Month: January 2013

Photo taken by Jeff Garzik

Jeff Garzik has just received the first ASIC mining computer to hit the consumer market, and has confirmed on Bitcoin IRC that the machine functions as expected. Even after Avalon announced that they had shipped their ASICs out to customers one and a half weeks ago, many continued to doubt Avalon’s claims, but now the Bitcoin community can finally rest easy knowing that the long-awaited ASICs are indeed real.

Word from Garzik first came out a few hours ago, when he wrote a blog post confirming that he received the package and showing off a few pictures of the device and its packaging. An hour later Garzik followed up with another post, detailing the hardware’s modularity and providing a brief three sentence hardware review: “No wifi antenna included. No paperwork or instructions. Power cable is for Chinese “I-SHENG” power outlets, not American. Easy oversights if someone is rushing to ship it, I suppose :)” Fortunately, Avalon founder Yifu Guo confirms, the rest of Avalon’s customers will get a standard US power cable as expected.

Now, only several minutes ago, Garzik followed up with a message on Bitcoin IRC announcing the news that Bitcoin enthusiasts everywhere have all been waiting for: “mining!”, soon followed by a statistic: the machine’s average hashrate is 68252.65 MH/s. This is about thirteen percent higher than the 60 GH/s that Avalon had originally promised, and with the state of the Bitcoin network as it currently is is no small sum; given the current total network hashrate of 22000 GH/s, Garzik will be able to earn an average of about $240 per day. Avalon’s remaining customers will also be able to enjoy highly lucrative rewards, although not quite as extreme; once all of Avalon’s 20 TH/s are added into the picture, each individual ASIC will earn about $120 per day (paying for itself in slightly under two weeks), although revenues will decrease further when Butterfly Labs’ customers get their hands on their own ASICs – an event which, given Butterfly Labs’ current shipping projections is likely to occur around the beginning of March.

Garzik has also made additional comments on the machine’s functionality; “once mining started it was very loud,” Garzik writes, “fans full blast, when initially powered on. The the fans flow down, and the noise cuts way down.” He also spoke positively about the web interface, and for mining aficionados posted a detailed cgminer output log at http://pastebin.com/g4BhvCXK.

ASIC mining will likely take months to reach its full potential; Avalon is not releasing its next batch until early March, and Avalon and Butterfly Labs may well be working nonstop for the foreseeable future as more and more customers line up to buy their own. The Bitcoin ASIC revolution, far from nearing its finish line, is now only beginning.

TruthLoader, a UK-based daily YouTube show which describes its mission as “bringing investigative and citizen journalism together,” has announced that tomorrow’s episode will be on a topic that is bound to interest many Bitcoin users: can we govern ourselves with digital technology and collaboration? The show, which will air at 7:00 PM GMT (that’s 2:00 on the US East Coast or 11:00 on the West Coast), will feature a live Google+ hangout including two guest speakers, both of whom are known in the Bitcoin community: lead developer Gavin Andresen, and Icelandic parliamentarian and Wikileaks supporter Birgitta Jonsdottir. Gavin Andresen is well-known for his role as lead developer of the Satoshi client and the Bitcoin protocol, and Birgitta Jonsdottir appeared in the London Bitcoin conference in 2012, where she gave a talk entitled “No Privacy – No Freedom“.

Although the message of Occupy Wall Street was difficult to define,” Truthloader host Phil Harper states in the introductory video. “It seemed clear that it was a repsonse to people feeling left out of the political decision-making process.” Harper then continues “the internet gave us a glimpse of a world with out the old systems of power. It’s a place of creativity, engagment, and inclusion where people can feel like they are having an impact. Is it possible to use the open access principles to build a system thorugh which we can govern ourselves?” It’s a question which has been the focus of much discussion in the last few years; internet protests in 2012 were instrumental in blocking the Stop Online Piracy Act in the USA and the ACTA copyright treaty in Europe, and in 2010-2011 social media played a significant, and some even say crucial, role in the uprisings of the Arab Spring. Anonymous and the Pirate Party provide two more examples of political movements that have arisen entirely out of internet principles and culture. Bitcoin provides another way that a group of people can organize themselves online; here, a community hundreds of thousands of people strong has created, and enforced, an agreement on a common currency and a common monetary policy, all through bottom-up, decentralized cooperation.

Although most of the time YouTube shows are too obscure to warrant mention, TruthLoader is somewhat of an exception. TruthLoader is operated by the British news service ITN (Indepdenent Television News), which is also responsible for ITV, Channel 4 and Channel 5 in the UK. TruthLoader’s videos have been seen a total of about two million times; far from mainstream, but nevertheless significant. TruthLoader is als accepting questions from the community which it will ask the guest speakers; those who have something to ask can simply post their question on either #opengov on Google+ or Truthloader’s Youtube channel. The event will be a unique opportunity to see Gavin Andresen speaking live, and another chance for Bitcoin users to interact wiht the larger internet activism community. For those who will not be able to watch it live, TruthLoader always posts its episodes on its Youtube channel. Either way, the event is important enough not to be missed.

Under the terms of a $7.2 billion class action settlement that a US federal judge approved in November, starting this Sunday, merchants will gain the legal right to charge credit card-paying customers extra to make up for their processing fees. Currently, every time a customer makes a payment with a credit card, merchants are charged about $0.25 + 2.9% for the transaction, and for many years, major credit card companies have included a term in their merchant agreements forbidding merchants from using surcharges or discounts to encourage their customers to pay with cash instead. The result has been what antitrust theorists would call a market failure: credit card companies encourage their customers to use credit cards through appeals to convenience, a consumer-biased chargeback system, and, in many cases, credit card companies bribe users directly with a 1% rebate on all purchases, while merchants are forced to cover the cost – or, more precisely, pass on the cost to all their customers, cash, debit and credit card users alike.

Powerful retail business organizations have been bringing antitrust lawsuits against Visa and Mastercard for this practice since 2005, and a settlement on the matter was finally reached last year in June. The deal includes monetary compensation of $6.05 billion to a wide array of large and small businesses, an agreement to cut transaction fees by 10 basis points (ie. to 2.8%) for eight months (an estimated further $1.1 billion in savings for merchants), and, most importantly, the nullification of the clause preventing merchants from providing incentives for using alternative means of payment. Some merchants are unhappy with the deal, believing they could have gotten much more in a trial, but in November, the settlement received initial approval by a federal judge, and tomorrow the main part of the deal will kick in.

If merchants succeed in convincing consumers to pay more often with cash, the benefits in the retail industry will be significant. Although 2.9% may not sound like much, in many industries, businesses’ profit margins are not even three times that, so having more customers use a more efficient method of payment will be a significant boon. Restaurants in particular may benefit, as profit margins for them are often as low as 4%.

In the case of online businesses, this significantly widens the door for Bitcoin adoption. Online businesses have to deal with not just fees, but also a significant amount of chargeback fraud. The issue is not a problem in all industries; according to a 2012 report by Cybersource, the average online merchant currently loses about 1% of their revenue to fraud, about 40% of which consists of fraudulent chargebacks. In the case of international payments, however, the loss rate is 2%, and some specific industries report loss rates that are even higher; one study in the manufacturing industry showed loss rates of 2-10%. If it becomes accepted for online merchants in these industries to accept Bitcoin as well, and, importantly, offer half of their savings to the customer as a discount, momentum for the currency may build up quickly. The Bitcoin Store already manages to offer customers electronics at prices significantly cheaper than major retailers like Amazon and NewEgg, largely due to the increased efficiency of Bitcoin with regard to fees, chargebacks and convenience, and with this settlement, passing on one’s savings by using Bitcoin will no longer be an either-or proposition; established merchants who would benefit from their customers paying with Bitcoin will be free to offer both methods of payment, with the advantages and disadvantages of each properly factored into the price, at the same time.

The outcome of the settlement is not going to transform the payments industry overnight; merchant agreements of the type Visa and Mastercard were requiring were already illegal in ten states, and the experience there has shown that antitrust rules alone are not enough to significantly disrupt the credit card oligopoly – the responsibility ultimately falls on the competition to present something significantly better. Payments technology may well continue to advance slowly for years to come, and Bitcoin exchanges still have a long way to go to before the currency can realize its potential in the mainstream retail industry. However, both for Bitcoin and for any other startups seeking to displace Visa and MasterCard, this decision is nevertheless a significant step forward.

For the past seven months, application-specific integrated circuits (ASICs) have been the central focus of Bitcoin mining development. Ever since Butterfly Labs became the first company to publicly announce its upcoming ASIC technology in June 2012, four startup companies have been in a race to be the first to release the technology. Now, it looks like the race finally has a winner: Avalon. On January 19, the countdown timer which the company had boldly placed on its website weeks before has reached zero, and within hours, the company sent off its first batch of 300 mining rigs to its customers. The units are currently being shipped from China, and, Avalon founder Yifu Guo believes, units should start arriving at customers’ doorsteps at the beginning of February.

The specifications of the devices are somewhat less impressive than what Butterfly Labs has been promising. The most basic statistics, price and hashrate, are the same, with both companies offering 60 GH/s for $1,299. Going deeper into the features, though, there are significant differences. While Butterfly Labs’ line of SC devices, with the exception of its 1500 GH/s “Mini Rig”, is able to fit inside a ten-centimeter cube, one of Avalon’s machines is as large as a typical desktop computer – a space inefficiency that the company was forced to pay dearly for with shipping costs of $150 per device. Compared to Butterfly Labs’ promised power efficiency of 1.2 watts per GH/s, Avalon is offering 6W per GH/s – still nearly an order of magnitude of improvement over existing FPGA hardware, but nevertheless not nearly as efficient as what Butterfly Labs customers are expecting. Avalon’s technical specifications are also generally inferior; Guo admits, for example, that Butterfly Labs’ manufacturing process used a wavelength (a measure roughly comparable to the size of chip features) of 65nm, but Avalon used the relatively coarser 110nm.

However, Avalon easily makes up for all of these deficiencies with one overwhelming advantage: so far, they are the only ones to have actually shipped a product. Avalon’s main three competitors, ASICMiner, Butterfly Labs and bASIC, all originally promised shipping dates in October or November, but as of today, none of them have even demonstrated a functional product. ASICMiner is perhaps the closest to getting its machines working, but there is reason to believe that even it may be in worse shape than it appears. “There are some oddities with their announcements,” Guo explains. Normally, computer chip manufacturing facilities produce a “yield” of 95% – that is, less than 5% of the chips that come out of the foundry are imperfect in some way. For ASICMiner’s chip production, the company’s customer service representative reported, the number of failed chips is as high as 30%. In theory, all this means is that the manufacturer will need to make 43% more chips to compensate, but the abnormality hints at the possibility of other problems to come.

ASICMiner has been relatively quiet about the reasons for most of their delays, although the latest – from mid-January to late March – was caused by a combination of internal business difficulties and Chinese New Year celebrations ensuring that work could not be completed in the weeks leading up to, and immediately after, the actual holiday that falls this year on February 10. Butterfly Labs has announced multiple significant delays, and is currently sticking to a timeline that will have it shipping the week of February 10. The most recent delay was caused by a decision to change the technology that it uses to connect its integrated circuits to the rest of the processor. Its original plan had been to use the Quad Flat No-leads package (QFN) technology, but heat management issues forced them to reconsider and switch to the Flip Chip Ball Grid Array (FCBGA), a change which is difficult to make at such a late stage in development.

Avalon, on the other hand, has seen its development process go extremely smoothly, and has even come out far ahead of schedule compared to their original scheduled release date of late February 2013. Since then, they have mostly pushed their deadline forward, rather than back, with two small exceptions: a single one-week delay that the company were able to predict over a month in advance, and a largely unnoticed, one-hour, delay after the countdown timer expired on January 19. Ironically, the latter delay was caused by the exact opposite problem to what Butterfly Labs is facing: Avalon needed to remove some fans from its hardware because its cooling system was doing its job too well.

Aside from basic statistics, Avalon has also made a number of other features of its devices public. The machines will run on openWRT, an open source Linux operating system, and the mining software itself is simply cgminer combined with an Avalon-specific driver. This also means that the Avalon code is entirely open source; openWRT is available under the General Public License version 2, and cgminer is released under GPL version 3. The machine uses a standard ATX power supply, the same as that used by ordinary computers, and internet connectivity is provided via Ethernet and Wi-Fi.

Configuring the machine will be possible either through SSH or a dedicated web interface, allowing users to easily set it up to mine with their preferred mining pool. Solo mining, however, is harder. Unlike pooled mining, where the miner receives the block headers needed by the mining algorithm directly, a solo miner needs to have an instance of bitcoind running locally or connected to the machine, which also requires storing the entire 6 GB Bitcoin blockchain. There are two ways to get around the issue. First, one can run an instance of bitcoind on a separate PC and configure the Avalon machine to work with it just as easily as one would a mining pool. Alternatively, there is also the option of running bitcoind on the machine directly, but that would require a USB flash drive to store the blockchain, as well as some special configuration to make bitcoind available on openWRT. This second option, while attractive, is thus much more difficult to implement and not supported “out of the box”. Mining with P2Pool presents a similar problem, although in that case there is a third workaround: connect to a public P2Pool node rather than running a node yourself.

Altogether, Avalon’s first batch is expected to contribute a total of 18 TH/s to the Bitcoin network – about eighty percent of the network’s entire hash power at the time of Avalon’s shipping. The network hash power is expected to ramp up slowly over the coming weeks, giving at least some Avalon customers a small window of opportunity to quickly earn back a significant portion of their investment before the network difficulty adjusts – and before Avalon’s competitors catch up. The company’s next batch is expected to come with 500 units on March 1, although with prices increased to $1,499 per machine, and yet undisclosed future upgrades are already in the works.

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Avalon founder Yifu Guo has agreed to share his thoughts on the ASIC mining industry, and what enabled him to succeed where others have failed.

Vitalik: So when did you get into the ASIC business?

Yifu Guo: It was March, 2012. Some hardware people, e.g. ngzhang, and I spoke about it, since it was technologically the next progression. We never stopped talking about it, but I’d say the serious work didn’t begin until BFL announced their ASIC lineup. We didn’t want a company obtaining monopoly, thus serious work began.

Vitalik Buterin: well, now you have a monopoly – you’re shipping almost as much as the current network, how do you feel about that?

Yifu Guo: I don’t like it frankly speaking. Technically the reality was supposed to be fairly different. BFL and bASIC were suppose to ship before me, and I was not expecting large demand due to their delays. Originally I was supposed to make this batch and sell chips, and provide the technology to more people, rather than making this a business. But alas, I’ve became what I’ve tried to prevent. With power comes responsibilities.

Vitalik Buterin: Why do you think the other three major ASIC producers have been delayed so much?

Yifu Guo: They don’t have existing relationships with IC companies, is the short version.

Vitalik Buterin: And you did right from the start?

Yifu Guo: Yes, this is correct. I am involved heavily with the development process, as indicated by all the paperwork and stuff I’ve released, as are most people who are involved with Avalon but not on the IC team. Close communication made us. We never had a “fuzzy” date. I’ve known what was going on, when things are happening, what parts are coming in, what’s being bought and etc. Hence I was able to give good promise on dates, knowing we would be a few days late a month earlier. This is our biggest advantage.

Vitalik Buterin: Yeah, I saw that. Very precise of you. So what does your corporate structure look like?

Yifu Guo: There isn’t a clear “company” structure involved with it, but we are not new to product development, and we knew what skillset we needed, so we brought who and what we needed on board, and worked together do this project. There are parts we “contracted” it out, if you will; for example, we didn’t CNC our cases ourselves, nor we had laser cutters, but we 3d modeled it, and somebody else converted it to a machine drawing for example. They were mostly friends, as you know that’s how things work in Asia. Essentially the whole design is made by us, including the chip, it’s the back-end and 110nm actualization that is done by the IC company, considering the actualization tools are expensive.

Vitalik Buterin: So it’s basically that they don’t have close communication that’s been causing BFL and bASIC to fall behind so much? Are there any other factors, in your opinion?

Yifu Guo: I think a lot of the problems that came out were caused by a lack of communication. Remember how Inaba comes out and says something like, the chip is flawed, then the engineer Nasser comes out and says it’s “clock buffer problem”. Whether that’s true or not, let’s not talk about that, but the gap in communication indicated by this event is apparent. Or how Inaba is saying they are waiting on dates, or how bASIC is saying how they are waiting on dates. And in the case of bASIC, I really think they got scammed by whatever company they were working with, because I don’t think Tom is technical at all, nor is Inaba. But I also don’t think that’s the point. How does it not raise a flag, as a person involved with a project to accept things like something being due today, but only to have a third party tell you that the new deadline is “30 days later”. That was Inaba addressing when the chips are coming out in December, and now they released a new timeline on how their chips are coming at the end of January. If it was me I wouldn’t have accepted that kind of delay without getting some SERIOUS answers.

Personally I’m often the one to press for explanation and answers in the development process because 1. I have the weakest knowledge in hardware compare to everyone else involved and 2. I handle public relations. So, back to the original problem, they were at the mercy of quoting dates from third parties, while we were always in control. That is, aside from Chinese New Year and some customs issue that delayed us, but we announced CNY issue the same day we announced the project, and the customs issue a month ahead.

Vitalik Buterin: How did the shipping process go? When do you expect customers to receive the boxes?

Yifu Guo: We underestimated the shipping cost by like $80 per unit and ran into some issues with customs, so we are already in the red from shipping costs this round and later than we planned. As for when they will arrive, depends on where the customers are, but I think 2 weeks or so.

Vitalik Buterin: Alright then, thanks a lot for your answers. That was a really interesting conversation.

Yifu Guo: Anytime.

The Bitcoin price has just broken through the $15.4 high that it last set in August, making today’s maximum of $15.68 at the time of this writing the highest that the Bitcoin price has been since July 6, 2011. The spike follows a roughly two-week-long rise that has been bringing the price up by an average of about 10 cents per day since roughly January 7, turning the rally into an all-out buying rush as the price battered for two hours, and finally broke through, the psychological barrier of $15. The near-term cause of the sudden increase was the Coming of Age Day, a banking holiday in Japan which caused deposits in the Japan-based MtGox to get delayed until today. Once the deposits processed on Tuesday, Fred Ehrsam argues, all those who deposited fiat into MtGox to buy bitcoins over the weekend were finally able to do so all at once, breaking the steady trendline at $14.2 and causing the price to shoot up precipitously over the next two days.

Unlike some of the previous spikes that the Bitcoin price has seen over the years, this rally appears to be well supported by the underlying fundamentals. Google Trends volume, a commonly used statistic to gauge public interest in Bitcoin, is roughly stable, but over the past few months one can notice a distinct trend toward Bitcoin’s score increasing. However, it should be noted that the Google Trends volume, although it used to be extremely well-correlated with the Bitcoin price, has diverged considerably in recent months, to the point of only slightly tracking Bitcoin price movements since August. Thus, there is reason to believe that the slow and unpredictable rate at which this statistic is rising should not be taken as an argument against Bitcoin’s short-term and medium-term future.

Other statistics weigh even more heavily in Bitcoin’s favor. Here are some charts from blockchain.info showing the number of unique addresses and the number of transactions per day:

These figures, which attempt to measure Bitcoin’s actual usage rather than public opinion or interest in the currency as search volume and all market statistics inevitably do, show the same pattern: the values rose during summer 2012, dropped off in the fall, but then began to quickly pick up again in November after WordPress started accepting the currency. Now, the values are all roughly at the same levels as their August 2012 highs, and are likely to go even higher.

Even more positive are the statistics for the online wallet service operated by blockchain.info itself. The site’s transaction volume and number of transactions per day have been consistently going up throughout 2012, even remaining roughly horizontal while the Bitcoin network statistics and price were going down in September and October. The number of users, however, is especially surprising:

For most of the year it was the simple, roughly quadratic curve that one might expect from a steadily growing service. In December, however, shortly after Bitcoin Centralannounced its deal with a payment services provider in France, a sudden and fundamental shift happened. For a few days, Blockchain’s number of users very nearly went vertical, and it has since continued to grow at over twice the rate that it did previously.

The reasons for the rise are plenty. The price started to move up from a low of $10-$11 after WordPress, ranked by Alexa as the 21st most popular site in the world, started to accept Bitcoin for payment in November. Soon after that, we saw the Bitcoin Central deal take place, which significantly changed Bitcoin’s reputation for the better in an instant. A flood of online articles on the subject arose, all with the same message: Bitcoin is now going mainstream. Since then, we have seen Bitcoin gambling hit the mainstream media, and articles continuing to report on Bitcoin as a whole, including an article by Canada’s MacLeans which wrote in its headline that “the cold, hard cash of the Internet has seen dramatic growth recently, and shows no signs of slowing down.” Bitcoin business is continuing to grow; BitPay’s Tony Gallippi reports that since WordPress started to accept Bitcoin the company has increased its number of merchants by over 50% and now stands at over 2100. Very recently, the company also raised a sum of $510,000 from a number of moderately well-known Silicon Valley investors. The negative attention that Bitcoin had been receiving in the fall following the collapse of Pirateat40’s Ponzi scheme and the Global Bitcoin Stock Exchange has since subsided, and Bitcoin has seen no significant troubles since. The currency is now in a better position to start truly hitting mainstream adoption that it ever was.

From here, it is still a long road until Bitcoin breaks the all-time high of $31.91 that its price reached in June 2011. However, logarithmically speaking, Bitcoin has already covered nearly three quarters of the distance since its post-peak low of $1.994 in November 2011. The 14-day average is also now as high as it ever was, and may well go even higher. In the next few days, a return to the more steady trendline that is now in the $14-$15 range is likely, but if all goes well in the medium term that price is well poised to go even higher.

Update: rumors of bASIC’s demise have been, at least for now, grossly exaggerated.

Updates on the Bitcoin ASIC mining scene are coming faster and faster as the shipping dates for all three leading contenders approach. Only a few days ago, all major competitors were poised to release their products around January 19, and it looked as though the eight month long wait for the new mining technology would finally draw to a close. Now, however, it appears that most of us will have to wait a little longer.

The first troubling news came on Saturday when Dave, manager of the bASIC project’s parent company BTCFPGA, announced that the project was on the brink of collapse, and was processing refunds. BTCFPGA has been in trouble for over a week; on January 5, another BTCFPGA employee who goes by Tom, or “cablepair” on the company forums, announced on the BTCFPGA forums that shipping would be delayed considerably due to Chinese New Year celebrations in China. In 2013, the date for the Chinese New Year will be February 10, and factories typically close for a week on both sides of the holiday (or two weeks total), allowing for celebrations similar to Thanksgiving and Christmas, but more prolonged since Chinese factory workers often live far away from home and need days to get back. However, the consequences to businesses relying on China as part of their supply chain extend far beyond this. Raw materials suppliers often shut down weeks prior to the main celebration to anticipate the reduction in demand, and after the celebrations production also picks up very slowly. Many employees take extra vacation time right after the holidays for Chinese New Year – a sensible decision, as they live so far away from home and taking multiple shorter breaks would not allow them to see their families. At many factories, the situation is even worse: up to 50% of the workers do not return to their jobs at all. Thus, factories start off the new year understaffed, at a time when they need to be the busiest bringing production back on track.

On January 8, BTCFPGA customers received another message in which Tom announced the “final – never again changing date for bASIC shipment:” March 15-29. The next day, Dave announced that “there are new player(s) that have come to the fore pledging to support this project – this may come as a complete buyout or by taking a cash equity position – the details are being hammered out over the next day or two.” He also confirmed that under the new deal the March 15-29 shipping date would be on schedule. On January 12, however, Dave made a post stating that the deal was off. On January 15, however, Dave provided some good news: bASIC was still alive, and Tom was working hard on a deal that would ensure that the company keeps going. “Tom sounded very upbeat and motivated to see bASIC placed in the hands of a team that can carry it forward to complete his original vision.” Dave wrote.

On Monday, Butterfly Labs, facing accusations of what some consider to be evasive behavior, have come out and announced a specific deadline: the week of February 10. The date comes as a shock to some, particularly as as little as one week before today many people expected Butterfly Labs to deliver slightly ahead of Avalon’s preset deadline, January 19. However, Butterfly Labs’ Josh Zerlan has written a post extensively describing the reasons behind the delay, and precisely what the company still needs to do over the next few weeks. The main cause of the delay is a decision that the company made to switch the technology that it uses to connect its integrated circuits to the rest of the processor. Its first decision had been to use the “Quad-Flat No-leads package” (QFN) technology, but later tests showed that with QFN the chips were getting uncomfortably hot. “Our chips would have functioned as currently spec’d within our thermal tolerances, Zerlan writes, “but we would have very little thermal headroom to really crank things up. With an eye towards the future, we decided to bite the bullet and release a product that is ready for the long haul as opposed to releasing something now that would require exotic cooling to be pushed past 80 GH/s or so.” The perfectionist attitude runs deep within the company; even the ASIC team’s payment, Zerlan writes, is “effectively tied to the success of the chip” – not the release date. They are now instead using a “flip chip ball grid array” (FCBGA).

The outline of Butterfly’s plans in the weeks to come is as follows. This week, the company will travel to the packaging facility for a final preparation and walkthrough, and confirm travel plans to the fabrication facility. Next week, preparation for final assembly will take place and the team will make its way over to the fab. On the week starting Jan 27, final chips will roll off the production line and manufacturing will start for the units themselves. On the week starting Feb 3, the chips will be packaged and everything will be assembled. Finally, on the week of Feb 10, Zerlan writes, “we descend upon the Post Office, DHL, UPS and FedEx like a horde of angry locust.”

In the meantime, ASICMiner appears to have been delayed only slightly compared to its prognoses from weeks ago; in an update on January 10, ASICMiner announced that they had already placed the necessary mass production orders, and so they are expected to turn on their devices relatively soon. They are also helped by the fact that their business model is different from the others, relying on keeping their machines in-house and earning money through a combination of raising shares and pocketing the mining revenues themselves, so they do not need to bother with shipping and can get away with somewhat less sturdy hardware. Avalon‘s Yifu Guo, on the other hand, confirms that shipping is still on track for January 19.

If all goes according to plan from here, some customers will be turning on their ASICs as early as next week, and will have two weeks of unexpectedly high revenue as without competition Avalon and ASICMiner’s machines will be able to collect a large fraction of the fixed Bitcoin mining reward. Also in Avalon customers’ favor is the fact that mining difficulty will take a while to adjust. Their first batch will contain 300 machines, each of which are capable of 60 GH/s, sending the network hashrate from about 21 TH/s to nearly 40 TH/s. The next difficulty target is estimated to take place on block 217728, almost exactly at the time that many customers will be receiving their Avalon ASICs, so the first time mining difficulty significantly moves up to reflect the network’s newfound strength will only happen in early February. Butterfly Labs will, unfortunately, miss the golden opportunity, and buyers of bASICs will have to wait even longer is they choose to spend their refunds on a competitor’s product. Regardless, however, it is becoming clear that every day we are getting closer to the pinnacle of Bitcoin mining coming right to our desktops.

The Two Bitcoin Conferences of 2013

After the first two successful Bitcoin conferences that took place in Prague in 2011 and London in 2012, it has been announced that there will in fact be two Bitcoin conferences taking place in 2013. The first, entitled “The Future of Payments”, will take place in San Jose, California on May 17-19, and the second, named “unSYSTEM”, will happen in Vienna on 1-3 November. The two conferences will be in a similar format to those run in 2011 and 2012; they will both take up a weekend, feature a number of speakers making presentations on topics either related to Bitcoin or of interest to the Bitcoin community, as well as offer opportunities for speakers and attendees to interact; for the curious, schedules for the previous two conferences can be found here and here, and videos of individual presentations are also available from 2011 and 2012.

The 2012 conference, organized largely by Bitcoin activist Amir Taaki, saw a significant shift in the range of topics discussed from that in 2011, featuring many speakers who were outside of the Bitcoin community entirely; free software advocate Richard Stallman, the pro-free speech Icelandic Modern Media Initiative’s Brigitta Jonsdottir, the free culture activist Jaromil and the leader of the 3D gun printing project Defense Distributed, Cody Wilson, were all among the speakers. A considerable number of Bitcoin developers and Bitcoin business owners, as well as others in the payments industry, but political activism was nevertheless a dominant message.

This time, the two conferences have radically different themes. For the 2013 conference in San Jose, the Bitcoin Foundation is pushing back in the direction of a conference organized around Bitcoin specifically and the more pragmatic issues that Bitcoin is trying to solve; the four main topics listed on the website are Bitcoin technology, Bitcoin mining, Bitcoin business and regulatory issues. Unfortunately, no list of speakers is yet given; the Bitcoin Foundation is still in the process of finding people to speak.

The unSYSTEM conference in Vienna, on the other hand, is pushing even further in the direction of activism. Of the sixteen speakers now listed on the site, only three are notable purely because of their work around Bitcoin, and the majority have nothing to do with the currency. Among these are Mitch Altman, inventor of the “TV-B-Gone” universal remote, free culture activist Nina Paley, democratic education pioneer Luis Henrique Fagundes and the Russian activist group Voina (“War”). Richard Stallman, Brigitta Jonsdottir, Cody Wilson, Jaromil and Max Keiser, who were all present at the London Bitcoin conference in 2012, are back, as well as Amir Taaki, who is organizing the unSYSTEM conference as well. Amir Taaki is known for his work on Bitcoin development, but has also participated in more direct forms of political activism, including a recent high-profile event in which he and a number of other activists squatted an exclusive property in central London. Also from the Bitcoin community Joerg Platzer, owner of Room77, the first restaurant to accept Bitcoin in Berlin, and now the leader of a project to get a large number of restaurants in Berlin to accept Bitcoin, will be attending.

A particularly notable upcoming speaker is the Silk Road, a black market offering thousands of illegal drugs using Tor and Bitcoin for anonymity. The idea of an illegal organization speaking at an above-ground conference seems counter-intuitive, but it can be done. The Earth Liberation Front, an eco-terrorist group, has an above-ground “press office” which is simply a media organization that reports on the ELF’s activities. The Silk Road may similarly have a liaison, or perhaps they may choose to speak by videoconference; Taaki writes that Dread Pirate Roberts confirmed Silk Road’s attendance, but details have not yet been decided.

On the whole, the split into two conferences is arguably a positive one for Bitcoin. There are many in the Bitcoin community who are intent on pursuing the success that Bitcoin reached at the end of 2012 with WordPress accepting Bitcoin and Bitcoin Central working with a licensed payment services provider in France, and attempting to get Bitcoin noticed, and accepted, by even more prominent individuals and organizations in the world of finance and payments. To many of them, associating Bitcoin with political radicalism, particularly the sort promoted by Cody Wilson and especially the Silk Road, serves only to marginalize the currency. Others, however, are political activists first and Bitcoin users second, and want to see more of what we saw in London in 2012. Almost certainly no one will agree with the entirety of what is spoken at the conference; opinion on controversial issues like guns and economic regulation vary widely even within the sort of community that unSYSTEM is seeking to attract, and some issues may even see both sides presented outright. However, as a meeting of minds the conference will be an event from which all sides can benefit by participating.

Practical information on attending both conferences has been posted, for the San Jose conference here and the unSYSTEM conference here. Both conferences are expecting a larger number of attendees than either of the conferences that took place in 2011 and 2012, and meeting the faces behind the most popular projects and services in the Bitcoin community has always been a key attraction of these events. Everyone is encouraged to attend, and those who have something that they want to present should contact the Bitcoin foundation here or unSYSTEM at their email address. Hopefully, these two conferences will be the greatest Bitcoin conferences yet!

BitPay has announced that it has secured a funding round of $510,000 from outside investors. The investors include Barry Silbert, founder of SecondMarket, a trading platform used by institutional investors to exchange shares in companies that have not gone public; Jimmy Furland, also of SecondMarket; Shakil Khan, founder of the online music service Spotify; and the Bitcoin community’s own Roger Ver, responsible for Memory Dealers and the Bitcoin Store, as well as others in the technology sector. BitPay is Bitcoin’s leading payment processor, providing merchants with ready-made software tools that they can use to accept Bitcoin on their website or brick-and-mortar store, as well as an option that allows merchants to accept bitcoins without ever handling them themselves; instead, Bitpay automatically converts the bitcoins to the merchant’s local currency and deposits into the merchant’s bank account.

BitPay is far from the first company to secure outside investment. The Bitcoin exchange MtGox was outright sold to Tibanne Co in March 2011, and within a year two more major Bitcoin businesses secured funding. BitInstant, a company that offers services that help make it easier and faster to buy bitcoins whether through bank transfer or cash deposit, secured an undisclosed sum in exchange for 15% of their company from Roger Ver in late 2011. In early 2012, Bitcoinica, the now defunct margin trading service that allowed users to buy or short bitcoins at high leverage, acquired an amount estimated to be in the low hundreds of thousands of dollars from an investor named Tihan Seale. Also, since May 2011 a number of small companies, mostly mining ventures but also notably SatoshiDice, have raised capital from a large number of mostly anonymous investors over trading platforms like the Global Bitcoin Stock Exchange and MPEX.

More interesting, however, is funding raised from established technology investors. In April 2012, Silicon Valley venture capital firm Draper Associates and Seattle angel investor Geoff Entress invested $500,000 in Coinlab, a company whose main projects so far have been an attempt to establish Bitcoin mining on gaming computers as an alternate way to pay for video games, and the Give-a-Goat charity mining software. In September, Coinbase, a company that has raised over $600000 from well-known investors including the “seed accelerator” Y Combinator and Reddit co-founder Alexis Ohanian. Now, this elite group of businesses has been joined by the largest payment processor in the Bitcoin economy, with over 2100 merchants (up from 1300 as recently as November) and $3 million in transactions over the course of last year.

BitPay intends to use the money to move their headquarters to Atlanta and hire five new employees to work on developing new features for their platform. “Atlanta is a great hub for financial technology companies,” BitPay founder Tony Gallippi writes, “Over 90 of them. It’s a great place to recruit and retain top talent, plus tap into the banking and financial infrastructure there.” Nearly 250,000 workers in the Atlanta Metropolitan Area work in finance-related occupations, out of a total population of 5.3 million, and 40,000 of them are employed specifically in the payment processing industry. Atlanta is also ranked by various indices to be among the top 40 financial hubs in the world. Thus, this decision will allow BitPay to tap into the talent of developers who are already familiar with payment processing issues, as well as give them the potential for much greater visibility in the payment processing community. BitPay’s headquarters are currently headquartered in the much less impressive Orlando, Florida.

Gallippi writes that WordPress’s decision to accept Bitcoin in November was a major factor pushing investors to support his company. Since WordPress started accepting Bitcoin (incidentally, using BitPay’s platform to process payments), the company’s merchant base has grown from 1,300 to over 2,100, and is expected to continue to grow as Bitcoin and BitPay receive more news coverage in the mainstream media. BitPay also currently has little in the way of direct competition. Coinbase, a company wishing to themselves become the “Paypal of Bitcoin“, does offer a merchant solution, but the core focus of their product is sending money person-to-person and creating an easy-to-use wallet service, so a marketing effort to attract merchants to themselves is unlikely. WalletBit is a more direct competitor, but so far their marketing efforts have focused heavily on Canada and Europe, while BitPay supports a more US-centric clientele. The distinction between the two can be clearly seen from their pricing policies; if a merchant wants their Bitcoin earnings automatically converted into local currency, BitPay offers a rate of 2.69% in the US and 3.99% in Canada, Mexico and the EU, while WalletBit offers a consistent 2.75% rate everywhere, although with a minimum fee of about $15 per transfer, soon to be reduced to about $5 in Canada.

Of course, a significant number of merchants also build their own platform for accepting Bitcoin, an option which should not be discounted for large businesses or unique businesses that need to integrate Bitcoin in some way that extends beyond simply using it to accept payments, but in the market of average merchants looking to start accepting the currency, within the US BitPay enjoys a near-monopoly. In two years that may change, just like leading Bitcoin exchange MtGox has seen its market share slowly drop from over 90% at its peak in 2011 to about 67% now. For now, however, BitPay is comfortably well ahead of any competition, and still has a long way to go in attracting new merchants. 2012 saw the company go from almost nothing to over two thousand merchants. Ten thousand by the end of 2013 seems quite likely.

After over three months of delays from all major competitors, it seems as though the race to develop the first ASIC-based Bitcoin mining computer is finally drawing to a close. Less than three weeks ago, Avalon ASIC announced a hard shipping deadline for themselves of January 19, and placed a countdown on their website. On December 28, another competitor, ASICMiner, published pictures of fully completed mining chips, and on January 3, their PR representative published a post on the Bitcointalk forums: “The samples passed all functionality tests. The power consumption is also within the expected range. And as our overclocking tests had shown, they still have a lot of potentials compared to our original spec. This means that the biggest risk of our project is gone and our NRE is a fruitful spend. The first production batch of chips will be out of the packaging service tomorrow. Our deploying is on its way.”

Butterfly Labs, the company that originally started the current rush toward ASIC development with its announcement in June, is intent not to fall behind. Today, Butterfly Labs is unveiling a prototype (pictured) of its ASIC miner at the Consumer Electronics Show in Las Vegas, where it is sharing a booth with BitPay. The device has an Android Nexus 7 tablet incorporated.

Out of the four major competitors, ASICMiner has a business model that is different from the others: while Butterfly Labs, Avalon and BTCFPGA are all seeking to make money by selling their ASICs, ASICMiner intends to keep all of its ASICs in-house, instead gaining the initial capital needed to develop their product by selling shares. The shares were originally released in August on the (now-defunct) Global Bitcoin Stock Exchange, opening up 7.5% of the company’s future profits to investors at a valuation of 40,000 BTC for the entire company. The offering was a success, selling out within days. However, the setup proved to be problematic when the GLBSE unexpectedly shut down, with the result that the company had no way of knowing who its investors were. ASICMiner did finally receive the shareholder database from the GLBSE in December, and shares will once again start trading and paying dividends on a yet-unspecified alternate platform soon.

As of today, the four main contenders in the race are:

• Avalon ASICs, offering 60 GH/s for $1,299. These are scheduled to come out on Jan 19, and Avalon stated on Jan 9 that this continues to be the expected deadline. Updates on Avalon can be found here.
• Butterfly Labs, offering the 60 GH/s Single SC for $1,299. These are likely to come out arund the same time as Avalon, although certainly not by the 14th.
• BTCPFGA’s bASIC, offering the 72 GH/s bASIC NextGen Bitcoin Miner for $1,069. Unfortunately, BTCFPGA has been suffering serious delays, and its projected shipping data now appears to be the second half of March.
• ASICMiner, not offering any physical product, but expected to contribute at least 2.8 terahashes, and likely more, to the 23-terahash Bitcoin network.

One positive outcome of this stiff competition is that it significantly reduces the chance of any attacks on the Bitcoin network during the transition to ASICs over the next few months. Three months ago, when Butterfly Labs’ Josh Zerlan was asked why he chose the business model of selling his products as opposed to simply mining with them himself, he replied: “Why don’t we mine with our own equipment? Because we believe the best way to secure bitcoin and help it to succeed is to get as much product out to as many people as widely as possible. That makes it exceptionally difficult, if not impossible, for any individual, corporation or hostile government to destabilize and wreck Bitcoin from within.” When he said this, however, almost everyone was fully expecting that Butterfly Labs would be the first to come out with ASIC hardware, and have a monopoly over it for possibly even over a month, and so the worry that Butterfly Labs would attempt to use its mining power to attack the network was prevalent. Now, however, there are a number of providers, all coming out with ASICs around the same time.

Thus, neither Butterfly Labs nor Avalon, BTCFPGA or ASICMiner will have a particularly long window of time within which to build up enough hashing power to attempt a 51% attack.
For those who are interested in seeing when ASICs start coming online in significant numbers, the best place to watch is the Bitcoin network charts at Bitcoin Watch. Once Butterfly, Avalon and BTFPGA customers and ASICMiner turn their entire first batch of computers on, the network hashrate is expected to skyrocket. ASIC mining computers are ten times more efficient than the semi-specialized FPGA machines that came before them, and even more efficient than GPUs. By the time the dust settles, we may be looking at hash rates well in excess of 100 terahashes per second – making what is already the most powerful distributed computing network ever to have existed even faster.

Joining the ranks of Coinbase, MtGox and Blockchain, Bitcoin developers Stefan Thomas and Jeremias Kangas have released a lightweight Bitcoin payment processor of his own, with a twist: you do not have to trust it to use it. The way that all other payment processors to date have kept track of individual orders is by creating a unique address for each payment, and forwarding any payments that they receive to the merchant. This does prevent the main issue with not bothering with payment processors and instead just having a single address – namely, that if you receive a payment you have no way to tell who sent it, but it also presents a trust problem: the merchant must trust the processor to hand back the bitcoins. Although over the normal course of business the incentives are aligned for the processor to do just that, as otherwise the merchant would immediately abandon the processor and the processor would lose that merchant’s revenue forever, in reality merchants’ revenues are often not a smooth daily trickle. For example, when Butterfly Labs opened up their ASIC mining computers to pre-orders this June, they received $250,000 in a single day. One can easily see how a merchant might be uncomfortable with trusting a third party with such a large windfall.

One solution is for the merchant to provide a few hundred addresses controlled by himself for the payment processor to use, but that requires the merchant to constantly have to replenish the processor’s database with new addresses. One could give more addresses at a time, and release an automatic script for generating addresses and including them in one’s wallet, but the problem remains that either the merchant must at some point replenish the processor’s address database, a concept foreign to any other payment system used today, or the initial database would have to be impractically large. In order for such a setup to work nicely, the merchant would have to somehow give an infinite number of addresses to the payment processor at the same time – in a finite amount of data. AcceptBit, in effect, does exactly that.

Explaining how AcceptBit does such a thing requires a basic knowledge of the mathematical properties of Bitcoin’s elliptic curve cryptgraphy. A private key in Bitcoin, used to sign transactions, is a number roughly between 0 and 2²⁵⁶. A public key is a point, with coordinates (x,y) both in approximately the same range. Elliptic curve mathematics has an operation of “adding” two points to generate a third point, such that this addition satisfies the standard mathematical properties of commutativity and associativity (ie. a+b = b+a and a+(b+c) = (a+b)+c). Thus, you can “multiply” a point by a number by repeatedly adding it to itself (or more efficiently with the double-and-add algorithm), and this multiplication is also associative. The elliptic curve standard also defines a specific point (G_x,G_y) as the “base point”, the values of which can be looked up in Bitcoin source code or the SEC2 specification. A public key in Bitcoin, from which Bitcoin addresses are derived, is simply the base point multiplied by the private key. It turns out that there is no known way of determining the private key corresponding to a given public key in less than about 2¹²⁸ operations (at current levels of computing power, longer than the lifetime of the universe), and this is part of the basis of Bitcoin’s security. There exist operations of “signing” a message and “verifying” a signature for a given message such that signing requires a private key and verifying requires the corresponding public key. Public keys are, as their name implies, public, and so the entire Bitcoin network can verify that the owner of a given address actually signed transactions that appear to be spending from that address by verifying the signatures with the address’s corresponding public key.

AcceptBit takes advantage of the “multiplication” operation that elliptic curve mathematics allows. It asks you to take a root private key, which you keep to yourself, and multiply it by the base point to generate a root public key, which you submit to AcceptBit. AcceptBit can generate new addresses by multiplying the root public key by a given number, for which you can generate the private key, and therefore spend from, by multiplying your root private key by the same number. AcceptBit can keep multiplying the key by different numbers to generate new addresses, so the number of addresses that they have is basically infinite. However, AcceptBit can only watch the addresses that it generates; it cannot spend from them – solving the payment processor trust problem.

This is not a new idea; the concept has already been implemented in the popular Bitcoin client Electrum and is formalized in the BIP 0032 specification. However, AcceptBit is the first service that makes use of it to do something that would not be possible without it. For now, the only wallet that includes built-in support for the specification is Electrum, and so an Electrum wallet is currently required to use AcceptBit.

AcceptBit has a simple form where you fill in your business’s name and your root public key from Electrum (obtained with electrum get master_public_key), and you can start generating invoices immediately. The form for generating an invoice is simple; just fill in a currency amount, a currency (with dozens to choose from) and click “Create”. You then get a payment page containing an address to pay to and a QR code to scan, and which shows the status of the transaction: unpaid, paid or confirmed. The main page also shows a list of all invoices that have been generated, allowing you to see which of them have been paid.

However, there are a few features which are still lacking from the service. One major weakness is a lack of automatic updating for the payment pages. Currently, in order to see whether an invoice has been paid or not you need to refresh the payment page. The service would become much more usable if it included a script which checks for payment every couple of seconds and updates the page automatically. Another flaw is its lack of an API. The only way to generate invoices is to fill in the form on your main merchant page; there is no convenient way to generate invoices automatically. Of course, one can hack one’s way around the restriction by filling in the form automatically; the command line script for this is ” wget --header 'Cookie: csrftoken=0' http://acceptbit.com/m/3psKTF6icX2GU9Beo1PPgb --post-data 'csrfmiddlewaretoken=0&currency_amount=0.1&currency=USD' “, substituting in your own merchant page and desired amount. However, this is far from convenient, and there is no way to keep track of invoices that is convenient for an automated script either. Thus, using AcceptBit to accept payments on one’s website is currently difficult.

If AcceptBit implements these missing features, it can become a competitive means of accepting payments even for those who are willing to trust an established third party merchant provider. It and Blockchain are the only two providers that do not require any kind of account to use, and right now Blockchain mirrors its weaknesses; although its merchant system has an exemplary interface for automated scripts, its operators have not seen a need to develop any merchant interface for human beings. Blockchain also has another weakness: less privacy. Because its merchant system requires you to specify a specific address to send bitcoins to, unless you specify a list of a hundred addresses to randomly choose from all of your customers’ payments will be collected in one place. AcceptBit, on the other hand, has the ability to generate new addresses that belong to you with every invoice, solving this problem. Although AcceptBit’s model of providing addresses that are already directly under the merchant’s control does mean that it will never be able to match BitPay and WalletBit’s offerings to convert earnings directly into fiat currency deposited in the merchant’s bank account, for those merchants who simply want an easy-to-use, hassle-free solution with minimal setup required AcceptBit definitely has the potential to become the best choice.

2012 has been an exciting year for Bitcoin. We have seen BitPay grow from near-irrelevance to processing transactions for over 2000 merchants around the world, Coinabul expand its gold-selling business from nothing in October 2011 to over 120,000 BTC of gold sold this year, entirely new Bitcoin-accepting businesses like Coindl and the Bitcoin Store open their doors, and hundreds more innovative services, of which there are unfortunately far too many to mention. Of course, life in the Bitcoin world has been far from perfect. We saw the margin trading service Bitcoinica come crashing down after a series of hacks, all in the tens of thousands of BTC in size, a Ponzi scheme grow to a size of $5 million at its peak before collapsing in August, and Bitcoin exchange Bitfloor lose $250,000 to another thief in September. However, after these events, the Bitcoin community has begun to take security much more seriously and, among other security upgrades, policies of keeping at least 85% of customers’ assets in offline cold storage have become an industry standard for Bitcoin exchanges. Scams too have become much more difficult to pull off. Also, in the last two months alone, Bitcoin has gained a large amount of public legitimacy, as popular services like WordPress and 4Chan began accepting it, and Bitcoin Central partnered with a licensed payment services provider in France to integrate its exchange accounts directly into the traditional banking system. And, last but not least, the Bitcoin price itself increased from $4.72 on Jan 1 to $13.51 on Dec 31, a 186% increase.

Now that 2012 is behind us, it’s time to start looking forward to what the Bitcoin community will bring in 2013. There are a considerable number of projects scheduled for release this year. A few of the projects, like ASIC mining computers, have simply been delayed from last year, some are services that accept Bitcoin, several provide ways to use Bitcoin more securely, and still others are new projects entirely. Here is a short list of what 2013 has in store.

• ASICs – Butterfly Labs first opened preordering for its upcoming line of application-specific integrated circuit-based mining hardware in June, originally planning to release them in fall 2012. The mining chips use hardware optimized to perform the sole task of carrying out the SHA256 calculations that make up the bulk of Bitcoin mining, and will thus be able to crank out ten times as much hash power per dollar of hardware and per dollar of electricity compared to FPGA or GPU-based solutions. However, a series of delays has pushed the shipping of these devices to the first quarter of this year. Other companies are rapidly catching up; Avalon ASIC has boldly put down a countdown on their website until the time that they ship, which they have scheduled for January 19, and DeepBit’s own ASICs are still scheduled for March. Once these devices are released, the Bitcoin network’s hashpower is projected to increase by a factor of ten, making the network extremely robust against attacks from traditional, general-purpose supercomputing networks.
• Bitcoin Wireless – This BitInstant project intends to provide a way of buying credits for prepaid cellphone and data plans from over 300 carriers around the world at competitive prices. The project was announced months ago and has been followed by near-silence since then, but it is still under development and will likely come out soon.
• The Bitcoin Debit Card – Although BitInstant’s plan for a Bitcoin-backed debit card originally announced in August has been delayed by months after its original scheduled release date in October, the project is still in the works. And if BitInstant’s card takes too long, the Bitcoin Central exchange in France, armed with many of the powers of a bank through their recent partnership with the licensed payment services provider Aqoba, is planning to release one of their own as well.
• Ripple – This project is another bank-free payment network that operates on principles somewhat different from Bitcoin. Ripple seeks to exploit the concept of six degrees of separation: that any two people in the world are connected through a chain of relationships that is, on average, only six links long. When one person wants to pay a given amount of money to another, the system finds such a chain between the two people, and registers a debt owed by each person in the chain to the one after them. Thus, everyone gains a credit and a debt within the system, except for the sender and receiver, who are the only ones who see a net increase or reduction to their balance. Friends and colleagues can always settle debts between each other, and Ripple seeks to leverage these relationships to enable payments between any two people in the network without ever moving any actual money. The project has been around for years, but recently there have been telltale signs that something is brewing. It looks like the Bitcoin community will have to wait and see to find out what Ripple has in store.
• BitMessage – This project by Jonathan Warren aims to use many of Bitcoin’s ideas to create a secure, decentralized protocol for sending messages. Like Bitcoin, BitMessage uses a peer-to-peer network to propagate information, but unlike Bitcoin, messages only stay in the system to be downloaded by the receiver for two days, limiting the Bitcoin issue of “blockchain bloat”. Version 1.0 turned out to be a flop due to serious security issues, but version 2.0 will switch to a much more secure design based on Bitcoin-like elliptic curve cryptography, as well as being subject to a much more stringent security audit. If BitMessage succeeds, it may well provide a compelling, security and privacy-friendly alternative to the notoriously insecure email system that we use today.
• Slush’s USB Hardware Wallet – In November, Marek Palatinus, operator of the Slush mining pool, announced a project to develop a physical Bitcoin wallet device that would take the form of a USB key. Wallet security has been a significant problem for Bitcoin; at one point, a Bitcoin user lost $500,000 when an online attacker managed to gain access to his computer. Since then, Bitcoin clients have added wallet encryption to increase security, which would have prevented the $500,000 loss, but Palatinus intends to go further. With his USB wallet, no private information will ever leave the device; the device outputs transactions signed with its internal private key directly. This, combined with a physical button and display on the wallet that can be configured to be required to press to sign a transaction, ensures that computer intruders or viruses have no way of stealing or emptying the wallet without the user’s express permission. Physical theft will not be a problem either; the wallet will have an option to require a PIN to sign transactions, and the user himself is asked to write the device’s randomly generated root private key down during initialization. Upon losing the device, one can quickly use the key to move all of the stored bitcoins to a temporary location before buying a new one.
• Multisignature Transactions – This is a technology that has been available for nearly a year and in the works since 2011, but which has still seen no significant real-world application. While bitcoins sent to a normal Bitcoin address can only be spent by transactions signed by the one specific private key associated with that address, a multisignature address is associated with N private keys, of which M must be used to sign a transaction spending from that address. N and M can be set to whatever values are necessary. A simple use case is a 2-of-3 wallet for an escrow transaction. For example, suppose Alice wants to buy an expensive product from Bob, but the two do not trust each other. Alice can send the money to a 2-of-3 address with keys controlled by Alice, Bob and a third-party mediator, who is also potentially untrustworthy. Bob sees that the money is in the address and sends off the product. If all goes well and the product arrives, Alice and Bob sign a transaction to send the money locked in the 2-of-3 address to Bob. If the product does not arrive and Bob is unresponsive, Alice can ask the mediator to sign a transaction with her to give her the money back. If the product does arrive and Alice refuses to release the payment, Bob can do the same thing. Finally, if Alice and Bob lose trust in the mediator, they can sign a transaction to send the money to another 2-of-3 address with another mediator. No other mechanism in Bitcoin – indeed, no other payment system in history – has the potential to allow this kind of minimal-trust long distance arrangement to take place. The technology also has applications in secure wallets, as one can create 2-of-2 wallets with one key on your machine and the other under the control of a third party, ensuring that anyone wishing to steal your bitcoins must compromise both the provider and your own machine. If the adoption of deterministic wallets was the main breakthrough in Bitcoin cryptographic technology in 2012, multisignature transactions may well be the defining development of 2013.
• Bitcoin Conference – This year’s Bitcoin conference will take place in May in San Jose, California, and will be hosted by the Bitcoin Foundation. This will be the third Bitcoin conference to take place, following one in Prague in November 2011 and another in London in September 2012. The topics that will be covered include Bitcoin tech, Bitcoin mining, Bitcoin business and regulatory issues. Hopefully we will be able to see speakers from outside the Bitcoin community too, even if not as many as we had in 2012; the previous two conferences have turned out to be a great opportunity for fostering dialogue between the Bitcoin community and the internet civil liberties community as a whole.