin are others that seem to have the most going for them. Care to predict how and when the final phase leading to worldwide Bitcoin adoption will occur? I’m highly confident that in 2014, we’ll start the Wall Street phase. And that will lead, either in 2015 at the earliest, but perhaps not till 2016, to Phase V and worldwide adoption. But again, we need products that make it easier to obtain, hold and use Bitcoin, and the monetary base needs to grow much larger, with much deeper liquidity. We need roughly $50 billion of Bitcoin and $1 billion traded daily before Bitcoin fulfills its promise of becoming a global payment system and remittance platform.

How to Ensure Bitcoin Security by ANDREAS M. ANTONOPOULOS

“...Bitcoin has capabilities that cash, gold and bank accounts do not.”

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

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

What should an end-user do to secure their Bitcoin wallets? Here are five guidelines. 1. Balance the risk of loss and theft. While most users are rightly concerned about theft, loss is an even bigger risk. Data files get lost all the time, but if they contain bitcoins the loss is much more painful. In the effort to secure their Bitcoin wallets, users must be very careful not to go too far and end up losing the bitcoins instead. In the summer of 2010, a well-known Bitcoin awareness and education project lost almost 7,000 bitcoins. In an effort to prevent theft, the owners had implemented a complex series of encrypted backups. In the end they accidentally lost the encryption keys, making the backups worthless and losing a fortune. Like hiding money by burying it in the desert, if you hide it too well you might not be able to find it again. 2. Use two-factor authentication. Many first-time users will use a web-based wallet or online service as their Bitcoin bank. Unfortunately, this has led to a rash of thefts from Bitcoin users,

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almost all due to compromised desktop computers. Hackers will install trojans and keyloggers looking for access to well-known Bitcoin sites. As soon as users log on, their own computer will compromise the account and surreptitiously transfer all their money to another Bitcoin address. Once stolen, there is no recovery, as Bitcoin transactions are not reversible. The most effective defense against this attack is using what is known as a “two-factor authentication scheme” or using a smartphone application to generate one-time codes. (See “Google Authenticator” at http://code.google.com/p/googleauthenticator/.) 3. Spread the risk. Would you carry your entire net worth in cash in your wallet? Most people would consider that reckless, yet Bitcoin users often keep all their bitcoins in a single wallet. Instead, users should spread the risk among multiple and diverse Bitcoin wallets. The prudent user will keep only a small fraction—perhaps less than 5%—of their bitcoins in an online or mobile wallet as "pocket change." The rest should be split between a few different storage mechanisms, such as a desktop wallet and offline-storage as described below. 4. Use physical storage. Humans have used physical security controls for thousands of years. By comparison, our experience with digital security is less than 50 years old. Bitcoin keys are nothing more than long numbers. This means that they can be

“...Bitcoin security is increasingly implemented with hardware tamper-proof wallets.” 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. Users should consider keeping the vast majority of their bitcoins (95% or more) stored on paper wallets and locked in a safe. 5. Consider hardware wallets. In the longer term, Bitcoin security is increasingly implemented with hardware tamper-proof wallets. Unlike a smartphone or desktop computer, a purpose-built Bitcoin hardware wallet has only one purpose and function—holding bitcoins

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

Andreas M. Antonopoulos

Andreas M. Antonopoulos is an expert in security and distributed systems, an entrepreneur, and a coder. He has founded six companies and advised hundreds more in a career spanning two continents and two decades. He lives in San Francisco, where he is writing a technical Bitcoin book for developers. He can be contacted at: http://antonopoulos.com 26

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By Alan Reiner

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

I think one of the biggest issues facing Bitcoin right now is not the lack of a “killer app.” It is lack of insurance options. Early adopters would like to believe that the majority of users will hold their own Bitcoin, but I believe that is not a realistic option when life-changing quantities of Bitcoin are involved. We should not trust Grandma to secure her own retirement savings via complicated computer maneuvers.

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

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

Transitioning from offline consumer PCs to offline HSMs for Bitcoin key management is a no-brainer for large institutions. But it might be a while before we see HSM-based cold storage solutions for the broad commercial market, and their cost may always make them prohibitive for consumers. Another important piece of this puzzle is the availability of well-defined operational security procedures. There needs to be a set of documented procedures for configuring signing devices and distributing backups, along with strong access-control procedures with proper segregation of duties. For instance, there may be a requirement that no signing devices can be accessed without at least three people present to ensure proper handling and documentation of an operation. This not only limits the opportunity for dishonest employees to steal funds, but also guarantees that proper security procedures are being exercised— such as verifying serial numbers on tamper

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 what they would like. • Multi-Signature Wallet: The network has multiple signing keys associated with the funds, and some threshold of signatures needed to authorize transactions.

seals, checking transaction data before signing, and guaranteeing that all sensitive devices and documents are properly secured after use. This approach also creates an auditable paper trail. Operational security also includes well-defined authorization channels to ensure that employees do not execute the secure signing procedure for malicious/theft transactions. A super-secure wallet split between seven HSMs in vaults managed by company employees could be bypassed if authorization to execute the signing process only requires an email from the CEO. Then an attacker only needs to access the CEO's email account to authorize a transaction to steal the funds. Physical security is irrelevant if the system is vulnerable to social-engineering attacks. The most important advance in Bitcoin security is the proliferation of multi-signature storage systems. This is usually referred to as an “M-of-N” storage scheme. For instance, in 3-of-5 multi-signature storage, five devices will be designated as signing authorities for the funds and the network will require signatures from any three of them to move the money. This not only provides extra security, but also redundancy— any two of the devices can be lost or destroyed without losing access to the money being protected. The versatility of the multi-sig enabled by the Bitcoin protocol is astounding. It allows organizations to manage funds with varying calibrations of security, redundancy and convenience. Petty cash can be managed with 2-of-3 storage requiring hot wallet signatures of any pair of three company officers. Capital accounts for large purchases could be stored in a 3-of-5 using a combination of

hot and cold wallets. Large investment funds holding $100 million or more could be stored using 5-of-7 offline HSMs kept in vaults around the world, each one requiring physical access by a different company executive. Yes, companies would find this to be an awful lot of trouble, but the point here is that it’s possible to make Bitcoin storage every bit as secure as you would like it to be. Multi-sig can be even more flexible if you consider that some parties or devices could be giving multiple signing keys for asymmetric signing authority. For instance, the CEO of a company might have two keys of a 3-of-6 storage scheme, and four other officers could each hold one. Only two signatures are required if the CEO is one of them, otherwise three signatures are needed. Another interesting idea is that the insurance company itself could hold a key for the funds it is insuring. In the event that multiple signers die in a plane crash or simply lose access to their keys, the insurance company may be able to provide a critical signature to restore the funds instead of having to replace them. In all cases, the devices can be configured and maintained completely independently, with no knowledge of security profiles of the other devices. The creation of wallets and all subsequent operations using them never require direct communication or co-location of sensitive data. From start to finish there is never a single point of failure in the system. Combine this with HSMs and solid well-defined operational security procedures, and we might finally have a Bitcoin backbone that can be trusted not to lose your money Gox-style—and thus be ready for prime time on Main Street.

Alan Reiner

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

yBitcoin.net

Contributed by CoinDesk Albuquerque, NM

itcoin involves amazing technology, but in order to take part in its massively expanding economy you need to own some. There are three primary ways to acquire bitcoins: buying them, earning them in exchange for goods or services, or mining them. For most of us, buying bitcoins is the most practical and convenient way to take the plunge, but as you’ll discover, it isn’t (yet) as simple as walking into your neighborhood ice cream parlor for a cone. You can buy bitcoins in a variety of ways. Here are a few places to start.

Traditional Bitcoin Exchanges Traditional exchanges such as Coinbase or Bitstamp are probably the most common sources for bitcoin purchase. You start by visiting the company’s website and setting up an account. Then you need to deposit fiat currency such as U.S. dollars into your account. (“Fiat” refers to any currency that is considered by a government to be legal tender.) How you get your local currency into your Bitcoin account is different for each exchange, but it generally requires you either to wire money to the exchange or let them perform an ACH withdrawal directly from your bank account. In most cases, the money settles in less than a week. Once the exchange credits your account, you can buy bitcoins, not from the exchange, but from other traders on the exchange. The exchange just manages the process, using what is called an order book.

“Bitcoins can now be bought through regulated exchanges, ATMs or directly from individuals selling them—either online or in person.” If you’re buying, you can choose to place an instant order at the going market rate, or, if you expect a lower rate, at your designated price. As soon as the exchange matches your order with a seller, the exchange executes it, and the fiat currency in your account is converted to bitcoins. This process is exactly how traditional fiat currencies such as the yen and dollar are traded. After your purchase, if you want to spend bitcoins on goods, you’ll need to withdraw them from your account at the exchange and send them to a Bitcoin address so that they wind up in your wallet. For easiest access, it’s probably best to transfer your bitcoins from the exchange’s online server to your own computer, or even store them in a safe deposit box at your local bank. The biggest strength of exchanges is that they are designed for trading, so you can speculate on bitcoins. The downside is you are dealing with an intermediary, and also have to deal with issues such as Know Your Client (KYC) and Anti-Money Laundering (AML) rules. These rules, implemented to stop terrorists and other criminals from laundering money, can be challenging for users—kind of like the shoe removal and

ID rigmarole we go through at airports. As in that circumstance, patience is a virtue.

OTC Exchanges Another option is to pursue over-thecounter (OTC) trades, in which you buy bitcoins directly from another party in fiat currency, without relying on an exchange. In these trades, you contact the other party directly via an OTC website, and in some cases may need to negotiate the specifics of the deal. The funds you use can be in the form of a PayPal transaction, cash, or even gold or silver, depending on the features offered by the site.

“There are three primary ways to acquire bitcoins: buying them, earning them in exchange for goods and services, or mining them.” Once agreements are reached, the parties selling the bitcoins deposit them in an escrow account operated by the site. All parties can see when the bitcoins have arrived. When they do, the sellers release the bitcoins from the escrow account for the buyers. The process makes it impossible for sellers to retrieve the bitcoins or buyers to seek a refund—once the transaction is complete, there are no “redos.” OTC sites offer a successful way to trade bitcoins quickly, but you’ll often find them trading at a premium. It is worth checking the

yBitcoin.net

“One of the great aspects of Bitcoin is that it is entirely decentralized. This means that if you happen to be near someone with a Bitcoin address, you can simply send them the money by making a direct transaction, generally over your mobile phone.” regulations in your own country regarding KYC/AML rules, to see if the authorities officially permit such trades. It makes sense to use a dedicated account for such trades, separate from any other personal or business accounts you may use, so that you can keep track of exactly what you have bought. This may help for potential tax purposes later.

Direct Payment Sites Sites such as Coinbase offer people the chance to buy bitcoins without exposing them to order books. These sites call themselves Bitcoin “wallets” with the ability to buy bitcoins on your behalf. They are essentially an exchange with a simple online wallet. However, you will still need to follow KYC rules, and for the time being, they are open only to U.S. customers. Other companies, such as ZipZap, allow you to make Bitcoin purchases through local convenience stores, including over 28,000 locations in the UK, but this service is not available in all areas yet, and sellers often charge a higher premium. Various other sites offer the chance to buy bitcoins with a credit or debit card. In order to control fraud, these sites typically impose strict limits on the number of bitcoins you can buy, and the transaction fees can be steep. They are a fine and convenient way, however, for buyers to dip their toes into the Bitcoin waters at a very low entry cost. One such Canadian company, Quick BT, offers Bitcoin via debit card, but only to Canadian and Australian residents for now, and only in maximum $100 increments. The company hopes to offer credit card

purchases in the future, along with sales in the U.S. and elsewhere, but regulatory hurdles for the industry must be cleared first.

In-Person Purchases One great feature of Bitcoin is that it is entirely decentralized. This means that if you happen to know someone with a Bitcoin address, you can simply send them the money by making a direct transaction, generally over your mobile phone. But how do people meet each other? Thanks to social networking and sites such as Meetup.com, there are now groups organizing all over the world with the sole purpose of trading bitcoins, either for fiat currency, or for other goods. A growing list can be found at bitcoin.meetup.com/all/. Some OTC exchanges such as LocalBitcoins also feature local searches, enabling you to find people willing to sell you bitcoins in cash. If taking this route, be careful about when and where you meet strangers for such transactions, and check that the escrow payment has arrived first. This is often the quickest way to purchase bitcoins. Finally, Bitcoin ATMs are being installed across the globe. These allow you the convenience and speed of purchasing bitcoins without the need to do business with a stranger. Because of these advantages, Bitcoin ATMs often charge a premium.

generally involve a cumbersome registration process, which often entails printing out and signing forms to send to the exchange. Expect to provide copies of governmentissued photo ID as well.

Wire Transfers Most exchanges accept wire transfers, although they take a few business days to clear, and involve a transaction fee (often a percentage of the transaction, above a minimum amount). If you live in the Eurozone, regulations may permit free wire transfers. Check with your exchange on this matter.

Credit & Debit Cards/PayPal Many exchanges forbid payment mechanisms that allows chargebacks, such as credit cards and PayPal accounts. Accepting payments via these channels opens them to fraud, and where permitted will usually incur higher transaction fees. This often results in limiting the amount of bitcoin you can buy.

Conclusion All the processes and challenges mentioned here are changing rapidly as Bitcoin gains increasing acceptance in the marketplace. With Bitcoin entrepreneurship in full swing, expect easier, more convenient processes to emerge with the ingenuity we have come to expect in modern economies.

The Payment Process Paying for bitcoins can involve serious paperwork. For regulatory reasons, reputable exchanges want to know who you are—those KYC and AML rules again. Consequently, paying sites that adhere to regulations will

As with all sites, check the reputation of the business before doing business with them.

A leader in news, prices and information on Bitcoin and other digital currencies, CoinDesk covers news and analysis on the trends, price movements, technologies, companies and people in the Bitcoin and digital currency world. CoinDesk strives to cover news accurately, fairly, objectively and responsibly. Obtaining original comment, corroborating information from other sources, and showcasing original opinion are fundamental to this.

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KRAKEN San Francisco, CA USA

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

Helsinki, Finland https://localbitcoins.com support@localbitcoins.com ALL CURRENCIES ACCEPTED

VAULT OF SATOSHI QUICKBT Toronto, Ontario, Canada

SAFELLO Stockholm, Sweden

Ontario, Canada

https://quickbt.com help@quickbt.com 888-QUICK-55

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

https://vaultofsatoshi.com hello@vaultofsatoshi.com 888-293-5014

Canadian Virtual Exchange https://cavirtex.com support.cavirtex.com 888-812-2525

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

If years ago someone was to guess what product would help kick off Bitcoin adoption, it’s a good chance that alpaca socks wouldn’t be among their first guesses. 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 60,000 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 May, there are over $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.

The Growing Market

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

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Spendbitcoins.com and the Bitcoin wiki show growing lists of merchants, and Bitcorati has developed a directory and rating system for Bitcoin businesses. BitcoinStore, BitcoinShop.us, and Bitcoinin 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. Bitcoin ATMs are appearing in several countries worldwide. Gyft offers gift cards from over 200 different retailers.

Overstock, Zynga, TigerDirect and the Sacramento King’s acceptance of Bitcoin shows that more mainstream businesses are starting to adopt it. DISH is largest merchant to accept bitcoin to date. 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. Continued growth in adoption is going to be the key to a flourishing Bitcoin consumer market.

“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 that 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. The Roast Station Project 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 10%+ 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 1988 costing nearly $200 today. The limitation on the number of bitcoins in circulation provides protection to consumer purchasing power.

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

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

Alan M. Silbert

Alan Silbert is founder and CEO of BitPremier, the first-of-its-kind Bitcoin luxury marketplace, and a vice president at GE Capital. He has more than 16 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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Should Your Business Accept Bitcoin? by TONY GALLIPPI

itcoin is a virtual currency that is growing in popularity each day, offering unique advantages to businesses. But does it make sense for your business to accept Bitcoin? Let’s explore some of the reasons why it may.

Internet The more sales your company makes online, the more sense it makes to accept bitcoins as payment. With Bitcoin, your customers have no risk of identity theft, and your business has no risk of payment fraud. Bitcoin is like cash, so the buyer does not need to provide any sensitive financial information to make a payment, and there is nothing for an identity thief to steal.

“There are no chargebacks with Bitcoin, so you can safely accept a payment from a customer you don’t know, without risk of payment fraud.”

yBitcoin.net

“Bitcoin is like cash, so the buyer does not need to provide any sensitive financial information to make a payment, and there is nothing for an identity thief to steal.” Each Bitcoin payment is a “push” transaction, in which the customer pushes the money to you. The payment is irreversible, so once you receive the money, it stays yours. There are no chargebacks with Bitcoin, so you can safely accept a payment from a customer you don’t know, without risk of payment fraud. The speed of Bitcoin payments is extremely fast. The peer-to-peer network can propagate a transaction around the world in about one second, which is faster than the round-trip time most credit card networks take to analyze a transaction for fraud detection.

makes to accept Bitcoin. With Bitcoin, your money is cryptographically secure, so there is nothing an employee or a thief would gain by stealing your computer or data.

International The more international customers your company has, the more sense it makes to accept Bitcoin. Because Bitcoin is borderless by design, you can accept a payment from someone in China just as easily as from someone sitting in the same room. If your business caters to international visitors, they can pay with Bitcoin from their mobile phones, no matter what country they are from.

Retail For retail stores, the more physical cash that your company handles, the more sense it

“With Bitcoin, your money is cryptographically secure…”

Commonly asked questions: What about Bitcoin’s volatility? Most merchant services allow you to set your prices in your local currency. There’s no need to keep adjusting your prices in Bitcoin every few minutes. The payment gateways can easily calculate the Bitcoin price at the point of checkout. How much does it cost? Since the Bitcoin network is open source, the transaction fees are very low. Merchant service providers and payment gateways offer a tremendous value for a fraction of the cost of accepting credit cards, PayPal, or other online payment methods. Are there any risks? There is essentially no risk in accepting bitcoins if you are partnered with a trusted merchant processor. Merchant processors will ensure you receive the USD value (or your local currency) of your invoice and are not exposed to the price fluctuations of Bitcoin. In fact, due to the lower cost of accepting Bitcoin payments and the free publicity it brings as a byproduct, your business has more to gain than to lose!

What do I do with the bitcoins if I can’t pay my vendors with them? Most merchant services allow you to receive a daily settlement in your local currency. If this service is important to you, check your merchant provider. How hard is it to integrate Bitcoin? Integrating Bitcoin payments into your business is a fairly simple process. If you have a small business or online store, you can start accepting bitcoins in just a couple hours. Even for billion-dollar enterprises the process is fairly simple. TigerDirect was able to integrate in as little as 4 days! How do I explain this to my accountant? This is one of the most common questions, and the answer usually lies with your local business laws. But typically, companies are allowed to keep and use foreign currency holdings, as long as they are reported correctly.

Tony Gallippi

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

yBitcoin.net

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Atlanta, GA BTC

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Toronto, Canada

Singapore

BTC, LTC

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BTC

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*Every effort has been made to ensure accuracy of information presented here â&#x20AC;&#x201C; see disclaimer page 10

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BitGive has partnered with The Water Project to raise funds for clean, safe water in developing countries. Please join us in supporting The Water Project! Donations to The Water Project can be made here:

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Connie Gallippi Executive Director info@bitgivefoundation.org 40

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Support the BitGive Foundation Instantly Donate Bitcoins Scan the QR Code with any Bitcoin Wallet App.

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Merchant Adoption: Full Speed Ahead! by Trace Mayer, J.D.

Almost every introduction to computer networking courses taught that the “Byzantine Generals’ Problem” was impossible to solve. Overly simplified, the “problem” is how multiple generals are able to arrive at consensus of 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. One of the most basic applications resulting from this groundbreaking technology is “transactional currency” use. While confusing to some in the Bitcoin network, the largest decentralized distributed computing network in the world encompasses both the blood (currency) and veins (transmission system). An average of 60,000 daily transactions are processed by the network, accounting for approximately 600,000 bitcoins, which as of this writing, equals about $435 million. So, who is sending all this magic Internet money around, and why? Bitcoin users range from individuals to large publicly traded companies. Here is why increasing numbers of them are doing so: • Transactions are instantly verifiable and irreversibly settled within a day (usually an hour), • There can be no fraud by way of charge-backs, • Counter-party risk is nonexistent in contrast to a bank operating with fractional reserves, foreign currency settlement risk or credit card processing problems,

“Eventually Target, Amazon, Wal-Mart, et al. will all be forced to accept Bitcoin.” • Identity protection is built in to keep users safe from identity thieves, • Fees are extremely low or non-existent. A prominent example: On January 3, 2014, Zynga, a publicly traded company with a $3.7 billion market capitalization, began accepting bitcoins, using the largest Bitcoin merchant processor, BitPay, to complete the transactions. One can assume Zynga did so in order to receive payment from anyone anywhere in the world, thus expanding their market from a mere 50-60 countries where credit cards or Paypal currently function. It also let them do so for a tiny fraction of the cost they pay using other payment modes. 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.

It appears that lawmakers and regulators are cognizant of the tremendous benefits to be gained from digital currencies like Bitcoin but are also aware that like any technology, it can be used for nefarious purposes. 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 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. Eventually Target, Amazon, Wal-Mart, etc. will all be forced to accept Bitcoin. Why? Because Overstock, another publicly traded company, along with major electronic retailer TigerDirect, began accepting bitcoins in January 2014. At Overstock, Bitcoin transactions accounted for 4.7% of gross revenues for the month, and the average order amount was about 30% higher than transactions using other payment methods. The most popular item ordered? Sheets! So, let’s crunch some numbers. Assuming the same gross revenue percentages for Bitcoin transactions, and assuming the merchant processor fee for processing would cost $3,000/month for $5 million or more of volume, and assuming average credit card processing costs are 2%, then annual savings for Target would be about $75 million, for Wal-Mart about $150 million, and Amazon $60 million. Does anyone really think they will cede this cost advantage and profitable market demographic to competitors without a fight? Which leads us to the next major point. Target, Amazon, et al. will want to know they are on solid legal ground when accepting Bitcoin’s innovative payment method.

Trace Mayer, J.D.

The author is an early Bitcoin thought leader, entrepreneur, investor with companies like BitPay and Armory, journalist, monetary scientist and ardent defender of the freedom of speech. He holds degrees in accounting and law, and has studied Austrian economics focusing on the work of Murray Rothbard and Ludwig von Mises. 42

yBitcoin.net

Lawmakers and regulators around the world, from Germany to Singapore to the UK and U.S., have all started to weigh in on dealing with this matter. The highest profile event was the Senate hearings in the United States late last year, 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 had this to say: “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 like 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 2014? 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. Consequently, while the financial world at large continues to experience commotion, the Bitcoin industry appears to be in forward motion like never before! yBitcoin.net

Genesis

2008

Bitcoin originally appeared, first as an academic paper and then as a program, in late 2008 and early 2009. Very little is known about its original creator, Satoshi Nakamoto, as his only presence on the Internet consisted of a profile on the P2P foundation listing him as “36, Male, Japan,” and his posts on the Bitcoin forums and the Cryptography mailing list. He has since disappeared from the Internet entirely, and while some continue to speculate as to his physical identity, most are content to leave the legend as it is. The Bitcoin community itself grew only slowly in the first two years, picking up new members by word of mouth. Even among its early enthusiasts, many did not even imagine that it would eventually be used as a legitimate currency for making actual transactions, and quite a few users mined thousands of coins only to forget about them and, to their later regret, eventually lose them by reformatting their hard drives.

Oct. 31

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

2010

Dec. 12

Bitcoin founder Satoshi Nakamoto made his last forum post before disappearing, and Gavin Andresen quickly assumed a more central role in Bitcoin development.

2011

April 20

An article on Bitcoin by Forbes appeared online and in print, and was translated into many languages around the world. The online release on April 20 and print release on May 9 were both immediately followed by sudden rises in the Bitcoin price of almost 50%, bringing the price up from $1.20 on April 20 to nearly $6 on May 10.

June 8

The price, after peaking at an all-time high of $31.91 on June 8, dropped precipitously to $10 and bounced back up and down several times before stabilizing at $17.

Jan. 16

Bitcoin was featured on an episode of The Good Wife, creating a threefold blip in Bitcoin’s prominence as measured by Google Trends search volume and causing a rapid increase in the Bitcoin price in anticipation of the event, but unfortunately the attention did not last.

2012

Bubble and Crash, Episode 2 At the beginning of June, Bitcoin finally broke out of its nearly 4-month long period of extreme stability as prices shot up past $6. News attention was once again positive, as the media once again began praising Bitcoin and seemed to have all but forgotten that the currency had been a “failed” experiment. But the news is not purely positive for Bitcoin; at the same time as the currency once again begins to rise, a speculation-induced bubble begins to fester, leading to another price crash in August—albeit one considerably smaller than that in 2011. However, Bitcoin survives the crash, and the summer’s rise brings the currency up to a permanently higher plateau. Between August and October, the consequences of the crash become clear: the Bitcoin economy saw a number of its “old guard” of exchanges and experimental financial services collapse, and mainstream merchant-focused businesses silently began to take over.

May 26

The volume of international Bitcoin users continue to increase, and Bitcoin made a sudden appearance in China at BTCChina became for one day the world’s second largest exchange. The Bitcoin price began rising shortly afterwords.

Full Speed Ahead, Once Again

2013

Days after the beginning of the new year, the Bitcoin price began picking up once again. Bitcoin business also boomed; gambling sites like SatoshiDice were the first to post unprecedented returns, and merchant providers and mining companies followed soon after. Soon enough, the Bitcoin economy was right back to where it was in spring 2011—except this time with ten times the force.

Feb. 14

Reddit started accepting bitcoin for its premium Reddit Gold service, becoming the second major company to start accepting Bitcoin.

Feb. 28

The Bitcoin price broke through its all-time high of $31.91 from June 2011.

yBitcoin.net

Provided by:

2013

Mar. 5 Mar. 16

The domain registrar Namecheap became the third major company to accept Bitcoin. Residents of Cyprus, a small island nation east of Greece, woke up to find out that their bank accounts had been frozen, and 10% of their deposited funds would be seized to pay for a bailout for a failing bank. The Bitcoin price shot past $50 for the first time two days later, and would soon breach $100.

And Then the Crash The Bitcoin price hit an all-time high of $266, and promptly crashed back down to $50 before making a partial recovery. To many, this was the beginning of the end, and the price followed a familiar pattern as one price floor after another was broken. However, this time there was something unusual in the aftermath of the bubble: hope was not lost. At the Bitcoin conference in May, the community was as excited as ever, a feeling that continued to dominate even in the London conference at the beginning of July. The main challenge would prove to be government regulation, especially in the United States, but businesses stepped up to handle the challenge.

May 17

The Bitcoin 2013 Conference took place in San Jose, CA bringing together over 1,200 Bitcoin users from around the world to present their businesses and discuss the technical, legal and business issues involved in using Bitcoin.

July 2

Bitcoin London conference takes place, featuring a number of startups including Bitcoin wallets, Bitcoin exchanges and, particularly interesting, a feature phone-compatible wallet for use in Africa with the ability to buy bitcoins through the popular M-PESA system in Kenya. Winklevoss twins filed with the SEC asking for approval to create a Bitcoin investment trust. According to Bitcoin advocates, Bitcoin is now officially mainstream. According to detractors, Bitcoin has now officially sold itself out to Wall Street.

Aug. 19

Following pressure from German member of parliament Frank Schäffler, Germany’s financial regulatory agency BaFin has classified Bitcoin as a “unit of account, ” clarifying how it should be treated for regulatory and tax purposes.

Now a Household Name Internationally Bitcoin continues to expand around the world and leave a lasting impact. With the creation of Satoshi’s Forest, the first Bitcoin Foundation democratic election, various conferences, international expansion in China and beyond and all time high prices, Bitcoin proves to be a force to be reckoned with.

Sept. 26

The Bitcoin conference in Amsterdam took place, marking the first time since November 2011 that a substantial number of Bitcoin users met in mainland Europe.

Oct. 2

Silk Road shut down The Silk Road, the largest black market site on the Tor network, has been shut down by the United States’ Federal Bureau of Investigation, and its alleged owner, Ross William Ulbrecht, arrested in San Francisco and charged with narcotics trafficking conspiracy, computer hacking conspiracy and money laundering conspiracy. The Bitcoin price, hovering around $127 before the crash, briefly hit a low of $85 on Bitstamp amidst fears that Silk Road was responsible for a large part of the Bitcoin economy before almost immediately recovering to $110; one week later, the Bitcoin price is back exactly where it was before Silk Road went down.

Oct. 20

Nov. 8

Bitcoin Breaks 1000 CNY, Rally Continues. The Bitcoin price has been shooting up quickly in the last few weeks. The price steadily picked up, and is now higher than it ever was with the exception of only three days in Bitcoin’s history, all during the media-fueled frenzy culminating in a spike in April this year. What has been fueling the price movements? To some, it is the rapid growth of the Chinese community, bolstered by a division of Chinese Google equivalent Baidu accepting Bitcoin for one of its services. Bitcoin Reaches All Time High Prices: Just overnight, the price of Bitcoin increased by 15+ USD. Starting out at around 200 USD per Bitcoin earlier in the week, Bitcoin reached all time highs. To date, the Bitcoin ecosystem has now surpassed 4 Billion USD.

yBitcoin.net

continued

A Season of Hearings, Conferences and Mass Adoption

2013

Nov. 18

Nov. 23

Virgin Galactic can take you to Space with Bitcoin! Virgin Galactic, headed by Richard Branson, announced their decision to accept Bitcoin for payment for flights to space. Each flight to space is priced at 250,000 USD/person. Virgin Galactic is the first company related to space travel/tourism. Billionaire and businessman, Richard Branson, has been following Bitcoin for some time and finally took the step to work with BitPay to now accept a historic currency for historic trips to space.

Nov. 31

Bitcoin Black Friday Results: A number of Bitcoin companies have reported results from the Bitcoin Black Friday sale. BitPay, Bitcoin’s largest payment processor, reported a total of 6,926 transactions on that day, up by a factor of over sixty from the 95 transactions seen on Bitcoin Friday in 2012. A number of Bitcoin-accepting merchants, such as the natural skin care product vendor Wholly Hemp, saw a majority of their sales through Bitcoin, and the popular Bitcoin charity Sean’s Outpost raised over 20 BTC, all of which was matched by an unknown donor.

Dec. 4

The BitPay Boom! On the tails of Bitcoin Black Friday, BitPay Inc. announced a new record of processing 55,288 of bitcoin merchant transactions in November. BitPay continues to sign on new merchants daily and most recently released a new merchant pricing model and merchant directory. Taking the lead in the payment processing space in the Bitcoin community, BitPay also brought on Virgin Galactic as a merchant to go as far as facilitating the acceptance of Bitcoin for flights to outer space! BitPay onboarded over 3,000 merchants and also worked with Shopify to integrate BitPay into its checkout process to provide Bitcoin payment processing options to Shopify’s 75,000 merchants.

Dec. 5

People’s Bank of China Releases First Regulatory Report on Bitcoin: After months of regulatory uncertainty in the Chinese Bitcoin community, the People’s Bank of China has announced its first major report regarding the legal and regulatory status of Bitcoin. The document, which can be seen as a parallel of the similar report drafted by FINCEN in March this year, is the first to officially classify Bitcoin in the eyes of the Chinese government, and lays out the restrictions on what Bitcoin-related services various categories of businesses and institutions in China are allowed to provide.

Dec. 8

Closing Day for the First Latin American Bitcoin Conference! Drawing in attendees and speakers from around the world, the First Latin American Bitcoin Conference (LaBitConf) in Buenos Aires, Argentina, was a complete success. Both days prompted international dialogue on the merits of Bitcoin beyond just a form of transaction but also as a movement towards greater financial freedom and individual liberty. Conference attendees enjoyed panels and keynote presentations as well as a final concert and feature of The Bitcoin Song written and performed by Tatiana Moroz.

Dec. 20

Overstock CEO, Patrick Byrne, Endorses Bitcoin: Overstock took the step to be the first major U.S retailer to endorse Bitcoin and make plans to accept this innovative currency on their website. Byrne is a fan of Bitcoin and has a background in the Austrian School of Economics. With Overstock’s plans to accept Bitcoin, individuals will be able to purchase anything from household goods to electronics, to clothing, to you name it with Bitcoin! Which online retailer is next?

Dec. 31

The NYC Bitcoin Center Launches: On New Year’s Eve, the NYC Bitcoin Center located right on Broad Street 100 feet from the New York Stock Exchange in New York City, launched with a bash and special appearance by US Representative, Bitcoin fan and Senatorial Candidate, Steve Stockman. The center will serve in the heart of the NY Financial District as an educational center and place of discussions, meetings and networking related to Bitcoin and digital currencies. With hundreds of tourists visiting NYC daily, the NYC Bitcoin Center hopes to draw in visitors daily and educate on the merits of all things Bitcoin.

Jan. 3

Bitcoin Celebrates 5 Years! 5 years ago, the first Bitcoin block was mined and now the price of each coin has exceeded $1,000 per coin. Thousands of companies are accepting the most convenient currency to date for payment and individuals around the world are utilizing Bitcoin as a form of transaction and a store of value. What fiat currency has increased in value, utility, and prominence as Bitcoin in such a short period of time?

2014

First US Senate Hearing on Bitcoin: The Senate Homeland Security and Governmental Affairs Committee summoned witnesses from the Bitcoin community and the US Government for the first Bitcoin related hearing on Capitol Hill. The hearing was entitled, “Beyond Silk Road: Potential Risks, Threats, and Promises of Virtual Currencies.” The hearing started off with the first panel of representatives from the US Government including Jennifer Shasky Calvery (Director, Financial Crimes Enforcement Network U.S. Department of the Treasury), Mythili Raman (Acting Assistant Attorney General, Criminal Division, U.S. Department of Justice), and Edward W. Lowery III (Special Agent in Charge, Criminal Investigative Division, U.S. Secret Service, U.S. Department of Homeland Security).

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Provided by:

2014 Jan. 6

Jan. 23

1 millionth wallet created on Blockchain.info: In November 2013 Blockchain.info announced they had reached a total of 500,000 hosted wallets. Just 2 months later they reached the lofty milestone of 1 million wallets. Their simple web and smartphone wallets have provided a quick way for people to start using the most popular digital currency in a tangible way. To celebrate this historic milestone, they began a contest to give away a trip to travel anywhere via Btctrip.com of no more than 10 BTC. Tiger Direct Accepts Bitcoin via BitPay: Today, TigerDirect announced its embrace of Bitcoin through BitPay, Inc. TigerDirect has met the needs of customers for over 25 years and is known for high quality, discount electronics. TigerDirect is a subsidiary of Systemax Inc. (NYSE: SYX), a Fortune 1000 company. There was no lack of excitement from the Tiger Direct Team as the front end of the website clearly displays their embrace of bitcoin with a backdrop of physical bitcoins.

Jan. 28

The New York State Department of Financial Services conducted hearings on virtual currencies on January 28 - 29, gathering some of the more visible and influential members of the Bitcoin community as part of its fact-finding initiative that began with an initial inquiry back in late 2013.

Jan. 29

The United States Post Office Considers Becoming Bitcoin Exchange: Felix Salmon discussed (via Reuters) the white paper published by the Inspector General of the United States Post Office and agreed USPS needs to be involved in more financial services to help offset the costs of running a global postal service. The USPS already offers money orders and prepaid debit cards, and operating as a fiat/digital currency exchange would be an extension of their existing financial services. Given their official status as a legal Money Transmitter, providing Bitcoin exchange to and from the dollar as a government-certified establishment could aid Bitcoin adoption.

Feb. 20-25

Mt.Gox IS a Business NOT a Bitcoin Failure: The closure of Mt. Gox, although unfortunate, represents a business failure and NOT a Bitcoin failure. As the Bitcoin protocol is strong and resilient, Mt. Gox’s business blunder was an opportunity for the Bitcoin community to demonstrate Bitcoin’s value beyond a failed exchange and even beyond the once largest Bitcoin exchange. Mt. Gox’s closure also served as a wake-up call for Bitcoin community members not to place trust in one centralized exchange but to diversify where bitcoins are stored and even which exchanges are used.

Mar. 25

US Internal Revenue Service Issues Tax Guidelines on Bitcoin: Less than one month before Tax Day in the US, the Internal Revenue Service issued guidelines on how users of virtual currencies should treat these currencies and report gains and losses. The Bitcoin community’s reaction was not that enthusiastic as the IRS stated that in the US Bitcoin is a commodity versus a currency. Further dialogue and negotiations are expected.

Apr. 8

Bitcoin Core Version 0.9.1 Released: This release contained a fix to address the Heartbleed bug affecting any software that used OpenSSL and protect it from side attacks.

May 15-17

Bitcoin 2014 Conference: The Bitcoin Foundation hosted the most international Bitcoin conference to date with attendees from over 50 different countries who gathered in Amsterdam, Netherlands. Attendees included Bitcoin fans, start up entrepreneurs, and even attendees from Botswana and Kenya. Amsterdam was the perfect spot for Bitcoin 2014 as the city represents tolerance and innovation. Bitcoin 2015 is set to take place in Asia next year.

May 30

Dish Network Announces Acceptance of Bitcoin: Now one can pay for cable with bitcoin. Dish Network took the step to accept payment in bitcoin and has over 14 million subscribers making it the largest company to date accepting payment in bitcoin. Dish Network will be working through Coinbase to process payments.

May 31

Bitcoin Price Hikes: Bitcoin hit several high points closing out the month of June. Some speculate the highs of 675 USD/BTC to be associated with the most recent Bitcoin Conference: Bitcoin 2014 in Amsterdam, Netherlands and additional excitement of new investors in the space and larger companies embracing the currency. The price hikes clearly indicate that despite the closure of Mt.Gox, Bitcoin is strong and the technology and movement behind it cannot be halted. Bitcoin Magazine Contributing Authors:

Ruben Brito

Elizabeth T. Ploshay

Mihai Alisie

Editor-in-Chief

Director of Operations & Outreach

Editorial Board

Adam Hofman

Vitalik Buterin

Lead Writer

Editorial Board yBitcoin.net

yBitcoin.net

A World of

Cryptocurrency Innovation

The arrival of Bitcoin on the international economic stage created an earthquake in the world of math-based currency. But even as that world continues to absorb its impact, it is clear that Bitcoin represents neither the beginning nor the end of how money will change in the future. While Bitcoin is far ahead of its peers, currency entrepreneurs have taken its cue to heart and embraced the concept of “programmable money.” Many bright minds have been working tirelessly to improve the protocol, either by creating alternative competing systems or by building right on top of the Bitcoin protocol itself. This section of yBitcoin magazine is intended to keep readers abreast of innovations in the cryptocurrency world. Here, you’ll catch the latest developments in Bitcoin and its various competing visions for how to leverage blockchain technology and create value in an increasingly digitized and inter-connected world. Read on to keep yourself both inspired and informed.

“If at first the idea is not absurd, then there will be no hope for it.” – Albert Einstein

yBitcoin.net

bitshares.org So were you perhaps beginning to feel pretty good about finally understanding the world of Bitcoin as it started to make the evening news and show up in morning briefings on your favorite cable outlet? Well hold on there, because like all dramatic innovations in human history, Bitcoin has paved the way for a host of followups in the “ecosystem” it has spawned, and there would appear to be no stopping now. One of the latest innovations-uponinnovation is BitShares, whose slogan, “Reimagine Everything,” stands as a call-to-arms to widen the vision of the technology behind Bitcoin. BitShares uses the same blockchain-based model but applies it to shares of companies, potentially broadening the technology’s reach far beyond currency. The BitShares concept originated with Daniel Larimer, a Virginia-based software engineer and entrepreneur with an abiding passion for fostering radically decentralized businesses—including his own. “We’re spread all over the world,” notes BitShares Marketing Director Brian Page, who tracked Larimer down at the Las Vegas Bitcoin Conference last year. Everywhere Page turned to make deeper inquiries about what may be the next big thing related to Bitcoin, he heard the same refrain: “Oh, you have to see what Dan Larimer is working on.”

Page wasn’t looking for a job prior to that conversation, but he emerged with one after he and Larimer got to discussing not only the fine points of Bitcoin, but where the new decentralized world was heading in its wake. For Larimer, his own path was obvious. With BitShares, he was already moving beyond Bitcoin-as-mere-currency, creating his equally decentralized entity with the task of building the software that will make the world’s first fully decentralized autonomous businesses possible. Page elaborates: “We aim to do for business what Bitcoin is doing for money— make it digital, decentralized, open source, and free market.” To that end, BitShares offers an open source platform from where entrepreneurs can encode their business plans in software limited only by their imaginations—and the willingness of others to share their vision and invest in their companies. BitShares thus represents a new use of Bitcoin technology, where instead of using “coins” to function as currency, it can be used to own digital “shares.” “Anyone can use the BitShares software to build a decentralized autonomous company (DAC),” Page says.“Within that, there are many kinds of shares and many kinds of companies.The commonality is that they’re digital and exist only as software.These are not legal entities with boards of directors, stock, offices, and employees. Like Bitcoin,

DACs exist entirely as software running on individual computers all over the Internet, allowing them to take on a life of their own, like Bitcoin has. With expenses reduced, transaction fees earned by the network can go to shareholders instead. “We looked at Bitcoin and thought, ‘Hey, there are a hundred other ways to apply the same technology.’ The banking industry, domain names, gaming, insurance, the music industry, ticket sales, even the way we count votes—these and many other businesses are run archaically, in ways that let profits go right out the door and require centralization,” Page says.“All of them would benefit hugely with a BitShares approach that limits fraud,fills seats,promotes transparency, and unleashes free market forces and entrepreneurs.” BitShares, Page likes to suggest, will be “the ultimate app store for entrepreneurs who want to enter this new world. We’re creating the tools they’ll need to make this possible by combining the profit motive with blockchain technology in a way that hasn’t been done before. “Think back for a minute to the early 1990s when the first websites were being created,” Page offers. “People at the time thought, ‘Oh, that’s a beautiful website, just brilliant, that will change everything,’ but the true brilliance was not just the website, it was the emergence of the Internet itself. Look what it led to. Who could have envisioned Google or Facebook back then? And those companies just keep coming. So, if you think of the Internet as what made possible the decentralization of information, this new wave of innovation will enable the decentralization of so much more. It’s why we keep asking, ‘Why not reimagine everything?’”