Month: June 2013

BTCGuild, currently the second largest mining pool with 17% of the network hashpower, started selling ASICMiner’s USB Block Erupter mining devices, but announced that it sold out their 1000 units within 40 minutes of opening up shop.

ASICMiner is the Bitcoin economy’s largest mining company, and is responsible for 25% of the Bitcoin network with a market capitalization of 1.44 million BTC (~$135 million USD). It differs from other mainstream mining companies, including Butterfly Labs, Avalon and even new entrants like KnCMiner in that, rather than only selling devices, the company predominantly mines its own hardware and raised its startup capital by selling shares. The company first launched with an IPO on the now-defunct Global Bitcoin Stock Exchange (GLBSE) in August 2012, and shares sold out within hours. It then immediately set to work on developing application-specific integrated circuits (ASICs) specially designed for Bitcoin mining; although such chips will never be useful for anything but making SHA256 computations and as scrap metal, they would be ten to fifty times faster than anything else that was available at the time.

The company’s first finished ASICs turned on in February, shortly after Avalon shipped their own, but quickly overtook Avalon due to shipping delays. The conjectures of the potential power of ASICs proved to be correct; the first Avalon device to make its way to a consumer paid for itself within nine days, and ASICMiner’s ASICs were similarly successful. A few months later, due to a combination of its success in manufacturing the devices and the sudden rise in the Bitcoin price, the company realized that it had far more money than it had anticipated, and would not have the space to mine all the devices that it could produce in house; thus, ASICMiner’s first actual products, the ASICMiner Block Erupter USB and ASICMiner Block Erupter Blade, were born.

The company is also notable for having no online presence beyond a few threads on the Bitcointalk forum; it has been jokingly (although falsely) described as “the world’s first hundred-million dollar company without a website”. This was not much of a problem at first, as the Bitcoin investment community was essentially based on the Bitcointalk forum in 2012. Now, however, large numbers of people are interested in buying ASICMiner hardware but are turned off by the fact that the only way to by them at first was through forum-based auctions, and so the move to selling through a normal website, at least through third-party resellers, is very welcome.

Those interested in buying ASICs should be careful to shop around for the best deals; ASICMiner’s Block Erupter USB, for example, provides 336 MH/s for 1 BTC – paying for itself in 250 days if network hashpower remains at the 150 TH/s level that it is today. More likely, network hashpower will be as high as 500 TH/s by September, so it is quite likely that buyers will not even recoup half of their costs. ASICMiner shares, offering 0.4-1% dividends per week, may be a better bet, as shares imply partial ownership of future ASICMiner technology as well. KnCMiner offers mining devices priced as low as 1 GH/s for $19, although they will not be shipping until at least September.

Happy mining!

Nearly one and a half months ago, the world’s largest Bitcoin exchange took a sudden and crushing blow from the United States government when the Department of Homeland Security shut down MtGox’s Dwolla account, claiming that MtGox (or, more specifically, its US subsidiary Mutum Sigillum LLC) had been operating as a money transmitter without a license and had falsely said otherwise when applying for their bank account in 2011. Now, the situation appears to have taken a considerable step toward resolution. Today, the exchange has received its money services business (MSB) license from FinCEN, the federal money transmission regulator in the United States. The license document can be found on FinCEN’s website by searching for MtGox’s registration number, 31000029348132.

The license lists MtGox as intending to carry out money services business activities in sixty US territories including all fifty states, granting the company federal permission to carry out their Bitcoin exchange activities in all of those regions (although the exchange still needs money transmitter licenses from forty eight states just like all other exchanges in the US; these are much harder to obtain, although certainly not impossible. Notably, the license specifically lists MtGox, Inc and not Mutum Sigillum LLC; this is not a mistake, as MtGox set up a new Delaware corporation with that name on June 11, presumably intending to use it for all Bitcoin exchange-related activities in the United States in the near future.

Since MtGox has received the MSB license, it can be assumed that they are simultaneously working with the Department of Homeland Security to resolve that agency’s Dwolla complaint. However, there is still one major thorn in MtGox’s side that remains unresolved: the Coinlab deal. On February 27, MtGox announced a deal with Coinlab in which Coinlab would take over MtGox’s activities in the United States, but in the months that followed it appears that MtGox procrastinated on their side of the agreement, leading to Coinlab suing them for contract violation on May 2. Perhaps MtGox intends to make amends with Coinlab and follow through on the agreement, in which case MtGox would not need to bother with money transmitter licenses; that would be Coinlab’s respnsibility. Alternatively, MtGox may be setting itself up to forge ahead in the United States on its own; the decision to create a new Delaware corporation can certainly be interpreted as evidence pointing at least slightly toward that conclusion.

Although MtGox’s recent legal and banking debacles, culminating with their recent decision to suspend all USD withdrawals, have led to serious difficulties for the exchange, its market share is remaining surprisingly resilient at 65-70% – much lower than the 75-90% the exchange was used to before the sudden rise in Bitcoin price and popularity earlier this year, but higher than the more extreme predictions of MtGox doomsayers these past two months, myself included. Perhaps the engine still has quite a bit of steam left inside.

On Wednesday, Bitcoin yet again entered the limelight as the Wall Street Journal highlighted, “More Small Businesses Embrace Bitcoin.” While Bitcoin is still growing in utility, an increased number of brick and mortar businesses are embracing the new digital, decentralized currency.

The Wall Street Journal took time to note the many benefits Bitcoin provides to small businesses including and not limited to avoiding the cash problem but also high credit and debit card transaction fees.  With Bitcoin, transaction costs pale in comparison to those of credit and debit card fees.  Featuring Adam Sah’s business, in Buyer’s Best Friend Wholesale & Mercantile stores, WSJ writer, Sarah E. Needleman, touched upon the intrigue of the virtual currency.  Extended beyond small business owners, venture capitalists are intrigued by the growth potential of the Bitcoin currency and have invested millions of dollars in various Bitcoin related start-ups.

The Bitcoin currency provides an opportunity for all types of small businesses ranging from food services to wholesale shops to transportation and travel companies to most recently cosmetic surgery centers.  Just today, Elite Body Sculpture of Beverly Hills and Sacramento, CA signed up to be a merchant of BitPay, Inc, the leading Bitcoin payment processing company.  Dr. Aaron Rollins of Elite Body Sculpture shared with the Wall Street Journal that several of his clients asked if he accepted Bitcoin.  Once he drew the contrast between the simplicity of Bitcoin compared to the hassle of using cash, Dr. Rollins looked further into the Bitcoin currency and now will work through BitPay to process payments in BTC.

As small businesses serve as the backbone of the United States’ and most economies, Bitcoin is a credible solution to the woes of small businesses.  Just last year, when both Chambers of Congress and the Executive Branch struggled to establish a fundamental budget, the US House, Senate and President supported and signed into law the Jumpstart Our Businesses Startups Act (JOBS Act, H.R. 3606) to enhance the ability of small businesses to increase capital.  The JOBS Act highlights the critical role small businesses and emerging growth companies play in stimulating job growth and the US economy.

As the House, Senate and President backed the JOBS Act in the 112th Congress and are now implementing this pro-growth legislation, further consideration of the Bitcoin currency should be on the books for the 113th Congress.  As the Small Business Administration sizes up options to best facilitate small business growth, a consideration of the Bitcoin currency will be a wise investment of resources.  What if the Small Business Administration decided to revamp the already existing grant and loan program with a track for businesses utilizing the Bitcoin currency?  Business owners would have greater leeway in finding the best methods of transaction not only to meet customer needs but also to efficiently collect revenue and in turn stimulate the economy.

With many vendors and small businesses already processing payments through iPads and updated computer systems, imagine how simple it would be for customers and business owners to make transactions at any price with the simple scanning of a QR code.  Let’s take this a step further.  Small businesses and merchants reaching out to an international audience will avoid high currency exchange rates as Bitcoin is a decentralized and international currency.

The answer to small business woes in the US and around the world is a no-brainer: Bitcoin!

If the American IRS is looking for precedent for their upcoming tax guidelines related to bitcoin, they can now look to Germany. An inquest from the Bundestag(German Parliament) reported in the German language publication Die Welt declared that profits from the sale of bitcoins held as an investment are exempt from taxation if the coins are held for over one year.

The inquest was initiated at the request of Bundestag Finance Committee member Frank Schäffler of the Free Democrat Party (FDP) who has expressed interest in bitcoin as a means to counterbalance the existing financial system. Schäffler is noted for criticizing  the European Central Bank(ECB) as criminally accountable for its actions related to the Cypriot bank bailouts, noting that if the ECB were a private institution, its president would likely face prosecution.

This parliamentary ruling defines bitcoins as a privately held movable asset which as a classification are subject to capital gains tax only if the asset is sold within a year of purchase. Subject to minor stipulations, bitcoins sold  for profit as an investment before the one year mark would be subject to a 25% capital gains flat tax. If bitcoins are sold more than a year after they are bought, the gains are tax-exempt.

In the United States, the Internal Revenue Service is currently conducting an assessment at the behest of congressional agency the Government Accountability Office of what guidelines to provide American taxpayers with in regards to bitcoin taxation. While the GAO report into bitcoin taxation provided an outline of how bitcoin works and what tax issues may arise, the burden of defining what tax regulations apply to bitcoin falls squarely on the IRS. This perplexity is not unique to the United States. Anywhere bitcoin has developed a significant usership, government revenue agencies are puzzling over how to interact with the new economy. The Bundestag’s research into how bitcoin should be integrated into current tax law provides a helpful resource for these agencies to craft rules unique to each country.

One issue that the report on the Bundestag’s discovery did not immediately make clear, however, is how tax law should treat bitcoin when not used solely as an investment vehicle. While perhaps initially the most common usage of bitcoin in the financial world was as a trading avenue, other areas are rapidly increasing. With the recent influx of venture capital interest into bitcoin, the number of companies that accept bitcoin as payment for goods and services is growing. By extension, the number of people receiving a paycheck denominated in bitcoin is also increasing.

These two areas, the classification of bitcoin as it relates to sales and income, provide unique challenges for the leadership of revenue agencies due the wide ranging attributes of bitcoin. This uncertainty also inhibits some businesses and individuals from accepting bitcoin as payment or salary. The solutions, however, do not have to be complex. With the definition from Germany as an example, crafting tax policy becomes easier.

One way to handle the income tax part of the problem would be to separate the income into two portions. The first part, the initial paycheck, would be taxed under existing income tax rules based on the average exchange rate for the pay period. This leaves the problem of how to handle exchange rate fluctuation. The solution to that would be to treat any value increase that occurs on top of the baseline exchange rate at the time of the paycheck as a capital gain. This would mean that if the value of bitcoin increased rapidly from the time the paycheck was received until either the bitcoins were sold, or until the end of the tax year, two separate taxes would apply. Income tax for the initial paycheck, and capital gains for any increase (or decrease) thereafter.

A similar solution would work for issue of business revenue. Sales tax, or applicable tax for whatever service the business provides, would be decided based the exchange for a defined set of dates during which the tax liability was incurred. Any fluctuation afterwards would be ruled by capital gains regulation.

While this is not a comprehensive analysis of the issues involved, it does create an outline for potential tax rules. Germany’s proactive initiative in producing bitcoin tax guidelines for their citizens provides a clear mandate for other countries to follow suit. The IRS and its counterparts in other nations would do well to prioritize similar solutions.

See also: the 2012 analog of this article.

Correction: the IMF did not actually release the paper linked to in this article; the author was a University of Chicago professor with no direct ties to the organization

In the past three months, regulatory attention to Bitcoin has increased massively. Before March 2013, the Bitcoin community had had little more to go on than some various government reports, permission to use Bitcoin for political purposes from the New Hampshire Deputy Secretary of State, and a casual remark of approval from the Finnish Central Bank. Now that Bitcoin has become so (relatively) successful, however, governments from all over the world are watching, eager to figure out what they think is the best way to integrate cryptocurrencies into the established legal frameworks. The responses from around the world have been sometimes consistent, and sometimes wildly inconsistent even within the same country. This shows clearly an important lesson with regard to the nature of governments: although pro-government and anti-government advocates alike often tend to think of governments as monolithic entities which undertake certain strategies and enact policies in order to achieve speficied, whether benevolent or malevolent, goals, in reality government decision making can often be as disparate and chaotic a process as the private market, with hundreds of entities pulling in hundreds of directions tailored to their own specific interests and perspectives. Once one goes beyond a single country to the entire geopolitical scene, the divide becomes even stronger, albeit with certain general patterns. The purpose of this article will be to look at the government response to Bitcoin from all across the world over the past three months and determine the general trends.

The United States

To most Bitcoiners, the United States has become the epicenter of the great regulatory conflict. In the United States, money transmission regulation is among the most cumbersome in the world; in order to serve the entire country, a money transmitter must obtain a federal money services business (MSB) license from FinCEN and money transmitter licenses from 48 states. However, although the costs of participating in the US are so high, so are the benefits; the majority of Bitcoin businesses, and probably users, are located in the US. So far, excluding long-forgootten one-off statements like the words of Chuck Schumer, we have seen four major regulatory actions relating to Bitcoin:

• The FinCEN guidance report – this was a document published in March 2013 that essentially sets out the guidelines for what the legal requirements for the various kinds of Bitcoin businesses are. Businesses and individuals simply using Bitcoin as a currency to trade goods and services are in the clear, but those trading bitcoins for other currencies (ie. exchanges) are legally defined as money transmitters, and need both the federal MSB license and an MT license for each state in which they operate or have customers.
• The MtGox Dwolla Seizure – in May, the Department of Homeland Security, in cooperation with the state government of Maryland, shut down MtGox’s Dwolla account and may now be in the process of a criminal investigation. The charge: operating without a money services business license. MtGox’s US subsidiary, Mutum Sigillum LLC, never obtained the federal MSB license and, when the company first opened their bank account in 2011, claimed that they would not be using their account for money transmission. This particular violation does not even rely on the FinCEN guidance; the claimed money transmission is the act of transmitting money between users’ MtGox accounts and their Dwolla accounts in order to deposit and withdraw USD. Fortunately, this does not significantly affect the rest of the Bitcoin economy; all other major exchanges have had MSB licenses for many months, if not years, and are much more careful in their relationships with banks.
• The Bitcoin Foundation Cease and Desist – the state government of California has sent a formal letter to the Bitcoin Foundation, the non-profit group that has claimed for itself the role of promoting Bitcoin acceptance and development, demanding that they cease and desist their activities as a money transmitter. The request has taken the Bitcoin community by surprise; the Bitcoin foundation itself does not do any money transmission, and has nothing formally to do with Bitcoin beyond paying grants and a salary for lead developer Gavin Andresen.
• The GAO Report – the Government Accountability Office has published a report, mentioning Bitcoin numerous times by name, detailing when income received through virtual currencies is taxable. Essentially, economic interaction in virtual currency systems where the only possible exchange is between virtual currency and virtual goods and services, with neither the money nor the goods having any value outside the virtual environment, does not generate taxable income, but trades between physical goods and digital currency, or digital goods and fiat currency, are taxable. The report recommends that the Internal Revenue Service, the main US tax authority, help educate taxpayers about what kind of income in cyberspace is and is not taxable, but mentions that the IRS has specifically decided that it would not create any new rules specific to currencies like Bitcoin. “Given [the] uncertainty,” the report writes, “available funding, and other priorities, IRS made a reasoned decision not to implement a compliance approach specific to virtual economies and currencies.”

In general, there appear to be two strands of thought with regard to Bitcoin inside the US government. First of all, there is a desire to recognize digital currencies as the next great innovation in the financial system, and simply figure out how to apply existing legal rules and standards to them. Following the Liberty Reserve shutdown in May, FinCEN chief Jennifer Calvery specifically said that Liberty Reserve was an isolated incident and Bitcoin exchanges that follow the rules “have nothing to fear from Treasury”.

Others, however, have a dimmer view of Bitcoin. The major piece of evidence for this is, once again, the Liberty Reserve case, although this time it is from a “Notice of Finding” by the Department of the Treasury. In the report, the author writes that “Liberty Reserve is also a completely irrevocable payment system and digital currency. The fact that transactions are irrevocable, meaning that they cannot be reversed or refunded in the event of fraud, makes it a highly desirable system for criminal use and a highly problematic one for any legitimate payment functions.” This can easily be interpreted as an indictment of Bitcoin; at the very least, it suggests that there are many people in FinCEN that would agree with the previous statement, and so have a reason to see Bitcoin as a whole (and therefore, by extension, all modern cryptocurrencies in general) as a fundamentally undesirable system.

Finally, the Bitcoin Foundation cease and desist is likely to be one of two things: either simply the result of ignorance and confusion, not realizing the difference between a company and a nonprofit industry organization, or, as one post on Hacker News suggests, an attempt to expand the definition of money transmission to include the Bitcoin Doundation’s activities. The FinCEN report is not binding on state governments, so once other state governments become more “institutionally aware” of Bitcoin’s existence we may well see forty eight different approaches to handling it in forty eight states.

Outside the US

Outside the United States, there has been comparatively very little attention on Bitcoin; the few governments that have spoken out have mostly simply stated that Bitcoin earnings are taxable; usually, income earned in bitcoins is considered to be essentially equivalent to barter income, which government agencies around the world have already generally agreed is taxable for many decades. In that regard, we have:

• The Australian Taxation Office has confirmed that Bitcoin transactions will be taxable. In fact, the ATO went a step further, discounting the claim that Bitcoin’s privacy properties will make the organization’s job especially difficult. “Bitcoin is no more anonymous than physical cash and the ATO has experience in working with earlier forms of ­anonymous electronic money systems, and with physical cash, which are relevant for responding to new and emerging ­systems,” ATO commissioner Michael Hardy told the Australian Financial Review.
• The Dutch government confirmed that although Bitcoin does not legally qualify as electronic money income earned in bitcoins is still taxable because the relevant income tax laws simply mention “income”, not “income as money”.
• The Canadian government specified that Bitcoin is indeed taxable in two ways: as barter if bitcoins are provided as income or sold as goods and services, or as capital gains if a Bitcoin user buys bitcoins at a low price and sells them at a higher price.
• Germany, interestingly enough, has taken a different tack. In Germany, a financial expert in the FDP, a classical liberal political party that is currently the third largest in the parliament, started an inquiry into Bitcoin’s tax status that led to a surprising answer: that, due to a technicality in German tax law, capital gains earnings on Bitcoin (ie. buying low and selling high) are tax-free if the buy and sell are separated by at least a year. Barter taxes on earning bitcoins in exchange for goods and services still apply.

In terms of actually regulating Bitcoin exchanges, non-American governments appear to be fairly lax. In Canada, for example, FINTRAC, the Canadian government’s equivalent to FinCEN, sent a letter to Bitcoin exchanges saying that Bitcoin exchanges are “not, at this time, engaged as a money services business in Canada as per the Proceeds of Crime (Money Laundering) and Terrorist Financing and its associated Regulations.” The report continues: “In fact, your entity doesn’t provide the services of remitting and/or transferring funds for the sake of the service. The transfer of funds is simply a corollary of your actual service of buying and selling virtual currency. Therefore, you do not have to register your entity with us.” For Bitcoin businesses, currently Canada looks like a safe haven, and over the past three months Bitcoin business in Canada has increased massively. The Toronto Bitcoin meetups now have a few dozen attendees every time (up from ten at the first one in November), and bex.io, a company seeking to create the technical infrastructure for Bitcoin exchanges, has chosen to base itself in Vancouver. European governments have not made any such specifically positive measures toward Bitcoin, but so far they have proven themselves remarkably hospitable by inaction. The one major European government action, the takedown of Bitcoin24, was justified by suspected dishonesty on the part of the exchange, not any claims of legal illegitimacy of Bitcoin or the business of Bitcoin exchange itself.

The International Level

At the international level, government agencies are definitely watching. At the World Bank, a discussion panel was held on the legal and regulatory challenges behind Bitcoin, and two of the four panel discussions were about illicit commerce. The IMF has not actually released anything relating to Bitcoin yet, but one paper has one paper by a University of Chicago professor has put forward an argument essentially stating that, if Bitcoin becomes a larger part of the global economy, it will become part of the IMF’s responsibility to protect Bitcoin if malefactors attempt to destabilize it. The paper even went so far as to suggest that member nations should consider “grant[ing] the IMF more direct control over Bitcoin by granting it and other digital currencies quasi-membership status” – perhaps, purists would argue, allowing Bitcoin to be manipulated like gold (if gold is indeed being manipulated), but at the same time securing its legitimacy to an extent that makes the FinCEN guidance pale in comparison.

But there are also reasons to be worried. In an article in the G8 summit magazine (see page 60), John Lyons, the chief executive of the International Cybersecurity Protection Alliance wrote that “alternative payment mechanisms, such as Bitcoin and a host of others, can enable criminal and terrorist groups to launder money and fund their operations”, and then proceeded to advocate that governments simply ban these mechanisms. “If treasuries and financial institutions around the world were to block those transactions,” Lyons continues, “and permit only legitimate currencies to be used on the internet through regulated payment service providers and cards (such as Visa, MasterCard and American Express), then the flow of many billions of dollars to criminal groups would be stemmed.” The article’s tone is brazen; the article literally contains the recommendation that governments “outlaw alternative payment mechanisms for trading currencies online” – not rogue payment mechanisms, or terrorist-friendly payment mechanisms, but specifically payment mechanisms that are alternative; that is to say, payment mechanisms that fall outside the status quo.

Lyons’ words were published in the magazine that was read by hundreds of high-level government officials at the G8 summit but, fortunately for alternative payment system developers and enthusiasts, the ICSPA is not a government organization; the organization is rather a single-issue nonprofit, much like the World Wildlife Fund, and the article itself was nothing more than an opinion post by one of its members. Furthermore, MtGox published an ad in the very same magazine, seeking to reach out to government officials and pull them in the opposite direction. In general, the international opinion toward Bitcoin is very much undecided, and there is plenty of room for maneuver.

Conclusion

Make no mistake: this is only the beginning of government attention and regulation of digital currencies. In 2011 and 2012, Bitcoin was much smaller and less significant than it is now, and governments produced an appropriate response: write a few papers but generally leave it alone. Now, the stakes are ten times higher, and so governments are willing to spend ten times as much effort. If Bitcoin becomes ten times more popular still in 2014, we can expect ten times as much governmental attention as we are seeing now. Many believe that the US government will slowly, but steadily, increase regulation on Bitcoin to the point of outright banning any services that attempt to interface it with the existing economy. Others believe that Jennifer Calvery is genuinely speaking the truth when she says that she is in favor of digital currency innovation in general. Outside the US, the outlook appears to be considerably more positive, although the US government is known for employing various strategies to push its own legal frameworks on the rest of the world – assuming, that is, that it manages to come up with a consistent internal opinion on Bitcoin in the first place. We are only now entering the eye of the storm, as the regulatory issues that are now being raised are every bit as significant – arguably much more significant, than those surrounding the regulation of cryptography in the 1990s. Then, the permissive solution won. We can only hope, and work together to ensure, that the same happens with cryptocurrency today.

Bitcoin utility continues to expand around the globe.  In Europe, Germany in particular stands out as an area for much growth and potential for the Bitcoin community.  On Saturday, June 29, Platoon Kunsthalle, will launch a Bitcoin Exchange in Berlin, Germany.  Localbitcoins.com has joined forces with Platoon Kunsthalle to reach out to the Bitcoin community in Berlin, Europe, and around the world.

The event will begin at 4:30 pm CET with an introductory talk about the Bitcoin currency.  Following the discussion of Bitcoin and opportunities within the community, attendees will have an opportunity to sell and purchase Bitcoins with one another.  Bitcoin Exchange Berlin was founded by Aaron Koenig, Bitcoin Mount Knox blog.  Bitcoin Magazine had a chance to interview Aaron Koenig and learn more about why he chose to spearhead Bitcoin Exchange Berlin and his involvement in the Bitcoin currency.

Bitcoin Magazine: When did you first get involved in the Bitcoin currency?

Aaron Koenig:   I first read and blogged about it in the summer of 2011. In the autumn of 2011 we accepted Bitcoin as payment for our libertarian magazine BLINK which also covered Bitcoin. In 2012 we produced an animated film for Bitcoin Germany.

BM: What was it about Bitcoin that you found interesting?

AK: I had studied the Austrian School of economics and their criticism of the Fiat Money system before, and when I stumbled across Bitcoin I thought: this is it! This is what Friedrich August von Hayek meant when he talked about the denationalization of money and the free competition of currencies.

BM: When did you start to develop the plan for Bitcoin Exchange Berlin?  

AK: I met Joshua Rossi at the Bitcoin Conference in California in May, and I was fascinated about the live exchange he organizes in New York. So I asked him if we may organize a similar thing in Berlin, and he immediately agreed. We do some things differently, for instance we don’t do it open air, but in a closed venue, which makes sense in the rather rainy weather of Germany. We are very happy with our venue Platoon, which is an art space made out of cargo containers. They have an established base of followers, which makes it much easier for us to spread the word.

BM: Where do you see Bitcoin Exchange Berlin going in a year?

AK: We don’t plan so far ahead. We definitely want to see more events of this kind in all major cities, so that Bitcoins become easily available everywhere. So hopefully BXB will be just one node of a huge network of live exchanges.

BM: What makes Bitcoin Exchange Berlin stand out in comparison to other products within the Bitcoin community?

AK: You can’t compare BXB to an online exchange, it is not a business, more of a fun event to make Bitcoin accessible to everyone. We play a lot with old fashioned props. Our sellers write their prices with chalk on small blackboards and they wear bowler hats, City of London style.

BM: What is the overarching goal and purpose of Bitcoin Exchange Berlin?  

AK: We want to lower the entry barrier, so that normal people, who would not use an online exchange, get in touch with Bitcoin easily. Once they get familiar with it, they might want to use a service like Localbitcoins.com, too, where they can make individual appointments with traders.

BM: What are your recommendations for individuals looking to get involved in projects similar to yours?  

AK: Just do it. Bitcoin is great, it should be used everywhere and for every purpose. The more Bitcoin projects there are, the better.

BM: Can you highlight the development of the Bitcoin community in Berlin and Germany as a whole? 

AK: More and more people in Germany know that the Euro system will inevitably collapse, so they want to be prepared for what comes next. Germans are especially sensitive, as we went through two major monetary disasters in the last century, and the Euro will surely be the next one. So many people now think about getting their savings into gold, silver and Bitcoin.

Platoon Kunsthalle is an ideal site for the Bitcoin Exchange Berlin as it serves as a communication consultancy specializing in mobilizing cultural movements and community events.  Platoon Kunsthalle has a facility in Berlin and one in Seoul to foster relationships between artistic and creative subcultures and brands.  Individuals can join the Platoon Network to utilize the Platoon Kunsthalle experimental space to host workshops, display art projects, and present creative initiatives which often clash with more traditional art institutions but highlight development of global movements.  The Bitcoin currency is certainly a global movement centered upon ingenuity and peer to peer interaction.

Bitcoin Magazine encourages you to attend the launch of the first Bitcoin Exchange Berlin (BXB) in Saturday, June 29!  If you are interested in further event details, you can visit BXB’s Facebook page.

Many of us are already familiar with Bitcointip, the bot that allows anyone to easily send any amount of money to anyone else on Reddit. For those who have not seen Bitcointip used before, the process is simple: deposit money into your account, and then to tip a particular user (eg. myself, “vbuterin”), you write “+tip 0.01 BTC vbuterin” into a comment anywhere on Reddit. Writing “+tip 0.01 BTC” sends the tip to the creator of the comment that you are replying to. You can also denominate tips in fiat currencies like USD and EUR, “internets” (+1 internets = 0.25 USD) and “points to Hupplepuff”. The idea proved to be a hugely successful one, and is processing tens of thousands of dollars every month.

Now, Pikapay’s Richard Kohl and Joris Bontje are trying to accomplish the same thing on a platform that is even more widely used than Reddit: Twitter. Pikapay seeks to allow anyone to send bitcoins to any other Twitter user through its Twitter-integrated interface. It will also be possible to withdraw the bitcoins to a Bitcoin address or convert them to fiat currency, but these features will be developed in cooperation with PikaPay’s partners and are not included in the public beta. But PikaPay also has one feature that Bitcointip does not: you can request money. Requests can be directed at a particular person, or at a number of your followers; the latter feature is especially interesting, as using it celebrities can potentially crowd-fund charitable contributions from all of their followers at the click of a button. However, the simple payment option itself should not be discounted; as founder Richard Kohl pointed out, even his grandmother could use it.

The bot is still in public beta, so although, as mentioned above, not all features are yet operational, the service is rapidly improving. Sending works perfectly, and requesting is also operational, albeit with some glitches as of the time of this writing. The rest of the features should come online very soon. Bitcoin users interested in Twitter should also check out Brian Santos’ UpTweet, a platform that integrates Twitter, a blog/forum hybrid and Bitcoin micropayments. In the meantime, Pikapay’s Richard Kohl and Joris Bontje has agreed to answer many of our questions in an interview:

1. When did you first come up with the idea to create PikaPay? What
was your inspiration?

Joris Bontje: The inspiration for PikaPay was the search for a way to make Bitcoin safe, easy and fun for anyone to use. I was a developer for the I2P project to create a better communication network when I first heard about Bitcoin in 2010. With many years as a software developer for some of Europe’s largest banks, I saw an opportunity for our team to build a platform to make Bitcoin accessible to the rest of the world and help define the future of digital transactions. Twitter and its familiar 140-characters is considered one the world’s leading platforms for communicating to individuals on a worldwide level. Important causes and global brands use Twitter, why not Bitcoin?

In June 2011 I had built and launched the first Bitcoin to Twitter service called PayBitBack, which was very successful. But we wanted to build something better than a wallet or tip jar. During the two years we spent to develop PikaPay, we’ve had contributors from 17 different countries, from Bolivia to India, and they all helped us look at Bitcoin and financial transactions from a global perspective.

2. What are you trying to accomplish with PikaPay? What is the
project’s main purpose?

Richard Kohl: We created PikaPay to help solve two of the problems with Bitcoin that people complain about most. One is that there really aren’t enough uses for bitcoins. Two is that Bitcoin suffers from a P.R. and trust problem.

The popularity of Bitcoin will grow as it becomes a safe, easy and social way to transact. For it to catch on it must be as familiar and as easy as cash. It also has to be secure. PikaPay is safe and easy enough to send bitcoins to your neighbor or your aunt. I recently sent some to my 96-year-old grandmother. She now might be one of the oldest people in the world to hold bitcoins.

3. What are some examples of things that can be done with PikaPay that would not be possible just using Bitcoin by itself?

PikaPay was designed to be as close to cash at a distance as possible. We’ve removed a lot of the friction still associated with Bitcoin. Some examples:

• PikaPay is all about the mass adoption of Bitcoin. You can now transact in Bitcoin with the millions of people and organizations on Twitter.

• You can combine the familiar 140-character Tweet with a Bitcoin transaction.

• PikaPay transactions are nearly instantaneous, so you do not have to wait for any confirmations.

• A buyer and seller do not have to exchange any non-public information about themselves in order to make a transaction.

• Twitter Names are always public, so I don’t even need to ask for your E-mail address or scan your QR.

• Handling a local wallet and Bitcoin addresses is simply out of reach for most of the world.

• PikaPay can be used easily by anyone on PC or mobile device. You don’t have to install anything or think about devices getting hacked or stolen.

4. I noticed that PikaPay has a feature that lets you “request” payments, including requesting payments from the first N followers.What are some of the ways that you expect that feature will be used?

The request feature can be used as a digital invoice. You send it discreetly via Twitter Direct message to anyone who is following you. You can also use it to announce special deals to your Twitter followers or to announce discounts or left-in-stock promotions: “I’m selling tickets for $5 to the first 10 followers.” We hear about people planning to do Twitter Crowdfunding with Bitcoin. Right now you can announce any project or good cause, and ask your followers to pay via the special link that PikaPay sends with each request.

5. What is your strategy going to be for getting PikaPay out there and making sure the masses find out about it?

We’ll be making some special announcements about this in the coming weeks. Early responses have been very positive. Right now we have a team of ambassadors who have volunteered to help spread the word, and we’re ready to talk to people with good ideas about how to take it further.

We’re adding intelligence to PikaPay based on cues given from Twitter’s social graph. The more people who use PikaPay and help spread the word, the smarter PikaPay will be at finding the next wave of Bitcoin adopters.

6. Do you see Twitter in general as becoming a more important social media platform in the future? Why or why not?

As an innovator and trend-setter Twitter seems to be hitting its stride globally, not just with many more users, but many more active international ones.There are many ingredients that have contributed to this growth, but the fact that this application started it’s life as a mobile first platform, as PikaPay has done, has definitely played a big role.

7. What other trends in social networking do you think are going to become important in the next few years? How do you see Pikapay fitting into this future?

Just as it has for many other segments of the world economy, social media is going to play a critical role in building influence and trustwithin the new Bitcoin economy — Trust between Bitcoin users themselves, between Bitcoin merchants and consumers and then from the rest of the world in Bitcoin as a technology, as a movement and as a brand.

Twitter already plays a central role in building trust. Twitter Tweets and hash tags continue to make headlines beyond Twitter and are just beginning to extend their reach into other media around the world. You can already see Twitter at the heart of a lot of the major changes taking place in the world in recent years — in important causes and campaigns, in new kinds of businesses and even in revolutions which have been launched and sustained with Twitter. We built PikaPay to enable them.

We like the possibilities of real-time responsiveness of Twitter coupled with the micropayment services of our API. We’re looking at investing time, money and resources into developers who understand what this means and have good ideas on how to leverage it.

Compliance, and Raising the FBAR.
How to get your way, by giving in.

Compliance regimes, by their nature are the auditing to a standard and the enforcement of rules of governance in a regulated environment. Compliance regimes will be found wherever there has been a third party harmed by activity outside of their control. Sometimes they are also found where businesses have attempted to erect barriers to entry into a market and have successfully lobbied for controls which they satisfy but may cause difficulty to smaller competition. There are compliance regimes for vast numbers of regulated industries. If your industry is considered important, it is likely regulated.

On an individual level, there are also extensive compliance regimes. One that has been hotly debated in the news lately is the US Internal Revenue Service. This service serves each income earner in the US and many abroad. They provide very prompt and attentive service on an individual basis. It is this service that of all the US Federal services, has the most intimate relationship with the citizenry and it is projected that this intimacy will get much much deeper in the near future as it takes charge of not just your personal wealth, but also your health as it is the government institution charged with implementing the new federal health insurance payment requirements.

In the mean time, by the time you read this journal, you may have lost half your wealth to this service without even knowing it. How? We have a little known but highly important tax filing date on June 30 2013. The FBAR (Foreign Bank and Financial Account Report) form is available from the IRS. This form is required for all that have foreign accounts with an aggregate value of US$10,000 or more. The reason this may come as a surprise is that foreign banks and exchanges do not need to report this, only the account holder does.

Normally this may be a quiet non-event for most, because the well heeled folks with Suisse Bank holdings and gold vault troves, or Cayman Island accounts have staff that will perform such things on their behalf to maintain their compliance. Why this year is different is that there is a growing phenomenon which I have written about recently called crypto-currency, such as Bitcoin.
Bitcoin is a virtual currency, it is not legal tender in any country, and it has no inherent value. In this way it might be similar to a currency in an online game, where you can trade virtual gold with a digital Elf for a virtual item that lets you play better in some online game. It has no value outside the small world of folks that want to play that game. But where Bitcoin is very different from these other virtual currencies is that it has an exchange value. Folks have been exchanging this virtual currency for dollars and yen and euros and all sorts of other government currencies. There are currency exchanges that are permanently operating that give a real-time value for these virtual currencies. (Yes currencies… there are many, not just Bitcoin, though that is currently the most valuable and noteworthy of them all).

So what is the connection? Compliance – FBAR – Bitcoin? Quite simply, since the regulatory environment in the USA is fairly ornate, many of the Bitcoin businesses are hosted overseas. The largest Bitcoin exchange is in Japan, MtGox.com. Since all of these are online businesses, it is not always obvious where they are located, but if you have accounts on several of the exchanges, and the aggregate value of all those accounts is over US$10K, you are required to report it to the IRS. This is true even if you have never exchanged any of this virtual currency for “real” money of any kind, because the exchanges list a “value” of the currency in US Dollars.

At this time quite a high percentage of the Bitcoin folks are unaccustomed to having large amounts of money. Most are technology folks, programmers, or working people. This is because it still takes some technical know-how to work with this currency. It exists in software, it uses cryptography, it is experimental and not much like any currency that has ever existed before. These folks are not the highly tax-savvy 1%ers that file these forms routinely. A few years ago, the currency was worth ten cents, then a dollar, then ten dollars, now it is about 100 dollars apiece, and briefly this year it went up to 265 dollars, and it hit a high of almost 32 dollars in 2011.

So this could be a big problem for US Bitcoin holders. The FBAR non-filing penalties from the IRS are draconian. Willful non-filing for violations occurring after October 22, 2004, the ceiling is the greater of $100,000 or 50% of the balance in the account at the time of the violation. This means that someone that had over 300 of these virtual coins as far back as 2011 could have their whole virtual fortune sacrificed to the IRS simply for not filling out the form. The penalty would then be 50% + 50% = 100% of the entire amount of your account, regardless of whether it was profitable or not, simply for holding the account outside the US and not reporting it. The IRS confirms this:

Q. Can cumulative FBAR penalties exceed the amount in a taxpayer’s foreign accounts?
A. Yes, under the penalty provisions found in 31 U.S.C. 5314(a)(5), it is possible to assert civil penalties for FBAR violations in amounts that exceed the balance in the foreign financial account.

To add to this problem, there is no notice that you will receive that you need to file this form until it is way past too late. The IRS will not notify you, the foreign institution has no requirement to notify you. The only way you are going to find out is by reading important journals such as this, or Forbes or some other financial journal that serves the international community. You will also not receive any notice that the form was received, you have to call the IRS (866-270-0733) to confirm that it was received and have to wait 90 days to do so. Even if you file, and it was lost in the mail, you may lose your entire foreign fortune, so it is important to make that call.

So how can you be sure whether you need to file? The safest way is to ask your tax attorney and read carefully the IRS documentation.
1. In order to determine whether or not the FBAR is required, all of the following must apply:
A. The filer is a U.S. person; (or person equivalent, partnership, corp, etc)
B. The U.S. person has a financial account(s);
C. The financial account is in a foreign country;
D. The U.S. person has a financial interest in the account or signature or other authority over the foreign financial account; and, (you have the password)
E. The aggregate amount(s) in the account(s) valued in dollars exceed $10,000 at any time during the calendar year.
The US government has shown that it is taking Bitcoin very seriously so we should be wise and understand the implications of that. Either avoid it altogether, risk your entire fortune and freedom by pretending that you can be anonymous, or understand it well enough so that you don’t fall in one of the many pitfalls that may accompany this wonderful new world of virtual money.

One of the crucial features for a digital transaction medium to be viable for payments made in person is that it should be reliable, and nearly instant. A transaction, once created by the sender, should appear on the receiver’s device within one to three seconds. Even five seconds may be acceptable, but from the point of view of an average user requiring a customer and merchant to awkwardly wait for fifteen seconds while a transaction makes its way over the network is an embarrassment – especially when competing platforms like Square can accomplish the same (albeit without Bitcoin’s low fees and universality) in less than three. And yet, in practice, that is all too often the state of in-person Bitcoin transactions right now. A transaction sent with Blockchain may take as long as twenty seconds to reach a nearby client running Bitcoin Wallet for Android and if the transaction is non-standard in certain ways (eg. by not having a fee) it can take several minutes or even hours to show.

To understand why this happens, it is first important to understand the most common case in which it does not happen: when the sender and receiver are both blockchain.info. Blockchain.info differs from other popular wallets, like Bitcoin Wallet for Android, in that it is semi-centralized; although blockchain.info is still using the same, decentralized, underlying Bitcoin protocol as everyone else, the wallets themselves send and receive transactions from the rest of the world through blockchain.info’s centralized servers. The transactions are all immediately rebroadcast to the Bitcoin network, so this makes no difference in the long term, but in the short term this provides a significant advantage. If the sender and receiver are both using blockchain.info wallets, the transaction only needs to make two hops: sender, blockchain.info, receiver. The blockchain.info server stores all transactions that are legal under the protocol, so even transactions with dust outputs, or without fees, are relayed to the receiver without problems.

If one of the two is using something else for a wallet, however, then the situation gets more complicated. The transaction needs to make many hops through the Bitcoin network, and be validated each time, in order to reach the receiver. There is also another complication. The bitcoind client, responsible for the vast majority of the Bitcoin network, enforces some rules on what transactions it is willing to relay (for example, transactions spending newly received coins must have at least a very small fee), and if a transaction violates any of these rules propagation time through the Bitcoin network slows to a crawl. Even if a transaction does not violate any of these rules, it often takes as much as ten seconds to get through.

So what are the consequences of this? Essentially, centralized wallet services may, to a small extent, become their own walled gardens – that is to say, balkanization. Sending bitcoins from blockchain.info to blockchain.info is instant, as is Bitcoin Spinner to Bitcoin Spinner, but sending from blockchain.info to Coinbase is more difficult. The problem with walled gardens, however, is the old adage called Metcalfe’s Law: “the value of a telecommunications network is proportional to the square of the number of users”. If blockchain.info has 50% of the mobile wallet market and Bitcoin Spinner has 10%, then blockchain.info is not just better than Bitcoin Spinner because of whatever features drive five times as many users to its service in the first place; it is also better because it offers instant transactions to a larger number of users. It is clear how this naturally leads to monopoly.

One solution to the problem involves an optional layer of centralization. Blockchain.info offers a page, blockchain.info/pushtx, where anyone can submit a transaction into blockchain.info’s servers; the first step is that all other centralized wallet providers, and Bitcoin network information sites, should do the same. Second, centralized services should agree to either push all transactions to each other deliberately, perhaps through specialized channels, or even co-locate servers in the same data center. Finally, decentralized wallets should automatically push all transactions to these transaction submission hotspots at the same time as releasing them to the network. This does not compromise Bitcoin in any way; all of the old infrastructure remains in place, so a non-participating wallet will still be at least as fast, if not faster, than before. Rather, it adds an optional “clearing” layer to help transactions move through faster.

Another solution is to add more information into payment requests. Currently, merchant platforms and Bitcoin wallets can typically only generate QR codes with two pieces of data: the Bitcoin address to pay to and the amount to pay. Consider what would happen if the protocol were to add a third piece of data: the receiving wallet’s IP address. Then, when the sender scans the QR code and pays, the wallet could send the transaction to the sender directly. If the receiver has no publicly reachable IP address (eg. the address is masked by NAT), a Bitcoin client that does have a publicly reachable IP address can be used to act as a go-between. In this case, the transaction would take one or two hops to reach the receiver – as fast as with blockchain.info to blockchain.info transactions in the worst case, and even faster in the best case.

Whichever solution we will take, some kind of optimizations to make Bitcoin faster are necessary. Companies like Square are spending millions of dollars shaving hundreds of milliseconds off their transaction time to make the user experience more pleasant. Tech enthusiasts may be happy to withstand the struggles of slow and unreliable transactions for the sake of a cool new technology, but one average users enter the picture it is small optimizations like those that make all the difference. Bitcoin itself is just on the cusp of moving from the tech enthusiast crowd to the first signs of general usage, and so now is the time for us to start taking these finer points of ease of use seriously. The other solution, for the Bitcoin community to simply say “this is one of the faults of a decentralized system, deal with it”, is no longer acceptable.

When we released the article on Kenilworth Exploration last Friday, one reader emailed us saying that he does not trust Kenilworth to follow through on their promises and believes that the company will simply collect the money and run. It is encouraging that people think in this way; not investing in a good corporation out of mistrust simply leads to a lost opportunity for profit, while investing in a bad corporation out of naiveté can lead to losing one’s entire initial investment.

However, we have very good reason to believe that Kenilworth is a legitimate and upstanding company, and is speaking the truth about its promises and investment plans. To help readers come to an informed decision, we are publishing our reasoning here:

1. Kenilworth’s CEO, Patrick Prendergast, is also the CEO of Canopus Biopharma, a public company that has been actively dealing with biomedical research for many years. Note that although Canopus is public, they are by no means large (or even medium-sized); however, there are no obvious signs that either the Prendergasts or Canopus have any kind of disreputable history.
2. Prendergast is also responsible for the Australian Camel Company, which used the Prendergasts’ farm in Australia to sell up to $200,000 of camel meat per month

.

3. Kenilworth is registered with the Australian Securities and Investments Commission (ASIC) as a public company. The company’s registration number is 119439691 and the company has privately given Bitcoin Magazine their credit report from CreditorWatch created on April 30, 2013, which confirms that the company was registered as a business in 2006 and as a public company in 2012
4. Bitcoin Magazine asked Thomson Resources Ltd for confirmation of the existence of a partnership between them and Kenilworth, which Thomson confirmed. An ASX (Australian Stock Exchange) release detailing the partnership exists online. Thomson Resources is itself too small to have a well-defined market capitalization, although it is also a registered public company.
5. The company has also released the SRK evaluation of their exploration licenses, confirming the minimum, maximum and potential value of the exploration licenses that they claim

Kenilworth is certainly a small company, and so may well fail just as many other small businesses do, but there is no reason to believe that the company is “shady”; the company has released plenty of information, and if they have been actively dishonest then they would bear the full brunt of the legal system when the truth would be finally revealed. Running away is not an option; at the very least, the Australian Camel Company’s farm would be seized. Thus, the only risk of investing in Kenilworth is almost certainly simply the natural risk that comes with investing in a new and unproven venture. If you are interested in preserving your life savings at all cost, this may be too risky an opportunity for you. Otherwise, the company needs hundreds of thousands of dollars of investment; evaluate the facts for yourself, and if you find them favorable consider investing a bitcoin (or even 0.0018 of them) yourself.

By the end of the Porcfest, it has become clear that Bitcoin has become a standard tool in the libertarian’s toolbox. Over the course of six days and dozens of presentations, Bitcoin has been mentioned more often than even old stalwarts like gold, silver, cryptography, jury nullification and the second amendment. The majority of stores have come to accept it, and the efficiency of Bitcoin transactions has been steadily improving over the course of the week as merchants and consumers alike have gotten better at using Bitcoin wallets. With the exception of about twelve hours of partial downtime on Friday, Lamassu’s Bitcoin-only wifi worked successfully all throughout the week, although sometimes more slowly than expected. The Bitcoin price itself has been remarkably stable throughout the event, arguably breaking out of a medium-term downtrend and holding steady at $100-$113.

One of the greatest problems that Bitcoin adoption has been facing to date is that adoption was simply too sparse for any kind of Bitcoin economy to be practical. Some merchants could be convinced to accept it, but by and large Bitcoin has only been able to grow through a small number of disparate online retailers accepting it on the internet. Furthermore, many of these retailers were only willing to accept Bitcoin because BitPay allowed them to immediately, and cheaply, convert any bitcoins that they receive to cash, so Bitcoin’s key advantage, its ability to bypass the inefficiencies of the traditional banking system, never existed in practice. It has always been a commonly held position that in order for Bitcoin to truly grow it would need to form a closed-loop, or at least multi-step, economy; that is, instead of a customer buying BTC from Coinbase, sending it to the merchant and the merchant having the bitcoins converted back through BitPay, there should be at least one step in between of someone earning bitcoins in order to spend them.

Over the past two years, such a thing has started to happen all on its own. BitPay’s Tony Gallippi reported that merchants tend to initially take the “safe” option of immediately converting all bitcoins that they receive, but eventually moving over to keeping a growing part of their earnings. Lamassu’s Josh and Zach Harvey are among the many Bitcoin fans that have convinced some of their own suppliers and contractors to take BTC, and almost certainly at least one of them is using some of the bitcoins to shop at Bitcoin-accepting stores.

What has just taken place at Porcfest, however, shows a completely different path that Bitcoin can take to success: take over an entire community. Communities are defined as groups of people that interact with each other much more often than with the general population; local towns and villages, schools, large workplaces and internet forums all to some extent constitute communities. If people in a community interact by buying and selling goods and services, as opposed to just talking (as happens with many internet communities, for example), then introducing Bitcoin to that community is a very efficient way of generating that multi-step, or possibly even closed-loop, economy all at once.

Now, consider what has been happening in the libertarian movement in the past few years alone. First, the Free State Project has grown from a few thousand members to over fourteen thousand, just six thousand away from “triggering the move” – the point where, once the project has gathered twenty thousand members, everyone who signed up is expected to move to New Hampshire at the same time, potentially exerting an entire 2% influence over the vote of the entire state. Precious metals guru Doug Casey has set up La Cafayate de Estancia, an intentional community in Argentina, and at Porcfest the anarchist and Bitcoin entrepreneur Jeff Berwick has announced his intent to do the same, although with a more expansive aim, in the nearby and, by South American standards, very business-friendly Chile. Peter Thiel has donated $1.25 million to the Seasteading Institute, a group involved in research and promotion efforts in creating self-sustaining communities floating on the sea, and some in the institute have since split off to create Blueseed, a business seeking to actually do just that off the coast of Silicon Valley in 2014, and at the Bitcoin conference in San Jose Edan Yago announced the existence of a semi-secret project to create “the world’s first cryptocurrency-based political zone” – in short, the Hong Kong of the Americas with a Bitcoin twist. The fact that these communities are just beginning to surge into the mainstream at the exact time that Bitcoin needs them most seems like nothing short of a match made in heaven.

It is crucially important to point out that the concept of intentional communities is not new, and is not even usually libertarian. Many of the original settlements in the New World first started out as fleets of pilgrims seeking escape from persecution and the opportunity to pursue what they saw as a new way of life. In the early 20th century, Israeli kibbutzim emerged, serving as collective communities based on agriculture. The entire concept of utopian socialism, an 18th and 19th-century school of thought that heavily influenced philosophers like Karl Marx, has given rise to hundreds of intentional communities around the world; some form of collectivism remains the dominant ideology of intentional communities today.

A related concept is “phyles”, a more modern concept of intentional community promoted by writers and philosophers such as Doug Casey, David de Ugarte and Neal Stephenson, that combines online and offline aspects, operating on a global scale while providing real-world services to its members. Phyles are not new; perhaps the single most successful one in history is in fact the Catholic Church. However, the growth of the internet has given the idea of phyles a unique opportunity for a sudden, and hyper-digitized, resurgence. And in these phyles Bitcoin has the chance to take on a crucial role. Bitcoin is arguably the only financial medium that can be used both internationally and in person. Cash is limited to one nation, and credit cards require too much infrastructure on the merchant side to be useful in person, leaving Bitcoin as a unique alternative ideally suited for the present, and future, phyles of the 21st century. One deliberate attempt to create a phyle, Stan Stalnaker’s Hub Culture, has already announced its intent to work with Bitcoin with its combined Ven-Bitcoin digital currency fund.

Targeting the intentional community movement, including phyles and secessionist groups like the Free State Project, will by no means be the key to Bitcoin’s sudden and massive success. The mainstream is far from accepting such ideas, and barring outright monetary collapse there is no clear and realistic roadmap that will lead to the general public embracing any alternative to having most services provided by traditional corporations and states in the next decade. Aside from that small percentage of the population that is naturally geared toward being early adopters, social progress is necessarily cumbersome and slow. However, the fact that Bitcoin’s superior efficiency is only truly realized in the context of a closed-loop economy, combined with its unique status as both an effective local currency and what may well be the world’s first truly transactional one, is clear evidence that the two movements can benefit greatly from working together in the decades to come. After the Bitcoin conference in 2013, which some activists in radical organizations like unSYSTEM have denounced as excessively corporate and capitulationist, many are desperately searching for a way to reclaim the currency’s idealism. This is it.

An article on Forbes.com by Bitcoin Foundation Board Member and Secretary Jon Matonis announced today that the Bitcoin Foundation had been the recipient of of a “cease and desist” letter from the State of California’s Department of Financial Instututions(DFI). The letter alleges that the “BitCoin Foundation” is operating as a money transmitting business without “proper authorization.” It proceeds to threaten “APPROPRIATE ACTION” if the Foundation fails to “CEASE AND DESIST FROM CONDUCTING THE BUSINESS OF MONEY TRANSMISSION” in the State of California, and requires a response in writing within 20 days. It isn’t clear as to whether the countdown started from the 30 May date, or from the letter was received(the letterhead shows “CERTIFIED MAIL, RETURN RECEIPT REQUESTED.”

 

While the letter provides no explanation for how the Foundation can be considered a money transmitter, simply stating that the matter has “come to the attention of the Commissioner” of the DFI, one possible link is the Bitcoin 2013 convention, organized by the Foundation in San Jose, California on 17-19 May. The letter, dated 30 May, also coincides eerily with a similar notice from the State of Virginia that led Virginia-based Tangible Cryptography to suspend its operation of FastCash4Bitcoins.com.

 

The California letter, signed by Paul T. Crayton, Senior Counsel, goes on to list several potential punitive outcomes that could result by non-compliance, including fines and prison time. Curiously, the relevant US Code sections attached to the letter for “convenient reference” appear to have been sloppily printed off from Cornell University’s legal reference website, complete with sidebar ads asking “Don’t have a CFO?” and another from Google proclaiming “Websites are now free for California business,” indicating that Google’s location specific advertisement targeting is working just fine.

 

There is no indication that any of the Foundations activities meets the California Financial Code’s definition of what constitutes “money transmission.”  Quoting from the Code, “(o) “Money transmission” means any of the following: (1) Selling or issuing payment instruments. (2) Selling or issuing stored value. (3) Receiving money for transmission.” Furthermore, the California Financial Code defines “Money” as a “means a medium of exchange that is authorized or
adopted by the United States or a foreign government.” The definitions of a “payment instrument” and a “stored value” are equally applicable to anything the Foundation has indicated involvement with as a non-profit organization.

With the rational behind the letter unclear, speculation has run rampant on reddit, bitcointalk, and twitter, with theories about the cause ranging from the fact that bitcoin ATM’s were operating at Bitcoin 2013, to a larger, systematic attack on bitcoin. What’s clear is that the letter leaves much to ask, and much unanswered.

Yesterday, Mt. Gox released the following notice from Tokyo, Japan:

Statement Regarding Temporary Hiatus on U.S. Dollar Withdrawals

TOKYO – JAPAN – June 20th, 2013

Over the past weeks Mt. Gox has experienced rising volumes of deposits and withdrawals from established and upcoming markets interested in Bitcoin. This increased volume has made it difficult for our bank to process the transactions smoothly and within a timely manner, which has created unnecessary delays for our global customers. This is especially so for those in the United States who are requesting wire transfer withdrawals from their accounts.

We are currently making improvements to process withdrawals of United States Dollar (USD) denominations, and as a result are temporarily suspending cash withdrawals of USD for the next two weeks.

Please be reassured that USD deposits and transfers to Mt. Gox will remain unaffected, as will deposits and withdrawals in other currencies, and we will be resuming USD withdrawals once the process is completed.

We apologize for any inconvenience this causes our U.S. customers in the meantime, and look forward to resuming withdrawal service as well as debuting a dramatically improved trading engine which will be launching very soon.      

Regards
Mt.Gox Co. Ltd Team.

Mt.Gox Contact [email protected]


Mt. Gox serves as the world’s largest Bitcoin exchange and as of July 2011 has managed over 80% of Bitcoin trade.  Founded in 2009 and operated by Japanese company Tibanne Ltc., Mt. Gox is registered by the Tokyo Chamber of Commerce.  A surprise to many, the world’s largest Bitcoin exchange stands for, “Magic: The Gathering Online Exchange.”  Despite it’s original purpose of exchange of Magic: The Gathering playing cards, Mt. Gox now is a force to be reckoned with in the Bitcoin community.

From yesterday’s press release, Mt. Gox leadership highlight that the temporary halt is intended to provide room for system improvements.  Despite the clear inconvenience for Bitcoin users within the United States, one might see this as a positive sign as Mt. Gox has received an increased volume of deposits and withdrawals.  There is evidently a growing interest in the Bitcoin currency and Mt. Gox’s system must be strengthened to handle the increased volume of money wires to and from the US.  Additionally, with the May closure of the Dwolla account on Mt. Gox by the US Department of Homeland Security, Mt. Gox has dealt with an increased number of wire transfers to and from the US.

After a day of uncertainty for US Bitcoin users, Mt. Gox posted on Bitcoin Reddit and elaborated a bit on the purpose of the halt.  Mt. Gox stated, “We are now working with new banks and alternative methods for transmitting money to our customers,” and “every customer’s funds are safe, sound, and accounted for.”

What does this mean for the Bitcoin community in the US?  Bitcoin users will need to find other exchanges and possibly rely more heavily on peer to peer interaction.  In essence, during this timeframe, Mt. Gox will attempt to improve the USD withdrawal transaction system.  The halt is expected to continue for about two weeks and during that time Mt. Gox will continue to authorize withdrawals and deposits in other denominations.  Time will tell, whether or not Mt. Gox will maintain its position of prominence in the Bitcoin community, but to date the the Tokyo based exchange still maintains a position of prominence.

Lamassu’s Bitcoin ATM has proven to be a critical piece of Porcfest infrastructure this year. The machine, which allows anyone to insert bills, scan their receiving address and immediately receive bitcoins at a 1% fee, has sold over 16 BTC in the first three days of the event, and its popularity is only growing as the number of participants ramps up. But the aim of the machine is much larger than just one annual libertarian event; Lamassu’s founders Josh and Zach Harvey intend to make many more machines and sell them to merchants interested in operating one in many countries around the world. Here, Lamassu’s Josh Harvey answers our questions.

Vitalik Buterin: What first gave you the idea to create a Bitcoin ATM?

Josh Harvey: It stemmed from our frustration in obtaining Bitcoin quickly and seamlessly. The infrastructure of Bitcoin is improving every day, yet at this point it can still be frustrating exchanging fiat into Bitcoin. Especially for first time Bitcoin users. The Bitcoin machine idea was to simplify it all. No signing up, no thirty day wait, just cash to bitcoins. The Bitcoin Machine takes the banks out of the picture for the end user, and that can really streamline the process.

Vitalik Buterin: What was the main difficulty in the project?

Josh Harvey: The last few days before the prototype debut in Washington, DC (The ISFL Conference). There were a few last bugs that took three straight sleepless nights to fix. We had a déjà vu experience and another three sleepless nights leading up to the Bitcoin 2013 convention in San Jose, to get our second prototype working perfectly. At least this time we weren’t still working on it from our hotel room.

Vitalik Buterin: It seems like security might be a particular risk, from both a hardware and software standpoint. What steps have you taken to ensure that thieves can’t quickly steal the machine or break it apart or attempt to access its wallet with software-based attacks?

Josh Harvey: The production Bitcoin Machines will have a thick steel chassis and will be bolted to a counter, a wall or a permanent stand. These machines are intended to be installed inside, in storefronts, cafes, and other retail locations. The operator can be alerted every time there is more than say $5,000 in the machine, and it’s expected that he will deposit the cash every night. Much of the design work for the production version is focused around both physical and network security. We have very capable people thinking through every part, so we’re confident that the machine will be over-engineered for its intended use. Another thing to remember is that our first design will only be fiat to BTC, so we don’t have to plan for as much cash as a legacy ATM machine.

On the software side, we’ll be providing the software for the machine itself, as well as software for a remote server. The remote server will be run by the operator, not by us, but it will be very easy to deploy, for example as a pre-built Amazon EC2 image. We have a lot of experience with network security and we’ll have the design audited by top people in the Bitcoin security field. Part of the design process is working on good policies for software updating and private key management.

Vitalik Buterin: how hard would it be to adapt the machine to other currencies (eg. CAD, EUR) so it can be used internationally?

Josh Harvey: Actually, we are only looking at components that will accept all of the major currencies of the world. Even the first production models will be available for 80-100 different currencies. We have already tested our current prototype with Canadian dollars.

Vitalik Buterin: I saw that you’re planning on creating more of these machines and selling them to merchants. Have you made any deals yet? If so, what cities will your first few merchants be in? What’s the timetable for the machines to be created, delivered and turned on?

Josh Harvey: Yes, we are indeed putting these into production. We’ve received an incredible amount of interest from every corner of the world. Some examples are Pakistan, Libya, Macau, and Australia. We’ve been getting a lot of emails from Canada, in particular. We haven’t begun taking pre-orders yet but we expect to start doing that in about a month. We’re planning to ship our first production run end of summer 2013.

Vitalik Buterin: Are you at all worried about legal risks (money laundering, etc)?

Josh Harvey: It is something we are constantly looking into. We believe that hardware manufacturing of a vending machine (it is not legally considered an ATM) is less of a legal problem than money transmitting services but researching these issues is definitely part of the production process. We are definitely making sure that our prospective customers are aware of the regulations they might be subject to.

Vitalik Buterin: Do you have any plans for a machine that could convert between fiat and BTC both ways? It seems like the other direction would be even more useful for tourists, for example.

Josh Harvey: The first design will be cash in, Bitcoin out. A dual exchange machine would be more expensive to produce, larger, and more difficult to secure (both physically and developing solutions for double spends). Such a machine would likely pose more regulatory challenges in some jurisdictions. Yes, we do have plans to design one in the future!

Doug French is a libertarian economist who received his PhD in the University of Nevada under Murray Rothbard and has many years of experience working in the banking sector. He was the president of the Mises institute from 2009-2012 ans is currently the senior editor of Laissez Faire Books, a libertarian book publisher run by Jeffrey Tucker. He is also well known for having been and for writing Walk Away: the Rise and Fall of the Home Ownership Myth, a libertarian look at the events and ethics of the housing bubble. Here Doug French has agreed to talk about his views on Bitcoin and the global financial system, and James M. Ray of Omnipay, an exchanger for the now defunct digital currency E-gold interjects to share some of his experiences and views on the topic of seeking legitimacy.

Vitalik Buterin: When did you first hear about Bitcoin?

Doug French: It was earlier this year, or I suppose at some point last year. I stumbled onto it, and mentioned it in an article I wrote for Laissez Faire Books. People seem to be coming down on either one side or the other – you’re either pro-gold or pro-Bitcoin, but you can’t be both, but you can’t be both, which strikes me as very very odd, and there are fights about whether it can be money.

Vitalik Buterin: The regression theorem?

Doug French: Yes, they’re throwing out that old canard the regression theorem, and I don’t see how the US dollar or the euro satisfy it, I don’t see Bitcoin following it, but I suppose if you want to flog Bitcoin with the regression theorem and call it a day and not think things through that’s fine, but ultimately we just don’t know, and we leave it to the market. The Hayekian view is that nobody has complete knowledge, and we’ll see what happens, and that was kind of my view. And then Jeffrey Tucker, who I officed with, became interested in Bitcoin. When Jeffrey Tucker becomes interested in anything, it goes from interest to obsession very quickly, so I began to hear about Bitcoin eight to nine hours all day, every day. We’re actually doing a Bitcoin conference on October 5, and it’s very interesting. I think Jeffery’s interest was at the end of last year, start of this year, and he’d give me hourly updates on the price, etc. I think his interest was really spurred up here in New Hampshire when he went to Liberty Forum. He spent some time with the gentlemen making Bitcoin ATMs and other sorts of uses of the technology and somebody gave him a bitcoin and then he became an evangelist for it. He tries to give away bitcoin himself. So we had the incredible spike at 266, then the crash, now it’s settled down, so it’s interesting and I’m fascinated by it.

Vitalik Buterin: In terms of just global finance right now, there’s the US dollar, the Euro crisis which is really still going on, and recently we have the Japanese situation. Which of those three do you think are the biggest deal at this point?

Doug French: It’s hard to say. There’s this quiet currency war going on that I think all the major currency blocs, if you want to refer to them that way, are involved in. The Japanese are much more overt with the new guy who’s in charge who says he’s going to do this groundbreaking, “we’ve never done this before” sort of thing, which is ridiculous. They’ve been doing this for two or three decades. Maybe they are going to do a little more of it than they’ve been doing, but it’s been one stimulus program and one quantitative easing round after another. Their central bank goes as far as buying real estate investment trusts and ETFs and so on, so they go beyond even what the Fed does with money created out of nowhere. I would say that he’s certainly been effective with the rhetoric and what he’s done because the yen has dropped like crazy and, what does that do, it makes the dollar look pretty good in a bad neighborhood, and same with the euro. I find it fascinating how the euro is a hot news item in the United States for five business days and then Draghi sticks a band-aid on it, and then, you could almost set your watch by it, it quiets down for six months, and then it pops up again. It’s like the fire here by the BitTent. The fire goes out and then the embers are smoldering and then they get the fire going again. I don’t think Europe’s problems have gone away; they haven’t done anything that would make them go away.

Vitalik Buterin: Their unemployment is record high…

Doug French: Sure, and yeah, I think it’s a terrible place to be if you’re a young person trying to start a life, start a career, and there are a lot of problems there, and that’s opened the door for Bitcoin, and I think the timing has worked out right for a solution that’s completely outside the state and state control, although now it’s clear that the United States is trying to do all they can to regulate this at least on a payment system basis, and by doing that they may get some kind of control over this thing. Interestingly enough, some people in the Bitcoin community who actually are involved in the use of it and making a living from it are all saying “regulate us, regulate us, give us some legitimacy, we don’t want to be associated with the Bitcoin believers who think Bitcoin will create anarchy next week” and so they’re crying out for regulation whereas the more ideological types want it to remain pure and free.

Vitalik Buterin: Well, I think some of those people would prefer that it remain untouched but they see that organizations like FinCEN are really powerful and they are going to touch them, so they might as well settle down on a framework before those people realize its full impact.

Doug French: I agree with that. I worked in banking for 20 years, and I know that if they want to regulate you they’re going to track you down and they’re going to regulate you and you’d much rather have a seat at the table during the initial regulation than be on the outside looking in. It’s kind of like being a creditor in bankruptcy court; you’d much rather make a deal out of court than have the judge make a deal for you, so I understand what the industry’s trying to do, it’s just… I mean, it’s interesting from an observer standpoint to see the sides line up, as we have the ideological folks who are both evangelists for the use and are very quick to throw in the “we’re going to take down the state with Bitcoin” idea and then the guys who are actually trying to make a living with Bitcoin are saying “FinCEN is trying to get us, let’s link arms are try to make the best deal we can”, so more than anything it’s fascinating to watch.

And it seems to be sort of a young people’s territory. I’m relatively ancient to be having any interest in this, but I gave a talk to a group of certified financial planners in Washington DC of all places, and the talk was really about, in shorthand terms, quantitative easing from John Law to Ben Bernanke, but I wound up my talk with Bitcoin. Essentially, this is how governments have screwed up money for centuries and centuries, and Bitcoin has emerged as a result of that. So I asked this crowd how many had Bitcoin, there were none; I asked them how many of their customers had actually asked about Bitcoin, one person raised their hand, but when I got done, I took questions, and virtually every question was about Bitcoin. So there is very much a fascination with this, and I think it will continue that way.

Vitalik Buterin: I know that whenever Tony Gallippi goes out to payment conferences and makes presentations, he goes out there with more mainstream folks like Stripe and Square and Braintree or whatever, and whenever they present about their various “innovations”, so to speak, and he presents about Bitcoin and BitPay, all the questions are about Bitcoin.

James M. Ray: On what you were saying before about cooperating with regulators versus fighting them, I think recent history might have some good lessons for us. Doug Jackson of E-gold tried very very hard, I witnessed it, I was there, to cooperate with the government, he testified in front of Congress and all the various agencies, but he finally got raided anyway. If they could have raided Bitcoin they already would have, and the meme I’m trying to spread, I would love to see someone like Jeffrey Tucker say it, is that Bitcoin is karma for E-gold. It’s karma for what they did. And karma will come back and bite you in the ass if you’re a government. I should be a rich @!$%= right now instead of a poor @!$%=, but because of their attack on e-gold I’m a poor @!$%=, so I’m kind of emotional about it, you know. I would have been more on the cooperation side, but I’ve seen trying to cooperate and what it does.

Doug French: No, you’re exactly right, and thanks for interjecting. It’s not like Bitcoin started this, it was actually E-gold, and to some extent Paypal.

James M. Ray: And Bernard von Nothaus, e-bullion, Crown Gold, they’ve attacked every honest system. And the first accusations are “well, the gold’s not there”. People have already tried that trick. The gold not being there wouldn’t have bee fun, you know. E-gold was only going to be fun if it was honest… it’s a long story.

Doug French: When you heard Peter Thiel talking about what Paypal is going to be, he was essentially describing Bitcoin.

James M. Ray: I spoke to him in Anguilla in 1999 at one of those conferences where you go to a place without an income tax and talk about how you want the world to be that way and he sounded much less like a credit card processor and much more like a payment system.

Doug French: Yeah, exactly, he gave up and sold out and he’s still a rich guy and that’s great.

James M. Ray: I’ll say, Doug Jackson made a variety of mistakes with E-gold, some I went along with and some I was against, but the biggest mistake he made was saying no to Goldman Sachs. Because if we had Goldman Sachs money and Goldman Sachs political backing there is no way E-gold would have ever been attacked. We live in the United States of Goldman Sachs and JP Morgan. I mean, it’s not America anymore, it’s bankerism.

Vitalik Buterin: As far as Peter Thiel goes, I wouldn’t say he completely sold out. He still does support things like the Seasteading Institute and-

Doug French: Yeah, no question about that.

James M. Ray: Has any libertarian done anything right with a floating island? What was that place, New Minerva or something, where the guy ended up attacked by Tonga’s military and getting kicked out. It doesn’t seem to work for us.

Vitalik Buterin: Blueseed is starting up right now, it’s got venture capital backing, they were at Bitcoin 2013. Anyway, do you think there is any danger that Bitcoin would suffer the same danger that PayPal has, and essentially just become part of the establishment.

Doug French: And be just another payment system, yeah, I think these guys run that kind of danger if they link arms too quickly with the government. The ECB wrote a report on Bitcoin just under a year ago, so we’re certainly not flying under the radar anymore. FinCEN’s all over them, and you’ve got the various raids. Any time any of these famous money transmitters gets shut down, I think one of the latest ones was Liberty Reserve, Bitcoin is thrown into the publicity mix even if it wasn’t involved. It’s very easy to do a deal with the devil, but I think they should recognize that the devil is the devil. Maybe they’ll all get rich and live happily ever after and it ends up just like Paypal. It doesn’t mean that the world’s worse off, the world’s probably better off for their entrepreneurial genius, but it’s certainly not what was contemplated by our mystery man who created this thing. So it’ll be interesting to see how it comes out.

Vitalik Buterin: What do you think about gold right now?

Doug French: Well, I have more gold than I have bitcoin, so that tells you one thing. As far as the price goes, I don’t know, there seems to be great physical demand. The paper price of it has been hammered in some people’s view; it’s interesting, people will say to my wife, “jeez, boy, gold’s really getting hammered”, and she asks “really, what is it?”, and they say “$1300”, so she replies, “well, I started buying it at $500”, and in that case you don’t necessarily think it’s been hammered. I point out to her that if you bought at $1900 then it’s been hammered, but markets don’t go straight up and they don’t go straight down. Central banks are doing the best they can to keep pumping air in a tire that has a hole on the other side, and they’re going to keep pumping to keep asset prices high and create employment, which they can’t do, but that’s the only thing they know how to do. Unfortunately for them, money velocity has fallen virtually to zip, and the banking system is broken at least here, and so you don’t have the money creation you would normally get with the central bank tripling its balance sheet. But the sticks are there and they could light on fire very quickly, and it’s very hard to control this thing. Whatever gold I have, I hope I never have to use it and I hope I die with it, but one of these days I may have to pull it out and find my way around. It’s an insurance policy that I think everyone should have.

James M. Ray: In view of the LIBOR scandal, do you think it’s possible that central banks are not manipulating the price of gold and silver?

Doug French: I just don’t give governments that much credit.

James M. Ray: You don’t think they could? I mean with all the derivatives out there GATA’s been screaming at it for twelve years, I read all their stuff.

Doug French: I know, I used to read it, I just don’t know. I’ve heard the GATA guy, Chris Fowl, talk; he was very compelling.

James M. Ray: You would think they would go away if they have been refuted but they haven’t.

Doug French: No, they’ve got their story and they’re sticking to it. And I think there’s probably something to it, but I can’t articulate how it’s done, and it’s hard to imagine that the government can’t deliver the mail but they can guide the price of gold around.

James M. Ray: Well, it’s not working perfectly, I mean we’ve seen a rise from $200 to more than $1300, so they’re only able to delay the inevitable I think, but I still think GATA’s right in the end. I’m like you, I’m hanging on to everything I can.

Doug French: I haven’t bought at these kinds of levels for a long time, I put it away and I forgot where half of it is. And that’s probably the best way.

Vitalik Buterin: How might the banking system be different once Bitcoin gets involved in a more serious way?

Doug French: I was just thinking about the differences between the banking system in a Bitcoin as oppose to a banking system in a fiat currency world, and one of the advantages of bitcoin is that you can’t have fractional reserve banking. Because when you lend a bitcoin, there’s a title to each and every bitcoin that must be transferred. In the case of fractional reserve banking, people put money in the bank, they retain title to it, but the money is left to someone else, so you have this duplication of money that happens over and over and over again, roughly 10 times over the course of the banking system. That cannot occur in the case of Bitcoin, which I think a lot of people probably don’t realize, and it’s one of the huge advantages to a Bitcoin world. I think people focus too much on the Fed’s ability to create money when it’s the banking system with the cartelization and the backing of the Fed as a lender of last resort that makes that possible. But in a Bitcoin world the actual title must transfer, and so you don’t have money creation happening through Bitcoin like that. Could it be possible to create a derivatives market in Bitcoin where you have essentially synthetic bitcoins created in a loan market? Yeah, probably, and I’m sure financial entrepreneurs could make that happen, but not nearly to the same extent. Right now, we have fractionalized banking with shadow banking on top, so you have layers that the average person really doesn’t understand or even realize. You may have some of that in the Bitcoin world but at least with this inability to duplicate title you nip a lot of that in the bud and this money creation could be stopped.

Vitalik Buterin: Also, in the fiat currency world, why do people deposit money banks? It’s not because they’re chasing the 0.25% interest, it’s because they have to in order to meaningfully participate in the modern economy. Whereas Bitcoin, as a base unit, exists on the internet right from the start. You would only want to participate in a banking system if you are getting a good deal, and if the bank could show you that they are stable.

Doug French: Right. I think people in the United States haven’t been touched by the banking sector nearly as much as Argentinians or people in other areas in the world that have been just racked by inflation and banking prices throughout probably throughout their whole lifetime. Those people are embracing Bitcoin much more enthusiastically than Americans are, because they realize that an alternative is needed. People in the United States, they grew up with the dollar, they don’t understand the manipulation that is going on, their life hasn’t really bee affected by banking prices, and they’ve never had to shop for bread and watch the price go up as they stand in line as you’ve had in Argentina and Zimbabwe, so it’s interesting that in a number of South American countries and Africa they have embraced Bitcoin. Also, another reason is that in many of these places is credit card transactions. They’re not able to do commerce with credit cards because credit card companies have had so much fraud from these areas that they won’t accept them, but they’ll accept Bitcoin because it’s not a credit transaction, it’s purely a market transaction.

Vitalik Buterin: Bitcoin is growing quite a lot in China recently, At least the part of the Chinese people that are internet-savvy and somewhat wealthy, they understand virtual currency and there is a much stronger desire for freedom there.

Doug French: And they’re much more distrustful of the government monetary system. I go to Turkey a fair amount, and people store their wealth not in Turkish lira, but in rugs and gold. If you go to the grand bazaar, you can buy gold trinkets of various shapes and sizes and you can buy rugs, and that’s how people store their wealth. Now, in the internet age, not everyone has a TV, but everyone has a phone. So that’s how you can transmit bitcoins, through your phone. That I think is something that Americans really can’t get their hands around, so I think they’re going to be really slow to adopt. In other places in the world, there are people selling property for bitcoins, and there are much more transactions taking place, and I think Americans realize it. As for this stigma that Bitcoin is only used for illegal transactions or something shady, whether it be money laundering or buying drugs or buying prostitutes, I think none of that stuff should be illegal anyway. Government can make anything illegal, and the way they trap people is through not paying their taxes or some kind of money transfer violation, and I think people should probably think about what kinds of things could become illegal, whether buying too much of certain ingredients in too short a period of time, implying that you’re involved in methamphetamine manufacture, and they’re probably going to try to make dealing in bitcoins, through implication, some kind of crime.

Vitalik Buterin: I don’t think they’re actually going to make it a crime. But the thing with how the legal system works is that even being subjected to legal process is itself so burdensome that it constitutes a penalty.

Doug French: You’re exactly right. People live and fear the IRS for that very reason, just as the whiff of the idea that you could be audited or the whiff of being arrested and having your picture on the front paper is enough to scare most people into toeing the line. Anyway, those are just the things I thought about, and I think the banking issue is important because I think a lot of people don’t realize how fractionalized banking works and how the world would be different with Bitcoin. It would be less inflationary, and less prone to booms in busts. It would be much better.

Vitalik Buterin: Anything else you wanted to talk about?

Doug French: I would say that I think the Bitcoin detractors miss the point that Bitcoin has a lot in common with gold, the pure mining of it is very similar, it was set up in the same way here it was very easy to get gold in the beginning if you were in the right place at the right time, now it’s harder, it takes rooms full of computer power to create one bitcoin just like it takes one of these shacks of ground to get a gram of gold created. They have a limited supply. I think the guy who really has Bitcoin figure out is probably our common nemesis Paul Krugman. You know, as much as you don’t like to cite him, he kind of understands what Bitcoin is. I personally don’t think deflation is bad, I think deflation is good, it’s bad if you’re a government, a business or individual loaded with debt, but I think for the normal person, to have prices fall with the benefit of technology I think it’s a good thing.

This idea that as money goes up in value and goods go down in price nobody will spend money on anything because they’re going to wait for goods to go down further, I don’t know why people don’t just look at the computer industry and realize that people know that there’s going to be a better version of any machine in 3 months, but they’re not going to starve themselves waiting for products to go down in price. People who say that evidently aren’t married. So, deflation is a good thing, again, except if you are massively in debt or you’re a government that want to buy votes and keep the masses happy with bread and circuses. You know, let’s give anarchy a chance, let’s give Bitcoin a chance.

This article was originally part of Bitcoin at Porcfest, Part 1: A Social Experiment, and has been split off because it deals with a separate topic that deserves to be treated on its own

In the past three days, we have seen Porcfest attendees successfully applying Bitcoin in real-world usage, with between a quarter and a half of all transactions taking place using the currency. In a practical sense, Bitcoin and Porcfest go extremely well together; Porcfest needs merchants to feed its attendees, merchants need a currency, and Bitcoin is a currency that desperately needs real-world merchants to test it.

But what is just as interesting is how well Bitcoin fits in to the core Porcfest ideology. Initially, libertarianism (and its more extreme strand, anarcho-capitalism) was a political movement just like social democracy or conservatism, seeking to secure progressively greater freedom for everyone through political advocacy and elections. More recently, however, many in the libertarian movement have become discouraged by its failures in the political sphere, and over the past ten years the primary focus of many libertarians, and anarcho-capitalists especially, has shifted massively. Now, the Free State Project mode of thinking starts by asking a simple question: if we had a society where governments were much weaker than they are today, or even outright nonexistent, what alternative institutions would we need to ensure that such a society can thrive? Then, given the answer, the solution is to start implementing these institutions today.

The result is a holistic anti-authoritarian philosophy that rejects governmental, corporate and even parental authority alike, and seeks to rebuild what it sees as a more peaceful, and ethical, world from the ground up. The contract I had signed with my own temporary landlord in Manchester made clear that it would be enforced by ostracism and public shame, not courts backed by the physical force of law. Because the libertarian and Bitcoin communities are both so tightly linked, even not taking into account basic morality I would not dare ransacking my landlord’s home and running away with as much property as I could even if there was no law enforcing it, simply because I would not risk being publicly shamed and ostracized by both communities at the same time. A political movement which many detractors decry for its extreme individualism proves to be surprisingly communitarian.

In a community featuring such a strong presence of alternative, government-free “law”, government-free (and corporation-free) education, government-free private charity healthcare and government-free common defense in the form of an active gun community, what role can Bitcoin take? The answer is, as the basis of an alternative, government-free economy. Gold and silver had been taking on this role before 2012, but now that Bitcoin has appeared there is a very subtle, but growing, feeling that gold and silver are in some sense impure. The security of gold and silver possession is backed by legal property rights, using gold on the internet requires centralized parties that must constantly, and sometimes unsuccessfully, take steps to placate government authorities. Bitcoin, on the other hand, bases its security on nothing but math.

Sure, Bitcoin is imperfect, and is vastly inferior to currencies based on gold and silver as a stable store of guaranteed value, but as far as internet currencies go it has one advantage that its potential alteratives do not: Bitcoin is here, now. And it doesn’t stop there. The Bitcoin protocol allows for the mathematically secure execution of complex legal relationships such as assurance contracts, and on top of Bitcoin one can potentially build constructs like smart property, which uses Bitcoin to independently enforce property rights on physical objects like cars, houses and smartphones.

All this is not to say that Bitcoin is explicitly a libertarian technology; the fact that Bitcoin would fit well into a libertarian world by no means implies that it benefits nobody else. European Bitcoin activists, for example, often follow what we would term a much more “left-wing” philosophy, although the underlying dislike of some sort of government or corporate establishment often still remains. Liberals, in the American sense of the word, can see a cosmopolitan appeal in Bitcoin from its unrestricted internationality. And, last but not least, ordinary people without any particular ideology at all can benefit from Bitcoin because of its lower transaction fees, near-instant transactions and lack of a chargeback mechanism. For now, Bitcoin can simply be seen as a great social experiment, simultaneously testing the mathematical viability of a decentralized currency, the willingness of the public to adopt an amalgamation of old and new patterns of behavior, and the mainstream financial system’s response to something which has never existed before. The libertarians at Porcfest, having already embarked on a social experiment of their own, are jumping in en masse. Regardless of whether you are a libertarian or not, the time may be just right for you to do the same.

To understand more about what Porcfest is and why Bitcoiners should care, see part 0 of this series.

Today marks the third official day of Porcfest, and already hundreds of people have showed up. In the nine Porcfests before this one, attendance has always trickled up slowly, with only a few people present on Monday and the event ramping up to full force on Friday and Saturday. This year, those who have attended previous Porcfests are saying that as many people have come to this Porcfest already as came to the previous one by Friday, and the number of attendees is expected to continue growing as the week continues to progress. Over 1100 people preregistered for the event by the online registration deadline of June 1, roughly as many as the number of people attending the Bitcoin conference in San Jose. Between the recent leaks regarding NSA wiretaps, the Free State Project breaking 14,000 participants and the continuing economic crisis in general, the Free State Project appears to be rapidly entering the mainstream.

Last year, Bitcoin made a very strong appearance at Porcfest 2012, with what Josh Harvey described as 80% of merchants at the fest accepting it. This year, Bitcoin is taking on an even more central presence than before. Erik Voorhees’ SatoshiDice is the event’s largest sponsor, the main tent used for presentations is called the “BitTent”, and aside from the three presentations that are discussing Bitcoin (the first of which attracted a full tent of listeners today) many other speakers, like Jeff Bush, are actively promoting it as a key part of their larger philosophies of personal and economic liberty.

And, last but not least, there is Agora Valley. Agora Valley is a marketplace located fairly close to the presentation tents where merchants are free to set up stores to sell food and merchandise. This is the main destination where Porcfest attendees can go to get food between the various presentations and events. Just like last year, a majority of merchants accept Bitcoin, although a few (including, unfortunately, two of the only three vegetarian/vegan-friendly restaurants) still do not. On the customer side, those merchants who do accept Bitcoin are reporting that between a quarter and a half of their sales are done with it. In this regard, Porcfest is a true Bitcoin event in a way that even the Bitcoin conference in San Jose was not; here, hundreds of largely non-technical, ordinary, people were actually using Bitcoin to buy and sell food and merchandise in real life, and learning along the way.

In the campground in the forests of northern New Hampshire where this year’s PorcFest is taking place, the main impediment to Bitcoin usage is obvious: internet connectivity. The campground itself provides an internet hotspot for $15 for a week, but the only way to pay for it is by credit card; even buying in person with cash is not possible. And even that connection is shaky; Porcfest veterans report that last year by Wednesday there were so many people that the internet was barely usable, and this year the connection is somewhat better but not by much. To alleviate this, two Porcfest attendees have come up with solutions. Lamassu‘s Matt Whitlock has set up a “Bitcoin-only wifi” hotspot which is free for anyone to connect to, but which only offers access to a few publicly known Bitcoin nodes and Electrum servers and blockchain.info. This internet is accessible throughout the entire campground, and nearly all Bitcoin users at Porcfest are relying on it to make and receive transactions. Another attendee has set up a paid internet hotspot of his own, offering access for the duration of Porcfest for 0.047 BTC or $6 USD. The other major impediment to Bitcoin usage – namely, obtaining bitcoins in the first palce, was solved by Lamassu’s Bitcoin ATM, with which anyone can trade cash for bitcoins at a 1% fee. Lamassu’s Matt Whitlock reports that the ATM has sold over $1600 worth of bitcoin at Porcfest so far.

For those interested in using Bitcoin at farmer’s markets, a Bitcoin-only wifi hotspot seems like the perfect solution; between it and the Lamassu machine, the infrastructural problems with using Bitcoin at Porcfest are largely solved. But the event does show a larger problem with accepting Bitcoin in person: usability. Although Bitcoin does, in theory, allow a customer to pay a merchant in two seconds by simply scanning a QR code and hitting send, in practice there are very many technical glitches that can increase the time it takes to make a payment to over a minute. Sometimes some glitch on the merchant side, whether relating to internet connectivity or simple software lag, causes the merchant to spend an extra few seconds getting the QR code up for the customer to scan. On the customer’s side, sometimes the customer’s application takes a long time to load or send the transaction, and sometimes simply scanning the QR code takes ten seconds longer than usual. Finally, even after the customer scans the transaction it can take as long as fifteen seconds for the merchant to see it on their own device.

For Bitcoin wallet developers, events like Porcfest are essentially mandatory. Seeing real people use Bitcoin in real-life scenarios, often for the first time, shows that there are many steps that Bitcoin wallet developers can take to make the user experience faster and more convenient. At this point, the slighest optimizations can help; even a one-second speedup in an average interaction will go a long way toward making Bitcoin a more pleasant currency to use in person. From my own viewpoint, here are some basic improvements that mobile Bitcoin wallets could make:

1. Make the “Scan QR code” button when sending bitcoins four times larger. One should not have to spend a full second aiming with one’s finger and another two seconds making multiple attemps in order to successfully click it. In fact, all interface elements that need to be clicked on should be twice as large, filling up all available whitespace as much as possible.
2. Once the destination address is entered, do not just move the cursor focus to the textbox showing the amount to pay; also, force the onscreen keyboard on touchscreen phones to open up. Currently, the user must often first touch the textbox with their finger before the onscreen keyboard appears.
3. Readily offer the ability to set the amount to pay in USD or other local fiat currency rather than requiring the customer to determine the BTC value based on the current price themselves (at least in cases where the merchant is not generating all-inclusive QR codes containing both the destination address and the price.
4. When spending a transaction output, return change in many pieces. This allows the user to later make many transactions one after the other without them being dependent on each other in a chain.

However, the largest improvements that could be made are not in software, but rather in etiquette. Cash and credit cards have both been around for decades, and there is a large amount of unspoken knowledge that helps smooth over the inefficiencies of these systems. With cash, one example of such an unspoken custom is the concept of “change”. If you need to pay $7.93 but only have $10, you do not need to spend time explaining to the merchant that you are giving them too much so that they give you the difference back; the merchant already knows this, and even keeps a large number of low-denomination coins and bills on hand to facilitate this tradition. With credit cards in a restaurant, there is the custom of leaving a bill on the table for the customer to take out their card and write in a tip, so as not to require the waiter to waste their time at the table waiting for the customer to do this. The question we now need to answer is: what are some good social norms that can help govern and facilitate in-person Bitcoin transactions? From my own experiences paying with bitcoin in restaurants in Boston and at merchants at Porcfest, here are some suggestions:

1. In a restaurant, ideally the waiter should not awkwardly wait by the customer’s table while the customer tries to make a Bitcoin transaction. Instead, there should be a setup with which the waiter can leave a QR code printed on paper, or on a tablet, on the customer’s table and leave the customer to figure out any technical difficulties in the payment process by themselves. This is equivalent to the similar custom for credit cards.
2. If (1) is not practical, a waiter should look not at their own payment application, but at the customer’s, to see if the payment has been made. Theoretically, a fraudulent customer could create a fake Bitcoin application to pretend to pay, but it is already very easy for dishonest customers to run away from a restaurant without paying, or paying a trivial amount in $1 or $5 bills that looks like a more substantial payment from afar, so this is not a substantial risk.
3. Merchants should consider printing a large QR code on paper, and letting the customer scan it and then enter the payment amount manually. This allows the customer and the merchant to work in parallel, and is used successfully by many merchants at Porcfest as well as the Pao Cafe in Newmarket, New Hampshire. Printing a large QR code is especially important, as it makes scanning much easier.

As merchants continue to experiment with various ways of accepting Bitcoin, the community will likely start to develop more and more precise versions of these rules all on its own. One idea that has been suggested is to make an explicit Bitcoin Fest, an event similar to Porcfest but specifically focused around Bitcoin, not libertarianism. This could happen in 2014 in lieu of, or together with, a more formal Bitcoin convention, or even in 2013 there are not yet any major Bitcoin-related events this year in August or December. Another option is the progressive approach: simply continue working hard on evangelizing Bitcoin and recruiting restaurants within one’s own local area. Set up a meetup group that will meet at a particular time and place every week, and invite anyone from the public to come, learn about Bitcoin and try out using it. Ideally, this would take place inside a Bitcoin-accepting restaurant, so new Bitcoin users could make their first transaction in the presence of a helpful community. Regardless of what direction we want to take, if we want to see Bitcoin truly break out into the real world, actually bringing Bitcoin into the real world and seeing it applied in practice is the only way that we could actually get there.

To see the full-resolution versions of the pictures used here, and a few others, visit our album here.

Bitcoin Magazine had an opportunity to interview Tuur Demeester, author of the financial newsletter MacroTrends which goes to investors in the Netherlands and Belgium.  Tuur pushed the Bitcoin to a higher level of prominence when he added Bitcoin as part of the recommended currency basket in January of 2012.  Tuur views Bitcoin through an international lense, having so far lived in nine cities and traveled to thirty countries.

Prior to his involvement in the Bitcoin currency, Tuur co-founded the Murray Rothbard institute in 2007 and additionally co-founded two private schools, one in Netherlands and one in Belgium.  With a desire to spread free market economic ideas, Tuur translated Jesus Huerta de Soto’s “Money, Bank Credit, and Economic Cycles” into Dutch.  As the current author of MacroTrends, Tuur recommended Bitcoin as an investment, starting from when it was $5 in early 2012.

Bitcoin Magazine: When did you first hear about and get involved in the Bitcoin currency?

Tuur Demeester: I first heard about Bitcoin when traveling in Argentina in the summer of 2011, my friends there couldn’t stop talking to me about it. Seeing the very real way in which Bitcoin changed their daily lives and futures made it a lot easier for me to see its incredible potential.

BM: How did you first get involved in the Bitcoin currency?

TD: I think the current financial system is structurally insolvent and that we’re entering an era of bank defaults, sovereign defaults, and destruction of currencies.  That’s why my initial interest in Bitcoin was from a wealth preservation standpoint. After I did my research, I tried to time the market and started buying bitcoins in February 2012. I recommended my subscribers do the same, and I’ve been researching the space ever since—the opportunities are quasi endless.

BM: Can you elaborate on why Bitcoin is such a great investment?

TD: I think Bitcoin and the crypto currencies are the greatest investment opportunity of our day and age.

First of all because Bitcoin has all the qualities to make for an ideal money, to a greater extent than any digital or tangible commodity on the planet.

Second, in contrast with traditional fiat money, Bitcoin is designed for the internet: it’s open source, it’s mobile, fast, and it allows for personal privacy.

Third, because we are approaching a bankruptcy event in the developed economies, both in banks and governments, I think that Bitcoin, as a discrete and nonconfiscatable currency, will benefit greatly from the capital flight that will ensue.

BM: As you are an international traveler, out of the countries you have either lived in or visited, which holds the greatest potential for Bitcoin development and success?

TD: I think some countries will prove to be excellent ecosystems for Bitcoin centered hard- and software companies, especially those countries with a history of commerce and with a political class that puts little obstacles in the way of ‘cointrepreneurs’. Countries that try to tax or control their local Bitcoin corporations too much will lose it, just like how medieval France’s rising taxes pushed merchants away from the Champagne Fairs to the harbor cities of the Hanseatic League, which could not be reached by the French royalty. I wouldn’t be surprised to see Bitcoin corporate activity blossom in peripheral countries like Thailand, Sweden, or Panama—but what the physical centres will become is hard to say as it is so dependent on political decisions.

As far as Bitcoin adoption goes, it’s clear to me that countries with a large informal economy (cash market) in place, are at an advantage. The same goes for countries with a history of embracing new technologies easily. There is also the fear factor, because economic panic in a specific country will seriously speed up Bitcoin adoption in that place. Taking all that in consideration, I think a place like Argentina, or an Eastern European country may very well end up being the first with cities where you can put gas in your car, buy groceries, and get paid at work, all of it transacted in Bitcoin.

BM: What is the outlook for the Bitcoin communities in the Netherlands and Belgium?

TD: I think the outlook for Bitcoin adoption and innovation in the Benelux is bright, as we [are] a culture of software innovation (it’s no coincidence that 2 of the 6 Bitcoin core developers are from the low lands), a very high internet penetration rate, and an internationally oriented culture. The community here is still small, but every week I talk to new investors and entrepreneurs who show interest in doing something with Bitcoin.

BM: What will it take to get Bitcoin to a higher level of utility and prominence?  

TD: All it takes is for things to continue the way they are. It’s a marvel to witness how the market self-organizes, and how entrepreneurs globally are continuously adapting to new challenges. This process will continue and it will continuously push the Bitcoin economy towards mainstream adoption.

BM: Where do you see the Bitcoin currency in a year?  

TD: From here we could see further consolidation, possibly until late 2013. Early 2014 I think we’ll see a recovery with the old high of $260 as a technical target. If the market is ready and the high is broken, then $500 is feasible. If the old high is not broken in the next twelve months, my base case projection for Bitcoin is $1000 before the end of 2015.

BM: What is your favorite aspect or characteristic of the Bitcoin currency?  

TD: Personally, I love the fact that it is a currency designed to provide privacy. There are really only two functional economical strategies to solving systemic crime and conflict in the world, and those are the removal of scarcity (creation of abundance) and the reasonable restriction of access to an individual’s person and property. Bitcoin makes it possible to easily and effectively draw the line between what’s mine and what’s thine, and that’s why I believe [it] will turn out to be a great force for good in the world.

BM: What advice would you give to individuals who are just learning about Bitcoin and looking for ways to get involved?

TD: Buy some! And try a few of the many services that are available in Bitcoin today to experience for yourself what real financial freedom means. Several people I know only became convinced about the potential when they decided to use bitcoins for an actual transaction, which showed them how efficient the system really is.

BM: What can Bitcoin Magazine readership and staff do to get Bitcoin to become a household name?  

TD: In my experience, something only starts making sense to people when they can connect it to another thing they already care about. So I think a good general strategy is to really be open to people’s goals and values, and to only then see whether Bitcoin might play a role in achieving those goals and in meeting those needs. Since I started paying more attention to that, my Bitcoin pitches have become much more effective.

I also think that many people underestimate the power that lies in just buying some Bitcoins. By that simple act, you help increase liquidity in the market, which allows ever bigger businesses to start accepting the currency. Your purchase also effectively helps raise the value of the currency across the Bitcoin economy, which provides all the cointrepreneurs and their investors with more purchasing power, and that allows them to build better services that make Bitcoin really user friendly—allowing it to become the digital currency also used by grandmothers.

Bitcoin Magazine thanks Tuur for his time and insight and would like you to heed his advice and not only buy bitcoins but to also share about Bitcoin with your family and friends!  You can listen to Tuur’s talk presentation at the 2013 Bitcoin Conference in San Jose here and stay up to date on his role in the Bitcoin community at www.tuur.demeester.com.

Bitcoin continues to grow in popularity for professionals in a wide array of fields. In addition to serving as an attractive method of payment, Bitcoin’s free market, decentralized, cutting edge nature intrigues many professionals. Just last week BitPay, Inc. signed on a new merchant, Cohen Chiropractic Centre. Cohen Chiropractic Centre was founded in 2009 in Atlanta, GA and has grown to a level of prominence. Dr. Austin Cohen became interested in Bitcoin after one of his interns continually shared his excitement about this innovative currency. As Dr. Cohen has been featured on CNN, CBS News and spoken at various conferences for his innovative techniques to foster health and wellbeing for his clients, Bitcoin is just another source of opportunity and innovation he is able to now embrace.

Bitcoin Magazine had the privilege of interviewing and meeting Dr. Cohen and hopes to continue to be an information source for all things Bitcoin for Dr. Cohen.

Bitcoin Magazine: When did you first hear about Bitcoin?

Dr. Austin Cohen: I first heard about it through our intern as he would not stop talking about and every free moment he was reading an article about them. He insisted that I buy a Bitcoin for every person in my family.

BM: What was it about Bitcoin that you found interesting?

Dr. Austin Cohen: There are 2 reasons why I decided to accept bitcoins in the office. First and foremost, the excitement and fun of something new that is developing and being part of it only a few years into it. Every time I google “bitcoin” a new article pops up that is either positive or negative but the fact people are talking about it makes it very fun. Second, is the simplicity of accepting them and making it easier for transactions and lower merchant service fees. Chiropractic is a progressive industry that is fun and exciting and being the first chiropractor in the World to accept them makes it that much more fun.

BM: When did you first enter in the medical field?

Dr. Austin Cohen: I started chiropractic school in 2005 and it was my first year in school that I realized my opinions and statements are affecting the lives of many. I officially graduated in 2009 and opened my own clinic 7 months following graduation.

BM: Were there any pre-existing businesses that inspired you to integrate Bitcoin into your business?

Dr. Austin Cohen: No, I personally do not know of too many businesses that accept Bitcoins.

BM: Where do you see your office going in a year now that you have chosen to accept payment in Bitcoin?

Dr. Austin Cohen: I see us being able to connect more with other tech startups. They have all shared with me how great Bitcoin is and why I should take them and now I am excited to share with them about chiropractic and why it is so valuable for their life.

BM: What makes your chiropractic services stand out in comparison to other chiropractic offices?

Dr. Austin Cohen: There are a few key distinctions but the big is one is we don’t just want to get people out of pain but we want to correct the problem by putting together a plan and help them create their healthiest life. Some chiropractors are symptom based which is a reactive model and similar to medicine by waiting until a problem occurs then treat it. Our goal is to find problems before they become symptomatic and correct it through our specialized corrective techniques. We also do dynamic monthly workshops and have other resources for people to maximize their healthcare.

BM: What are your suggestions for individuals hoping to start a business like yours and hoping to integrate Bitcoin into their businesses?

Dr. Austin Cohen: Do it! We live one life so quit being so status quo and take a risk.

Bitcoin Magazine congratulates Dr. Austin Cohen and his team at Cohen Chiropractic Centre on their embrace of the Bitcoin currency and taking Bitcoin to another level in the medical field. Should you ever be in Atlanta, GA feel free to stop by Cohen Chiropractic Centre!

Bitcoin Magazine is privileged to serve as a media partner to the Inside Bitcoins Conference in NYC on July 30! The conference will draw a crowd from the United States and around the world to learn more about this digital, decentralized currency and also to highlight the opportunities within the Bitcoin community.

The Inside Bitcoin Conference aims to highlight how the Bitcoin community is booming. The conference will seek to answer the question, “now that all of the basic trading platforms and payment processing companies have been created, how does one make money in the space?” Bitcoin Magazine encourages you to explore the future of virtual currency and Bitcoin with industry thought leaders from Bitcoin Foundation, BitPay, and Tradehill at the Inside Bitcoins Conference, July 30 in New York City.

Attendees will discuss what business and investment opportunities, as well as legal issues, exist in this emerging field. Don’t delay– prices increase this Thursday.

You’ll hear from 20 Bitcoin experts on topics including The VC Take on Bitcoin, Bitcoin Boom: The Business Adoption of Bitcoin, Bitcoin and Freedom of Speech, Rethinking Content Monetization with Bitcoin, Legal and Regulatory Issues Facing Virtual Currency Businesses, and more. View the full program here.

The event will also feature AlphaPoint and CoinMKT as exhibitors, and the evening’s drinks reception provides the ideal forum to network with like-minded peers. Developers, entrepreneurs, investors, finance professionals, bankers, consultants, lawyers, security solution providers, data and payment processors, and online retailers will all be present.

Charlie Shrem, Vice Chairman, Bitcoinfoundation.org and Chief Executive Officer of BITINSTANT, will deliver the keynote presentation, while additional speakers include Tony Gallippi, BitPay, Tuur Demeester, Author of MacroTrends, Chris Larsen, CEO & Co-Founder of OpenCoin, Jared Kenna, Founder & CEO of Tradehill, and Manu Sporny, Founder & CEO of Digital Bazaar. View the full speaker list.

Of course, you can pay for your conference pass in Bitcoin! Each registrant will also receive a Bitcoin paper wallet with a 0.01 Bitcoin. Additionally, an exhibition hall will be open throughout the day where you will have an opportunity to interact with leaders in the Bitcoin community.

Bitcoin Magazine has joined this event as a media partner. Enter our discount code: MAG15 to save 15% on your conference pass. For the best rates, register before this Thursday, June 20. We look forward to seeing you on July 30 and will have a table to offer magazines at a discounted price!

The largest Bitcoin exchange, MtGox, has purchased a full-page ad in the official G8 Summit Magazine published on behalf of the host nations and distributed to all attendees. The advertisement features a cartoon drawing shows a boardroom full of people (presumably government diplomats), each representing their respective national currency, with a new member walking in representing Bitcoin, and includes a QR code leading to a special landing page explaining the benefits of Bitcoin as an innovation in banking. The page compares the limited business hours, high merchant fees and security and privacy flaws of traditional banking to the benefits that we all know and love in Bitcoin: 24/7, near-zero fees, and maximum 0.6% fee with MtGox.

The G8 is one of the most important economic forums in the world, comprising eight of the world’s eleven wealthiest economies: the United States, the United Kingdom, Canada, France, Germany, Italy, Japan and Russia. The organization holds annual summits, and this year the 39th is now taking place in Northern Ireland. Although the G8 has recently decreased in importance compared to the more recent, and more inclusive, G20 due to the rise of emerging economies such as China, Brazil and India, the organization nevertheless represents over 50% of the world GDP.

Bitcoin is only recently entering the conversation in the international political sphere, with a global forum on the legal challenges of virtual currencies having taken place at the World Bank and a paper released by the IMF this month. At this critical point in time, when governments are just trying to figure out how and to what extent they should regulate Bitcoin and work to integrate it into existing financial systems, a strong public relations effort from the Bitcoin community is vitally important, and MtGox is doing a service to the community by taking this step to present a government and business-friendly image for the currency. The tide may already be turning in Bitcoin’s favor, as Jennifer Calvery, head of the US regulator FinCEN, has repeated her statement that she is, at least in principle, in favor of innovation in digital currencies (although the merits of her regulatory framework can of course be debated in practice), and so if the Bitcoin community continues to engage in public-relations efforts in government and banking forums Bitcoin may well get past much of the unfavorable treatment that the established financial system has been giving it, encouraging wider business adoption and making Bitcoin stronger for us all.

Bitcoin Magazine is proud to serve as a sponsor for the Bitcoin London Conference. The conference will bring together Bitcoin entrepreneurs, venture investors, and hedge fund professionals who want to learn more about Bitcoin and digital currencies on July, 2 at Level39 in Canary Wharf. 

Speakers will include Nejc Kodric (Bitstamp), Charlie Shrem (Bitstant), Yoni Assia (eToro), Jeremias Kangas (Localbitcoins), Anatoliy Knyazev (Exante), Jared Kenna (Tradehill), Tuur Demeester (Macrotrends) and pitches from promising start-ups including Coinsetter, Bex.io, Ripple, Lamassu, Bitsofproof, and others. The program will also include word from several thought leaders who will present their views on the likely evolution of the Bitcoin economy. Sessions will feature discussions on Bitcoin and money, decentralized finance, regulatory and legal, start-ups, investment opportunities in the Bitcoin space, why Iceland should adopt Bitcoin as its national currency, merchant opportunities in the Bitcoin space, and Bitcoin as an asset class.

For those interested in meeting leaders in the Bitcoin community and investors, the Bitcoin London conference will also include built-in networking time throughout the day and will conclude with a cocktail party. Some of the investors who will be in attendance include Michael Jackson (Mangrove), Martin Mignot (Index Ventures), Roberto Bonanziga (Balderton), Frederic Court (Advent Ventures),  Nic Brisbourne (DFJ), Seth Pierrepont (Accel), Bart Swanson (Horizon Ventures), Nick Shalek (Ribbit Capital), Stefan Glaenzer and Eileen Burbidge (Passion Capital), Mitch Pender (Meridian), and Barend van den Brande (Hummingbird).

Bridging the gap between investment and Bitcoin, the conference has extended invitations to angel investors in the Bitcoin space. Shakil Khal of Spotify and founder of Coindesk and Jimmy Furland will be in attendance. Prominent individuals in the tech sector including Iain Dodsworth (founder of Tweetdeck), Jez San (founder of PKR.com), Neil Hutchinson (founder of Forward Internet Group), Taavet Hinrikus and Kristo Käärmann (Founders of Transferwise) will also attend. The Bitcoin London Conference is expected to gain international media attention. Media professionals from CNBC, Bloomberg, the Guardian and Euromoney are already confirmed to attend.

With an overarching goal of bringing together entrepreneurs and angel and venture capitol investors in the Bitcoin space, Bitcoin London Conference leadership hopes July 2, will serve as a catalyst for greater advancement in the Bitcoin community in Europe and the rest of the world. Bitcoin Magazine staff looks forward to attending the conference to meet with leaders in the Bitcoin community and distribute copies of our print magazine. We hope to see you on July 2, in London, England!

Image credit: Josh Harvey, Porcfest 2012

In 2012, Josh Harvey made a post on the Bitcointalk forum with the following title: “Porcfest 2012: Biggest Bitcoin Event Ever.” Porcfest is one of two annual summits hosted by the Free State Project, a libertarian movement in New Hampshire with over 1,000 active participants, most of whom moved to the state to take part. The event is a week-long gathering on a campsite in northern New Hampshire, and every day is filled with a collection of liberty-themed panel discussions, music and games, and throughout the week there is a marketplace called Agora Valley, where merchants typically accept silver and gold as payment in addition to US dollars (or, as the locals prefer to call them, “federal reserve notes”). In 2012, however, silver and gold were for the first time joined by their new upstart digital companion, with over 80% of merchants accepting Bitcoin as payment. “I talked to some of the ones that didn’t,” Harvey added, “and even they knew exactly what I was talking about. They were interested in doing it, but just hadn’t gotten set up yet.” This year, Bitcoin is expected to take on an even larger role at Porcfest. The Free State Project’s keystone charities, including Antiwar and the medical group Fr33Aid, have started taking Bitcoin donations, and the latter has even converted to being a purely Bitcoin-based organization.

But what is this Free State Project that has let Bitcoin consume it to such a great extent? The underlying objective is simple. In 2001, a number of libertarian activists, disappointed with their failures to get anyone elected inside the United States’ Republican and Democrat-dominated federal government, decided to try a different strategy: find a state that is (i) already very free in both personal and economic matters, and (ii) has a low population, allowing for smaller groups to achieve significant change, and convince 20,000 people to move to that state to actively influence local politics in a libertarian direction. New Hampshire proved to be the perfect candidate; its current population is only 1.3 million, allowing 20,000 movers to have significant control over state politics simply by playing the dominant and evenly matched Republicans and Democrats against each other, and as far as freedom is concerned one must only look as far as the state’s motto: “Live Free or Die”.

The libertarian appeal of New Hampshire can be seen from the moment one drives in; on one highway leading into the state, on the border there is a sign stating that wearing seatbelts is mandatory for those under 18 – that is, unlike every other state, only for those under 18, with the “Live Free or Die” motto written below. The state is quiet and secluded; although the large southern towns like Manchester, Portsmouth and Concord do have bus routes, huge swaths of the state are completely inaccessible by public transportation, making them ideal for those who simply want to live undisturbed and peaceful lives with their families or in small communities far away from the rest of civilization; this sort of idyllic, “down-to-earth”, ideology is especially popular in Graphton, which attracts libertarians with its lack of a building code. For those who enjoy the benefits of civilization, from Manchester Boston is only two hours away by bus. State politics is highly accessible, with 400 representatives in the New Hampshire State House of Representatives (of which about 20 are libertarians) making it easy for anyone to make their voice heard in government. There is no state income and sales tax, although the state makes up the difference via high property taxes – a highly successful partial implementation of a left-libertarian political philosophy known as Georgism.

In my own travels through the state, one common sentiment I have heard is that people here tend to view the local government very favorably; it would be a truly ideal place to live “if only the feds would get out of the way”. And this has a strong ring of truth; from this author’s Canadian point of view, the federal government of the United States, with its bans on drinking alcohol or even entering many bars below age 21, requirements to show identification to board a bus, and constant DHS-funded reminders on TV telling people “if you see something, say something”, feels like a downright police state compared to the “True North Strong and Free”. Incidentally, the high age restriction on alcohol and bars has even led to me personally getting kicked out of a Bitcoin meetup here, although the meetup group was nice (and righteously angry) enough to relocate to a different location. Outside of libertarianism, the other main jarring thing about the United States to a Canadian is the sheer number of advertisements for various private and semi-private health care services.

The Free State Project movement in New Hampshire is essentially centered around two cities: Manchester and Keene. Manchester is important because of its (relatively) large population of 110,000, and by libertarian standards it has its credibility; CNNMoney ranks Manchester as the 13th best city to live and launch a business, and Yahoo ranks it the first in its list of tax-friendly cities. There are no Bitcoin-accepting restaurants yet in Manchester, although Lamassu‘s Josh and Zach Harvey are (at least currently) located in the city and organize a weekly meetup with about seven to ten participants.

Keene is the undisputed “liberty media capital of the world“, with Free Talk Live, LRN.FM (“Liberty Radio Network”) and ten other libertarian shows located there, but is also the home of a much more activist, and controversial, part of the local libertarian movement that focuses heavily on civil disobedience. Marijuana is sometimes involved, and at other times the target is local rules prohibiting filming in courts or distributing pamphlets on school property. A particularly popular (and, in this case, entirely legal) activity is “Robin Hooding”, a deliberate strategy to deprive the Keene government of revenue from parking tickets by following parking inspectors around and filling expired parking meters right before the inspectors come to check any particular spot. Other Free Staters often disagree with the “Keeniacs”‘ actions, seeing them as needlessly provoking the local government even when some of the rules the activists are targeting are downright reasonable. “I think some of the civil disobedience has been constructive and useful—and much of it has not been,” Free State Project founder Jason Sorens has said. If you wish to evaluate the merits of this side of the movement for yourself, consider watching their latest video Derrick J’s Victimless Crime Spree and making your own conclusions.

The one Bitcoin-accepting restaurant currently in New Hampshire is the Pao Cafe in Newmarket, close to Portsmouth. The owner, Matt Corano, is himself part of the Free State Project, and is actively interested in Bitcoin for the ideological reasons. More will soon come; the Free Stater-owned Murphy’s Diner in Manchester may accept it if at least one of its suppliers can be convinced to, and a number of restaurants on Manchester’s Elm Street are potentially interested (although the Harveys are too busy with their Bitcoin ATM to spend too much time promoting Bitcoin adoption locally). But this is not to say that Bitcoin adoption is sparse; in fact, a very large number of people both in the Free State Project and elsewhere accept Bitcoin as payment for various kinds of services. The landlord I personally am staying with during my stay in New Hampshire, Alec Muller, accepts bitcoins for rent at a 20% discount, and Josh and Zach Harvey have managed to get a number of their graphic designers and suppliers to take them.

The other attraction of southern New Hampshire, and Manchester in particular, is its proximity to Boston, a city which has a strong Bitcoin community itself. The main character in Boston is Jay Best, an MIT research affiliate who has put together a weekly Bitcoin meetup group with, just like in Manchester, about seven to ten participants. However, in other ways Best has been more successful. There are now two restaurants accepting Bitcoin, Thelonious Monkfish and Veggie Galaxy.

See a few more pictures of Thelonious Monkfish and Veggie Galaxy here

Thelonious Monkfish appears to be simply an ordinary Asian fusion restaurant, albeit a highly rated one that is fully seated within half an hour of opening its doors at 11:30 on Sunday. Veggie Galaxy is a vegetarian restaurant, featuring veggie burgers, “steaks”, salads, coconut-based cocktails and various kinds of vegan desserts. Both restaurants have plenty of high-quality options on the menu at a reasonable price, although it is possible to get unlucky. More Bitcoin-accepting places are soon to come; first in line are a café and a beer store, and both Best and other Bitcoin users are actively recruiting more. The ideological feel of the Bitcoin community is still largely libertarian, although a significant number are political moderates who like Bitcoin purely for its aspects of reducing transactional friction. The intent of the group is to simply focus on spreading Bitcoin adoption, as well as acting as a hotspot for Bitcoin activity; at the Bitcoin meetup last Friday, two people came to buy bitcoins from Best.

Next week Bitcoin activity in Manchester and Boston will die down somewhat, as all the Bitcoiners will be heading over to Porcfest. The event will be taking place near Lancaster, NH, and tickets will be sold at the door for $75. Accomodations are heavily booked, so if you are not yet prepared to go your best bet may be either renting a room in a hotel 15km away or getting a tent and renting an RV spot. The local hotels and RV spots, unfortunately, do not accept Bitcoin. The first day of the fest will be tomorrow, although the more interesting events will take place later in the week.

See you at Porcfest!

Bitcoin-based investment platforms have had a long and colorful history in the past two years. The idea first started with the Global Bitcoin Stock Exchange, launched in April 2011. The exchange picked up quickly, with mining companies and the in-person Bitcoin exchange Ubitex as the first IPOs, but within months the exchange ran into its downfall: quality control. In December, the GLBSE-based Lambert Investment Funds, a fund which invested in other GLBSE assets, was forced to shut down because many of their investments turned out to be scams, and in August 2012 the GLBSE suffered a further blow as a $5 million Ponzi scheme suddenly disappeared, taking nearly half the GLBSE “economy” with it. Not long after, the GLBSE itself shut down for legal reasons. Since then, however, other platforms with much better quality control have taken the GLBSE’s place, and Bitcoin investments have seen a massive, but quiet, renaissance. The gambling site SatoshiDice and the Bitcoin mining company ASICMiner are listed on trading platforms MPEX and BitFunder with market capitalizations of $25 million and over $130 million, respectively, and BitFunder has over a dozen assets listed on the site, including such mundane businesses as the T-shirt vendor Bitcoin Pride.

Now, an Australian mining company is about to take the Bitcoin stock markets to the next level. At the beginning of June, Kenilworth Exploration, a mineral exploration company located in the Lachlan Fold Belt in New South Wales, Australia, announced that it will be raising its first $925,000 round of funding using BitFunder. This sets a new first in the Bitcoin economy; although there have been many businesses in industries as diverse as Bitcoin exchange, Bitcoin mining, promotional clothing and gambling raising money from Bitcoin investors through such platforms, Kenilworth Exploration is the first business from outside the Bitcoin community to seek investment from Bitcoin users.

The backstory of the company begins at the turn of the century. In 2000, the Prendergast family bought a 96,000-acre farm in New South Wales, Australia, and in 2001 prospectors found a number of unexplored mineral deposits in the area. Kenilworth Exploration was founded in 2006 as a Prendergast family-owned business, and in 2010 the company purchased three exploration licenses. The company also secured a 50% stake in three additional licenses by partnering with Thomson Resources Ltd, an accredited mining company which is also based in Australia, and in 2012 Kenilworth filed to become a public company, although without immediately listing on any actual exchange.

Kenilworth’s founders first found out about Bitcoin in just the same way as so many of the rest of us. “In 2011,” Daniel Prendergast explains, “I was reading an article on Slashdot and was really interested in the emerging technology that is Bitcoin. I was studying for my medical exams and, in a moment of procrastination, I thought that there could be a great link between my dad’s company and Bitcoin. Once Bitcoin spiked above 100, I knew it was going to be a viable option, I found BitFunder, and we made contact.” As for why the company’s board was so eager to go along with the alternative funding method, as Daniel’s father and Kenilworth chairman Patrick Prendergast describes it, there was nowhere else to turn. “Mineral exploration globally is in serious decline because of the economic downturn, and the raw material supply [available in the earth] of copper started declining, so the industry fell down and everyone stayed with the companies that were still above ground.” The result of the consolidation: an oligopoly, with all the standard inefficiencies and pitfalls. “The established companies have such huge overheads, that out of every $1000 they’re spending $600 just to stay afloat.” Other mining companies have tried raising funds on conventional stock exchanges, but as of yet none have succeeded.

The Bitcoin markets, however, are a completely different animal. Traditional stock exchanges have a reputation for being largely dominated by mutual funds, billionaires and institutional investors such as banks, but Bitcoin users tend to be young and middle-aged tech entrepreneurs, a very different demographic. Additionally, the barriers to entry are far lower; there are no complex registration processes, there is only a two-minute signup and a one-hour Bitcoin deposit to get on BitFunder. Even someone with only $25 to invest can participate. The Prendergasts are hoping that this unique advantage of Bitcoin, the ability to serve as an efficient method of crowd funding, will be what allows them to succeed where many other companies have failed.

Kenilworth itself is adopting a strategy that has already become very popular among many in the tech community. “We’re a virtual company,” Prendergast explains. Kenilworth Exploration is responsible for collecting the funds, paying for the exploration licenses and the electromagnetic scans, and for “keeping things together”, but the company itself will do very little internally. Instead, the company has hired contractors to do nearly all of the actual work. The company has already enlisted the services of SRK Consultancy Ltd to conduct an independent geological valuation, which found that “the Kenilworth licences sit in prospective geological addresses similar to that of the world class Peak Gold Mine, hosting shear/structural land formations that cultivate significant gold and copper mineralisation, as well as possible porphyry styles that are conducive towards gold-rich and copper-rich resource findings.” As a result, Kenilworth’s three exploration licenses “have a median valuation of US$ 19.1 million with a minimum valuation of US$ 3.5 million, and a maximum valuation of US$ 264 million.”

Investors have a good deal; the shares on BitFunder are being sold at a market capitalization of only $5.4 million. The next phase will be to use the $925,000 funding that Kenilworth ideally prefers to receive entirely from the Bitcoin community to fund the next phase of exploration: a high-powered electromagnetic helicopter survey. After this scan, the company will once again seek a mineral asset accredited company, perhaps also SRK, to conduct another geological valuation; at this point, it is expected that the valuation will be “many times higher” than the original $19 million; at this point, Prendergast expects $50-$70 million. At this point, there will be two further funding rounds at higher valuations, which will pay for the actual drilling program. For this too Kenilworth intends to use the services of an existing accredited mining company such as Thomson Resources, and the way the company goes from there will depend heavily on the precise nature of the contract. Kenilworth may simply sell off its licenses to its mining partner, delivering a large payoff to investors on the spot, or it may simply end up collecting royalties and paying out dividends over time. Either way, however, BitFunder acts as a fully functional stock exchange, so investors are free to cash out at any time at a potentially massively increased share price.

Of course, Kenilworth may well not get the entire $925,000; the Bitcoin economy is riddled with businesses which, seeing the massive success of companies like ASICMiner and SatoshiDice, sought to get large amounts of funding themselves, but only ended up getting as little as $10 for their trouble. However, there are backup plans. If Kenilworth does not get $925,000, they will simply start the helicopter survey one exploration license at a time; the smallest amount of funding that the company will need to get to start is $250,000. Once the first survey goes successfully, it will be much easier for Kenilworth to acquire additional funding. If Butterfly Labs, a Bitcoin mining company, managed to secure $250,000 worth of pre-orders within 24 hours of their launch in June 2012, it is not hard to imagine the real-world mining company Kenilworth Exploration receiving at least $250,000 within two months in June 2013.

Being the first non-Bitcoin company to seek funding from Bitcoin user “can be a little daunting,” Patrick Prendergast admits. “We have to ensure that the money from BitFunder gets to the various subcontractors, but there is no precedent to follow, so accountants and solicitors get a bit nervous. I think that’s why there is not a crowd of other companies doing this, and so we have to lead the way. If we do this, there are many others who could follow suit.” Legal issues are also an unknown, although there are no obvious reasons to believe the government would attempt to crack down; Kenilworth is a public company, making the situation much simpler as there are no restrictions on who the company can receive money from. Ordinarily, such a step would be very difficult for a public company to take; in Kenilworth’s case, however, the vast majority of the company ownership remains in the Prendergast family’s hands, allowing the family to make the decision unilaterally. Even so, the company’s board is very supportive of the decision regardless.

At this point, what the company needs more than anything else is attention; although there is no reason why they cannot raise $250,000, or even the full $925,000, from the Bitcoin community within two months, they need to make potential investors aware of their existence in order to do so. There are many untapped markets to explore; Bitcoin has been very popular in China recently, with even more Bitcoin-Qt downloads in China than the United States since mid-April this year. “The Chinese love Australia and are very interested in mineral exploration,” Prendergast believes, and so there is no reason why a large portion of the funding cannot come from Chinese Bitcoin users. Anyone looking to expand their investment portfolio beyond just technology should well consider Kenilworth as a unique, and potentially highly lucrative, opportunity. Although, if they succeed, their interest in the Bitcoin markets will hopefully not be nearly so unique two or five years down the line.

Jeremias Kangas is the CEO and founder of localbitcoins.com, as well as several other Bitcoin ventures.  He is a software developer from Finland and one half of the Kangas bros team. He irradiates optimism about Bitcoin and the endless possibilities it brings, he also understands its resilience and expects it to thrive despite the many attacks that it will probably suffer from the old order that it disrupts and will displace.

Bitcoin Magazine: Why, when and how did you become interested in Bitcoin?
Jeremias Kangas: I just spotted an article about it on hacker news, and instantly started thinking how awesome it would be. At first I was mostly excited by the “money as a protocol” thing – startups and small companies can avoid fees and innovate on top of Bitcoin easily. Then slowly I started to get a larger grasp on the socio-economic implications of Bitcoin.

Currently I’m mostly excited about the possibilities for 3rd world countries. The countries without a stable and cost-effective financial infrastructure or lousy national currencies can benefit the most.

BM: Why did you decide to create localbitcoins.com? Why are P2P exchanges important for Bitcoin? Isn’t Localbitcoins.com already a de-facto decentralised exchange?

JK: There were plenty of sites that listed local Bitcoin exchangers, but in my opinion they all sucked. Therefore I started doing my own, and hired my brother to help me. At first it was a really simple location-based list, with no user accounts and URL-based identifying. From there we iterated and improved the concept based on customer feedback, and nowadays localbitcoins.com is vastly different from the initial prototype.

P2P exchanges are more resilient than centralized exchanges, therefore I believe that in long run decentralized exchanges will win over the centralized ones. I also believe that decentralized exchanges can make Bitcoin spread much faster – if done right.

Localbitcoins.com isn’t a real decentralized exchange, as we still rely on central server. However as with anonymity, decentralization is a floating variable, not a boolean. Localbitcoins.com is less centralized than many others, and we have plans to develop our infrastructure to make it even more resilient.

BM: Localbitcoins has an extremely broad and global base; however centralised exchanges still have more depth and volume. Any plans to encourage larger volume ads?

JK: We will have volume-based discounts in the near future. I definitely agree that the depth and liquidity is a problem with de-centralized exchange model. We have some other ideas to overcome those problems in the longer run.

BM: How many users does Localbitcoins have? What BTC volume is currently being offered through your ads? Will you increase the number of statistics publicly available or offer more charts? Would you like prices set by (volume-averaged) localbitcoins transactions to be a market reference like the Mt.Gox price is currently?

JK: We currently have 44k users, and just today about 300 new user accounts were opened. Lately we’ve had around 250 new users/day. Our volume is usually in the 400-900 BTC/day range.

We want to offer the charts and statistics through our website, but we haven’t had yet time and resources to do this yet. Also an API for external developers is on the roadmap.

BM: As long as you run a P2P ad service in which you don’t actually buy and sell bitcoins yourself, you don’t have to register as a MSB or comply with all the burdensome regulations of exchangers. Does that make your life easier?

JK: Yes. Of course we will still have to adhere to any regulation which might be coming for bitcoin services.

BM: Are you planning to add more security, escrow and reputation features?

JK: We will be improving the security issues with multiple methods. We will be improving the reputation system and feedback loop heavily in the coming months, so that it is more useful.

We are also researching different identification methods, which would add credibility to users. Currently we have SMS based identification, which sellers can require from trading partners. We will try to keep these as optional as possible, so that invidual traders can check which kind of identifications or security measurements they require.

Currently traders can specify limits which depend on volumes of trading counterparties. We will add more options which allows different limits for differently reputated traders. Bitcoin-security wise I’m mostly excited about Bitcoin Trezor. If those guys manage to ship it, we could order a localbitcoins.com -branded batch and give them out to our active traders and sell and market to other users.

BM: Users can now price their BTC in XAU (ounces of gold) and XAG (ounces of silver) at Localbitcoins. Do you expect goldbugs to wake up to the fact that they can now easily buy and sell bitcoins for gold?

JK: I’m not a gold-bug myself, so I don’t fully understand the hype around it. However I realize that there exist many goldbugs in the Bitcoin community. Thus,  I have myself bought miniscule amounts of precious metals. At some point I’ll try to trade them on LocalBitcoins.com, and see how we can make metal-trading easier there, or if there exists demand for it.

BM: Localbitcoins.com now has users buying and selling bitcoins in over 140 countries around the world. What are your plans for the future?

JK: We currently have 142 countries and 1700 cities, but that most definitely isn’t enough. We want to expand to at least 170.000 cities, and have LocalBitcoins,com-branded franchise exchange shops popping up here and there. Global world domination is our goal!

BM: Can Bitcoin be shut down by unfriendly regulators or governments? How could the Cuban or North Korean government stop me from buying and selling bitcoins? Are you worried about censorship?

JK: Bitcoin can’t be shut down, and I’m sure that people will continue using it, whatever happens. Services like LocalBitcoins.com can be shut down, but we have plans how to make our infrastructure more resilient in a way that shutting the service down will be more difficult. I guess also other bitocin services are designing their technology in a resilient way.

BM: You are also involved in several other Bitcoin sites, like Easywallet.org and Acceptbit.com. Do you have any new projects in the works?

JK: Currently I believe that we have the most impact with LocalBitcoins.com.  Our team is focusing all of our efforts towards developing it.

There are tons of great ideas around Bitcoin. I won’t be having any free-time from localbitcoins.com in the short-term future. I hope in year or two, I can start some cool hobby sideproject. Meanwhile, localbitcoins.com as a company will try to provide bounties for open source projects in the future, so at least that way we can participate in some cool open source projects.

Earlier this week, Argentinians suffered from another wake up call. Western Union will no longer accept money transfers between USD and Argentinian Pesos. At the end of May, new stricter regulations on Argentina’s currency exchange prevented Google from even paying Android developers. With extreme inflation, a devalued currency, and increased and extreme regulations, Argentinians are looking to invest wisely and find alternative methods for buying and selling goods. The Bitcoin community is constantly growing in Argentina, but this week’s announcement by Western Union will inevitably spark an even greater interest in the Bitcoin currency.

With a devalued Argentinian Peso, Argentinian citizens are looking to invest in a currency with a potential for greater value. Bitcoin permits Argentinians to not only have control over currency apart from a centralized source but also an opportunity to purchase products with ease internationally. Bitcoin opens the door to the global economy and allows for Argentinians to purchase goods from sellers within the country and internationally.

With a crippled national economy, Bitcoin brings life and opportunity to the financial future of many Argentinians. As Forbes Contributor, Jon Matonis highlighted in his article, “Bitcoin’s Promise in Argentina,” the benefits of Bitcoin when compared to paper cash are high. Recently, BitcoinFilm.org produced a short documentary about Bitcoin in Argentina. As Argentinian leadership continues to impose price controls and monetary exchange restrictions, the Bitcoin community continues to grow and thrive.

For most Argentinians, Bitcoin is a more viable source of savings, than pesos in the bank. With inflation nearing 30%, Argentinians are less concerned about the volatility of the Bitcoin currency than the government permitted devaluation of the Argentinian Peso. With the black market as the main means for acquiring the US dollar in Argentina, Bitcoin is not only legal, but a more valuable investment for Argentinians. When faced with the decision to hold onto a devalued currency or take the step to invest in the Bitcoin currency with great potential for growth, Argentinians should have an easy decision to make. La Revista de Bitcoin quiere dar felicitaciones a la communidad de Bitcoin en Argentina por el crecimiento de Bitcoin en este país.

In late March, the cryptic underworld of the Tor hidden service ecosystem added a new service to its midst: TorBroker, a gateway for Bitcoin users to the stock markets of the mainstream world. This is not the first service to do such a thing; ICBit has been doing the same, albeit in a very limited fashion, for over a year by offering futures on oil, gold and the S&P 500. TorBroker on the other hand is, as its name suggests, a fully-fledged broker, allowing users to buy and sell any of nearly a thousand different stocks and exchange traded funds at any time. It is also the first such service to accept customers anonymously, using Tor to protect their anonymity and not asking for any identifying information beyond a username and password.

The service has seen some usage in the months since then, but many people remain highly skeptical. There are two reasons behind this: legality and trust. Operating this kind of pass-through investment service is not itself that legally difficult; although being a stock broker does require a license in the United States, the license requirements consist of having a company sponsor and passing an in-person examination. However, what is difficult is performing such a service without verifying the identity of one’s clients. When asked about the legality of their service, TorBroker’s forum representative explained their legal strategy was that they would not actually be conferring legal ownership of any shares to their customers; rather, they would simply be passing on gains and losses, effectively acting as a sort of betting site specializing in the future value of financial assets. Torbroker wrote, “Our lawyer has been in contact with the financial regulators in our local jurisdiction. He was given the information that at the moment there are no actual laws that explicitly forbid individual or company traders from passing on gains/losses to a third party [ie. including an anonymous third party] that has no legal ownership of the traded securities. Furthermore, there is no regulation regarding deposits in unregulated currencies (bananas, seashells, bitcoins). However, they stated they would look negatively on such a service, but they wouldn’t be able to legally take action against it as is.”

This is where the issues of legality and trust become intertwined. As a further legal safeguard for their service, TorBroker’s representatives have chosen to remain anonymous. Explaining their decision, TorBroker wrote to Bitcoin Magazine: “By going public we would attract the attention of local authorities who would be inclined to work on new regulation – or even just try to find some non-essential technicality that we’re unwittingly violating – to stop our service. By keeping our jurisdiction secret, we avoid attracting such attention.” Howevver, this strategy has its costs. Out of all the major anonymously operated services in the Bitcoin economy, many, including Bitscalper, TorWallet and Bitcoin Savings and Trust, have turned out to be scams, eventually suddenly disappearing with thousands (and in the latter case, over 1 million) of dollars of deposited customer funds. Other anonymous sites, on the other hand, have survived, and Silk Road in particular may well now be the single most trusted cryptographically anonymous entity in the world, so on the balance the question of whether or not one can ever trust an anonymous service remains hotly debated.

The general consensus view is that it depends on the precise nature of the service in question – specifically, the trust to profit ratio. On the Silk Road, an eBay-style marketplace for illegal drugs that, like TorBroker, uses Tor to help ensure both itself and its users anonymity, this ratio is fairly low, both with regard to Silk Road itself and even between buyer and seller. Each individual transaction brings a significant benefit to both the buyer and the seller (laying aside the argument that some users may be addicted and would benefit more from being forced to go cold-turkey; this is a purely conventional economic analysis), especially so because black markets tend to be very inefficient and so have high producer and consumer surplus per transaction, and Silk Road itself earns an average commisssion of about 6.3%. Thus, for both Silk Road and the anonymous merchant, profit is high. As for trust, the buyer only needs to trust the merchant to ship the goods each transaction, and needs to trust Silk Road to the same extent when depositing into their Silk Road account (or perhaps to a slightly greater extent, if the buyer also wants to have cash on hand in their Silk Road account to be able to buy a certain quantity of goods at will). Since profit is high and trust is low, the trust to profit ratio is very low, and so both Silk Road and the merchant have strong incentives to continue acting honestly – the value of the relationships is too high to justify running away at any particular point.

Now, consider Torwallet. Torwallet was essentially an anonymizing mixing service and a Bitcoin wallet all in one. Here, the wallet is usually free, although users can opt to have their coins mixed again at any time for a fee of 3%. Thus, profit is considerably lower than on Silk Road. As for trust, Torwallet is intended to be used as a wallet, encouraging users to deposit significant quantities of money into the wallet and, importantly, store them there for a long time. Thus, compared to Silk Road trust is very high. Thus, predictably, TorWallet eventually ran away. Bitscalper and Bitcoin Savings and Trust have even higher trust to profit ratios, as the service (in both cases, investment returns) requires the user to keep their money deposited for an extended period of time.

Unfortunately, TorBroker falls squarely on the “untrustworthy” side of this analysis. This is not their fault; it is simply a characteristic of the financial industry that trust to profit ratios are high, and this model, combined with an understanding of the more subtle, and legal, ways a business can probabilistically “run away”, even perfectly explains the recent global financial meltdown. However, there is one unique factor that does rest strongly in TorBroker’s favor. BitcoinStore’s Roger Ver made a post in TorBroker’s introductory thread on Bitcointalk, writing:

I don’t know TorBroker or any of the people behind it, but about a month and a half ago they contacted me, and at least one other well known member of the Bitcoin community and asked us to publicly hold 1,000 BTC as a security bond that would be used to refund customers if TorBroker ever disappeared with their customers money.
While I fully support TorBroker’s efforts to bring additional economic freedom to traditional financial markets, legally it didn’t seem safe for me to be the front man for this.

TorBroker has also tried to place this bond with many other prominent Bitcoin community members (who won’t be named to protect privacy), and, if trust proves to be too insurmountable an obstacle, is even willing to consider placing the bond with Silk Road’s own Dread Pirate Roberts. This would change the trust to profit calculus considerably; the extent to which TorBroker would benefit from running away would then be reduced by 1000 BTC, and, presumably, if TorBroker does run away the funds would then be proportionately distributed to depositors. For now, no security bond has been placed, but the fact that they are willing to voluntarily do so does suggest that they are attempting to build a viable and lasting business.

However, there are steps that TorBroker could take to reduce the trust to profit ratio even further. TorBroker charges a commission of 1% per trade (minimum fee $10), specifically encouraging investment strategies that keep money in the service for a long time. The minimum fee also discourages users from trying out small amounts they can afford to lose first before investing more heavily. If the commission was replaced with, for example, a 10% fee on user profits, it would become much more viable to invest for only a few weeks or even day trade, benefitting from the service without trusting TorBroker nearly as much. They could also, instead of having a fixed-size security bond, constantly keep the majority of users’ funds escrowed with a trusted third party. Such a strategy was in fact suggested for Bitscalper, although Bitscalper obviously rejected it because they intended to run away with the money.

More recently, TorBroker has come up with several upgrades to their platform. In early June, they released a better securities list interface, an improved order system, performance and stability enhancements and reducing the minimum fee to $5 until July 11. They also released a promotional video explaining the benefits of their service:

The video begins by highlighting the three main disadvantages of traditional stock brokers: that they are “overregulated and complicated”, leading to bureaucratic inconvenience and a prolonged process in order to set up an account, they require minimum deposits that can be as high as $10,000, and “Big Brother is watching all your transfers.” TorBroker, of course, has none of these flaws. However, it does have weaknesses. Although it bypasses the inefficiencies of government regulation, its anonymous nature also sacrifices the main benefit that government can provide: trust. As discussed above, this is not an easily solvable issue, although there are many ways that TorBroker can mitigate it. Also, its $10 minimum fee itself functions as a de-facto minimum deposit; if one wants to trade only $100, a $10 fee is a whopping 10% off of every transaction. TorBroker would do well to go even further than their promotion and remove the fee outright, replacing it with a more even fee structure. As for privacy, here TorBroker indeed wins by a wide margin. Although the service sees all of your trades, it has no idea who you are, and everyone else knows nothing at all (although perhaps with blockchain analysis it may be possible in certain cases to detect that a given individual is using TorBroker; the Blockchain.info mixer can plug this small potential leak for an additional 0.5% fee.

Should you invest using TorBroker? Well, if you need anonymity, you might. Safety is not guaranteed; TorBroker may still run away with all of their customers’ funds tomorrow, and there would be no way to even start trying to get the money back. If you are already investing in a very high risk portfolio, this additional risk may be manageable; if you are trying to secure 2% returns for grandma’s pension fund, forget it. If it does disappear, it will be added to the list of scams and thefts and soon forgotten. If it survives and continues to grow, it may well be an interesting experiment in the growing field of “crypto-economics”, and an example for more commercial hidden services to come.

Each day, the Bitcoin currency is growing in utility and becoming more of a household name. Yesterday, major newswires including, Business Insider, CNN Money and MSN Money announced the birth of the, “First Bitcoin Baby.” The Bitcoin currency is successfully infiltrating numerous aspects of life.

Dr. C. Terence Lee established Fertility Care of Orange County in 1997. In 2012, while browsing the internet, Dr. Lee learned about the Bitcoin. As Dr. Lee bases his career around providing life-giving services, he is now also investing in a vibrant new digital, decentralized currency with much potential. Nine months ago, Dr. Lee offered a couple a 50% discount should they cover the costs of a frozen embryo transfer cycle with the Bitcoin currency. Dr. Lee’s transaction in BTC is to date the first payment for fertility treatments.

Prior to the birth of the first Bitcoin baby, Dr. Lee presented at the 2013 Bitcoin Conference in San Jose to address, “A Physician’s Experience with Bitcoin.” Dr. Lee touched upon the areas that are still open to the free market in the medical field. Currently, fertility clinics can still be operated in the free market space. Dr. Lee first transacted in Bitcoin in his business after posting an ad on Bitcoin Reddit offering a Male Fertility Test for payment in BTC. Since that first transaction, Dr. Lee has chosen to reach out to patients who normally would not transact in Bitcoin or have not heard about the currency to then encourage them to learn more about Bitcoin and further provide the opportunity for them to even pay for fertility treatments and consulting in BTC.

To the mainstream news media, Dr. Lee has forged the trail to not only accept payments for fertility consultation and treatment in the Bitcoin currency but also counsel individuals as how to use the digital, decentralized, cryptocurrency. Dr. Lee takes steps to guide patients to reliable Bitcoin exchanges and encourages couples to not only plan their future by starting a family but also through investing in Bitcoin. Bitcoin Magazine congratulates Dr. Lee on his accomplishments to date and encourages other medical professionals to follow suit.

The sudden rise of the internet may not be the biggest news story in the past fifteen years, but it was certainly the most entertaining. Over the course of only a year the value of technology stocks has doubled, only to crash right back down within months. Suddenly, it felt as if we were back in the tulip era. But what is this strange technology that is behind all of this unexpected public attention? A cure for cancer? A solution to the problems of poverty and world hunger? No. As it turns out, the underlying technology is basically a clunky, inferior version of a phone, and is primarily used by terrorists and prepubescent children with nothing better to do with their lives than send each other images of cats. However, since this technology has been all the rage in the past few weeks, its supposed “advantages” deserve a thorough debunking, and those who have so far been fortunate enough not to get caught up in the hype deserve a thorough understanding of just how pernicious and evil the underlying ideology of this “invention” is. To that end, I have gathered up the fundamental flaws behind the internet’s design and will summarize them all in the rest of this article.

1. The Internet Provides No Listener Protection – so far, all of the methods that we use to get our information are based on strong, socially recognized hierarchies of trust. If you read a sentence in a magazine, of hear someone speaking on TV, those words have been carefully rehearsed, sent through multiple layers of scrutiny and fact checking, and the speaker knows that if they make any claim that is false they can be sued under a robust framework of defamation law. Decency laws protect you from having to listen to anything containing harmful or psychologically traumatizing words. If you are a crazy libertarian, the presence of this kind of control may horrify you – but, but, that’s authoritarian, you might argue. It’s centralized! What if you want to say something controversial or obscene or outright false to listeners who “voluntarily” turn on their televisions to some channel specifically because they want to receive it? In reality, however, these protections are necessary. They ensure that children get safe programs suited to meet their delicate psychological needs, and protect them from learning about the ravages of reality right up until the moment they are kicked out of their house to go to college and enter the jungle of drugs and sex and independent politics as soon as they hit 18. They make sure that so-called news “sources” spreading misleading and fallacious information are either prevented from doing so entirely or are, at the very least, quickly discovered and made to answer for their lies. Without these protections, anyone could go out and say anything about any person and company and have untold consequences on society and the financial markets as everyone blindly believes what they are saying and retweets the news; with the checks and balances that traditional media provides, such things can never happen.
2. We Already Have Good Communication Solutions – internet advocates often claim that the Internet is somehow massively better than all of the other options that we have available. The reality is, however, that as soon as you ask them how it does this their arguments immediately fall away. You can use the internet to talk to your friends, they argue. Well, of course you can, but we have already had a technology to do that for over a hundred years; they’re called phones. Ah, but the internet is international and universally accessible. Well, phones are too, and with internet penetration at only around ten percent telephones are actually far superior. Can you use the internet to talk to your grocery store? No? Then the internet is not a “communication medium”. The same goes with TV; people are starting to use the internet to stream video to each other, but the result is a horrendously inefficient use of bandwidth that is rapidly using up billions of dollars of infrastructural investment, when if only users were willing to submit to the truly minor inconvenience of having to wait a few hours to watch (or record) the same data can be transmitted simply by broadcasting it all at once. The internet does have some minor advantages, and if it were thoughtfully integrated into a legitimate communications product it might be a good idea. But this is not a good idea, it is a scam, and someone out there is trying to become very rich off of this system until the inevitable collapse.
3. The Internet Circumvents Authority And the Rule of Law – this is where we need to explain one of the more dangerous properties of the internet. In 1977, Rivest, Shamir and Adleman came up with a system for storing data that had some interesting properties. You can create a pair of keys, called a “public key” and a “private key”, such that you can “encrypt” data with the public key but then you would need the private key to decrypt it. Without the private key, encrypted data simply looks like random junk and nothing can be gleamed from it. This has some very positive legitimate military applications, as militaries can now communicate securely without having to securely transfer a common secret key first. However, soon enough so-called “crypto-anarchists” began perverting cryptography to much more destructive ends. PGP, for example, provides a simple interface for anyone in the world to use public key cryptography to accept messages from anyone else in the world, so that no third party has the ability to read them. Read that carefully: no third party. Not “no illegitimate third party”, but “no third party” at all – including legitimate government operations that are conducted for the public good and restrained by robust, democratic checks and balances such as court-ordered warrants. Just how are government investigators supposed to avoid going dark and losing the ability to recover any data for investigative purposes at all? Well, if you are a libertarian and believe that government snooping equals intrusion of privacy, then you don’t care much about this question because the answer you will get is, ‘Well let’s not get snooped on and let’s allow the various intelligence agencies to wither,’ but if on the other hand you believe that intelligence agencies are essential for maintaining civilised behaviour and for having regulation, then it is a problem.
4. The Internet Circumvents Democracy – there are of course even easier ways to use the internet to circumvent the law. Following the tradition of “tax havens”, countries like Iceland are now trying to position themselves as data havens, extending their extremist interpretations of “freedom of speech” to the entire world. Finally, many people simply ignore the law and hope for the best – a strategy that, given law enforcement’s limited resources in these times of austerity, is unfortunately all too effective. Fundamentally, what politicians in Iceland, and internet-bugs in general, fail to realize that censorship is not “damage” that should be “routed around”; it is a basic and necessary part of legislation in a harmonious society. Censorship protects religions from being brutally mocked by insensitive television programs and cartoons, it helps combat extremist ideologies and it helps protect ordinary people, especially children, from obscenity. And what are people using the internet for? As it turns out, it’s mostly child pornography. Some civil-libertarian revolution.
5. The Internet Is Backed By Nothing – when you buy a TV and a cable subscription in order to watch a particular set of broadcasts, how do you know that those shows are going to continue operating at a high standard of quality, or at least if they don’t other equally good shows will take their place? The answer is, there are powerful commercial institutions behind these programs that are guaranteed to continue releasing them, and contracts with actors and crew that provide a strong incentive for them to make a fresh episode week after week. If a station decides to deliver a poor-quality episode, or even skip an episode some particular week, they will lose millions of dollars in profit, and there is a strong central point of attention to which people can direct their complaints. With the internet, none of this exists. On an internet forum, all content is user-generated content, and users have no financial incentive to produce quality content, or even continue producing any content at all. And those users are only on that forum in the first place because other users are on that forum, generating content for them in turn. So what happens if confidence in this network falters? Some users drop out, then because of them more users drop out, and the entire online “community” disappears into thin air. I’ve always said that the dollar is an “I owe you nothing,” and that the euro is a “Who owes you nothing.” On the internet, nobody owes you anything, and so it is inevitable that the scheme will collapse in its present form.

Unfortunately, in the all too extreme and individualistic society that we live in today, it has become popular to think that we should just let everyone speak freely without controls and everything will somehow work itself out. But, as we all know, this is absurd. We cannot delude ourselves that free speech is the privilege of pure citizens in some perfect Enlightenment salon, where all sides of an argument are heard and the most noble view will naturally rise to the top. Speech now takes place in a digital mixing chamber, in which the most outrageous messages are instantly amplified, with sometimes violent effects. We have people spewing out hate speech, inciting riots and practically ordering other people’s deaths. Sites like stormfront.org and “Boycott American Women” are repeatedly hitting front page headlines as their terrible and hateful ideologies are allowed to fester. We have unchecked laissez-faire internet-based social media platforms becoming an existential menace to society as unenlightened youth use them to launch outright revolutions against established authority. We have “crypto-anarchists” writing manifestos about how the internet will bring about the outright demise of the legitimate and democratic nation state, and if the internet does grow to the extent that they imagine, all evidence shows that that is exactly what would come to pass. But fortunately, we do not have much to fear. The growth of the Internet will slow drastically, as the flaw in “Metcalfe’s law”–which states that the number of potential connections in a network is proportional to the square of the number of participants–becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.

As Bitcoin has grown in prominence, so has the number of individuals and organizations concerned about spreading the truth of the value and utility of this digital, decentralized, cryptocurrency. The Bitcoin community is at a crux and education is needed to push Bitcoin to an even higher level of prominence. How could anyone turn down Bitcoin after understanding the convenience and utility of this currency? Beyond facilitating financial transactions, the Bitcoin currency exemplifies free market ideals and limited government principles which prompt economic and societal success in local, state, and national governments.

As some still hold to the misperception that Bitcoin only benefits a select few or is only of interest to those in the software development community, an increased number of Bitcoin Evangelists have emerged to share of the benefits of this innovative currency to all people. One of the main forces in getting the word out is Bitcoin Reddit. Reddit, founded in 2005, touts itself as being, “the front page of the internet.” Bitcoin Reddit provides an open forum for users to post articles of importance and comment to foster a discussion within the Bitcoin community. Along the same lines as Bitcoin Reddit, the Bitcoin Forum creates discussions based around particular areas of significance in the Bitcoin community such as development and technical issues, mining, technical support, economics, trading, politics and society, and international discussion boards.

Individuals are also stepping out to share their thoughts on the validity of the Bitcoin currency through blog sites such as BTC Math. BTC Math was founded by Noah Silverman, doctoral candidate in Statistics at UCLA, to cover Bitcoin related finance topics. Silverman predominantly focuses on the quantitative issues that arise from the nature of Bitcoin markets. Similar to BTC Math, The Standard Bit, serves as a Wall Street Insider’s Guide to Bitcoin and the emerging virtual currency space. Launched by Jonathan Silverman, a former trader on Wall Street, The Standard Bit serves as another specialized blog to provide insight to those considering investing in Bitcoin.

Bitcoin Magazine hopes to continue to foster the spread of knowledge within the Bitcoin community and to help provide tools for individuals who have yet to learn about all the merits of this decentralized and efficient currency. We want to hear from you. Please email me at [email protected] if you would like us to feature your Bitcoin related blog and or business. Let’s continue to foster a dialogue over the numerous benefits and value of Bitcoin.

LibertyBit, the second largest Bitcoin exchange in Canada, has announced that it is suspending its operations and returning all funds to customers. The root cause of the shutdown is the closure of its RBC bank account on May 17 as well as “a surge of fraudulent transactions”. LibertyBit writes:

The effects have been two-fold: 1) Inflicting monetary losses on the company and 2) Damaging our primary banking relationships. These circumstances make it infeasible to continue operating the service without significant changes to our transfer system and identification measures. We feel it is our responsibility to pause operations now rather than risk any customer funds becoming vulnerable. We will be working in the coming weeks with partners and our legal counsel to overcome these obstacles and implement new measures to prevent these types of setbacks in the future.

Fortunately, no user funds have been lost, although withdrawals will be slower than usual; LibertyBit anticipates a waiting time of 1-3 days for BTC withdrawal and 2-10 business days for USD and CAD withdrawal. Additionally, the Interac E-transfer withdrawal option is no longer available, and users with CAD stored in the exchange will need to provide their banking info in order to be able to withdraw by direct deposit.

This is not the first time an exchange has declared a temporary shutdown for security reasons; Bitcoin Central did the same thing in late April following a medium-scale hack which emptied a relatively small, but nevertheless substantial, portion of their stored Bitcoin funds. In both cases, the shutdown was graceful, with users being able to recover their funds. The question is, will Libertybit’s shutdown actually be temporary? Most shutdowns so far have proven to be permanent, and as much as 45% of all Bitcoin exchanges to have ever existed are now defunct, but there is precedent: Bitfloor and TradeHill have both managed to restart themselves after a prolonged and unscheduled downtime; in the latter case, the shutdown lasted for over a year and the exchange restarted with a completely different target market and brand.

In the meantime, Canadian Bitcoin users are encouraged to head over to CaVirtex or buy them in person at the next Toronto Bitcoin meetup. Additionally, BTCTo is currently in its testing phase and will soon be opening its doors.

So far, we have had one major Bitcoin conference this year, and the event proved to be an astounding success. Over a thousand people showed up, panelists discussed issues including financial privacy, alternate cryptocurrencies and even floating cities. Following that success, over the past few weeks a number of other Bitcoin-related events have also announced themselves. You may have already heard of some of the larger ones, but many of these events have been carely noticed by the Bitcoin community.

• Porcfest – Porcfest is not, strictly speaking, a Bitcoin-centric event; it is the main annual gathering of the New Hampshire-based Free State Project, and perhaps the largest libertarian political event in the United States. However, in 2012 Bitcoin all but consumed Porcfest, with 80% of merchants at the event accepting it. This year, Bitcoin will make an even stronger appearance, with three hour-long panel discussions dedicated to it. The event will take place near Lancaster, NH, from June 17-23.
• Bitcoin London – Bitcoin London will be an intivation-only event focusing on entrepreneurs, investors and hedge fund professionals. You can apply for invitations here, although it is expensive – the price will be 250 GDP ($380) for early-bird tickets and 600 GBP ($760) for everyone else. The event will take place in London on July 2.
• Inside Bitcoins Conference – MediaBistro’s Inside Bitcoins conference in London will be a largely business-focused event, including speakers such as First Round Capital partner Phineas Barnes, Foodler founder Christian Dumontet, BitPay’s Tony Gallippi and many other business owners and investors. It is notable that most of the speakers will be individuals from outside the Bitcoin community who are interested in Bitcoin, and so this event will be a great opportunity for much-needed outreach and interaction. The conference will take place in New York City on July 30.
• Bitcoin Convention Europe 2013 – as cordination consultant Matthew N Wright describes it, “This convention is an open, community driven effort with fund-raising aided by 000 Media. Rather than opt for a politically charged display of wealth, we’re here to get back to the basics of what bitcoin really is– a community, decentralized effort. No foundations or agenda driven donors at this convention, just real people who really want the project to succeed.” The speakers’ list is currently still small, although it appears focused on Bitcoin entrepreneurs who are not as immersed the mainstream tech and business scene as the attendees of the Inside Bitcoins conference. The convention will take place in Amsterdam on September 27-29.
• Crypto-Currency Conference – this conference will be more focused on philosophical issues than the others, with speakers like Laissez Faire Books’ Jeffrey Tucker, libertarian legal theorist Stephan Kinsella and the Mises Institute’s Doug French, as well as the Bitcoin economist Peter Surda, Adam Levine and BitPay’s Tony Gallippi. The conference will take place on October 5 in Atlanta.
• unSYSTEM – this conference, organized by Amir Taaki, will be the other major conference of this year. Although originally intended to be a Bitcoin conference, the conference’s range of topics has been expanded to radical activism and social reform in general – hence the name, “unSYSTEM”. Of course, Bitcoin nevertheless remains a central, unifying theme. Speakers include Occupy London, Juice Rap News, Max Keiser, Defense Distributed‘s Cody Wilson, Berlin Bitcoin community organizer and restaurant owner Joerg Platzer and many more technological, artistic and political activists. The conference will taken place in Vienna on November 1-3.

The different themes of the various conferences shows an interesting pattern in the development of the Bitcoin community. Bitcoin advocates have always been split into camps, which can simply be named the idealistic and the pragmatic. Idealists include anti-banking activists, radical libertarians (of both the anti-capitalist and pro-capitalist variety), factions of Occupy Wall Street and others who are in some way dissatisfied with the current “system” in general. Pragmatists are those who seek to present Bitcoin in a business-friendly package, focusing on more universally appealing aspects like low transaction fees and near-instant transactions. Since the 2013 Bitcoin conference, the pragmatist wing has become much more powerful, as its outreach efforts have now managed to attract tens of millions of dollars of investment, and among some there is a sentiment that the idealist wing is being left behind; some are concerned that Bitcoin is “sacrificing its soul to survive”. However, the aspects of Bitcoin that make it palatable to idealists remain stronger than ever, and Porcfest and unSYSTEM represent great chances for the idealist factions to reclaim their lost importance.

Also importantly, this shows how the Bitcoin community is deliberately broadening its reach to beyond just the United States. For all the recent worry about FINCEN, a very large part of the Bitcoin community remains outside the United States, and conferences in various locations in Europe do a great deal to accomodate that. Even inside the United States, the conferences in New York and Atlanta appeal to local entrepreneurs and people in general who do not yet care enough about Bitcoin to have flown across the country to the conference in San Jose. And Bitcoin travellers now have one major event to go to for almost every month in the rest of this year (only August and December currently lack any event).

As Coinsetter CEO Jaron Lukasiewicz pointed out in his letter last week, Bitcoin exchange is rapidly becoming a capital-intensive industry. On a technical level, Bitcoin exchanges are under constant attack by sophisticated hacking attempts and increasingly powerful DDOS attacks to the point that it is becoming impossible to survive without a dedicated, locally hosted server and Cloudflare protection. From a banking standpoint, relatively easy deposit and withdrawal solutions like Liberty Reserve, OKPay and Dwolla have all fallen by the wayside, forcing exchanges to either step up their efforts on banking integration or fall away. And, finally, the worst hit of all is regulatory: since the FINCEN guidance released in March, it has become clear that exchanges operating in the US need to pay a minimum of about $100,000 per year for surety bonds as well as having comprehensive anti-money-laundering policies, and in the last month the US government has struck hard against services like Liberty Reserve and MtGox that it believes are not meeting the requirements. Although the big exchanges, including Coinlab, Coinbase and Tradehill, appear to be well on their way to full compliance, an increasing prevalent worry is, will any future exchange be able to get over the hump?

BTCGlobal has come up with an innovative solution that just might shift the tide significantly back in favor of the little guy. BTCGlobal’s plan, which the company entitles “Massive Parallel Licensing“, is essentially a franchise: BTCGlobal will pool together resources from any upstart exchanges that want to be partners, secure the necessary money transmitter licenses and surety bonds, and allow its partners to operate under its umbrella. In addition to this formal legal relationship, BTCGlobal will also share its expertise on implementing the anti-money laundering programs that money transmitter laws require. The program goes beyond just this; on a technical level, BTCGlobal will make available BTCUy, its powerful trading engine which can handle 300,000 transactions per second (to compare, MtGox crashed in April because its trading engine was limited to 37 transactions per second, and the Bitcoin network itself averages about 0.7 per second). Speed is not the only advantage of having one commonly developed platform; it will also improve security, as BTCUy is much less likely to have a vulnerability due to amateur coding or security setup.

The main question is, just how effective will this franchise be? In theory, the project certainly will massively reduce startup costs from a technical and regulatory standpoint, leaving the individual exchanges to focus on the very thing that Bitcoin exchanges currently need to focus on the most: convenient, easy-to-use deposit and withdrawal options. On the other hand, the legal umbrella concept may turn out to be fragile. The major reason why some banks and established money transmitters are currently scared of dealing with Bitcoin exchanges is that they fear losing their own banking or money transmitter licenses if the partner turns out to have inadequate anti-money-laundering policies; here, similarly the onus is on BTCGlobal to make sure that each and every one of their franchisees remains compliant. Given that the question of just how strict anti-money-laundering policies need to be is still a grey area, this may become a point of contention down the line.

If BTCGlobal succeeds, we can expect to see a diaspora of local Bitcoin exchanges appear targeting very specific banking systems or even individual cities, making buying and selling bitcoins much easier. If it does not, then the Bitcoin exchange industry will still progress, but with Silicon Valley investors as necessary gatekeepers as new exchanges struggle to raise the necessary capital for money transmitter licensing. Alternatively, Bitcoin exchange may increasingly go decentralized, with Bitcoin communities in many major cities gaining the critical mass to support in-person trade on localbitcoins. Finally, it is important to keep in mind that the United States is not the only end goal for Bitcoin. It is certainly important, especially since legacy banking systems in the country tend to be much less efficient than their counterparts in Europe, but entrepreneurs thinking of creating Bitcoin exchanges should well consider serving the markets in Europe and Canada instead; laws in both countries are much less restrictive, with the Canadian FINTRAC even explicitly stating that Bitcoin exchanges in the country do not need a money transmitter license. On the whole, developments like this are increasingly making it clear that the Bitcoin exchange industry in all parts of the world has both the will and the capability to meet the challenges of a regulated financial world; it is up to all of us to help it prosper.

Yesterday, the Bitcoin Currency was featured at yet another prominent venue, the LeWeb London Conference. Martin Bryant (Managing Editor, The Next Web) moderated a panel entitled, “The Pros & Cons of Bitcoin. The Bitcoin Community was successfully represented by Tony Gallippi (CEO, BitPay), Roger Ver (Founder & CEO, MemoryDealers.com), and Shakil Khan (Head of Special Projects, Spotify and Founder, Coindesk). LeWeb London hoped to address some of the questions surrounding this digital, decentralized, cryptocurrency.

As the first panelist to speak, Roger Ver framed Bitcoin in a positive light stating, “if you are using money in your business, you should be using Bitcoin.” Ver explained that Bitcoin has enabled for the first time in the entire history of the world payment from one person to another anywhere around the world. Ver explained that through Bitcoin, individuals have a tool that enables greater control over their finances. Ver made his intentions clear and his support of the Bitcoin currency evident explaining that his goal will be achieved when at least everyone has heard of Bitcoin and at least has the option to use it if they choose. Despite initial steps of government regulation of the Bitcoin currency, Ver explained that even if governments decide they would like to eliminate Bitcoin completely, the only way they can do so would be by shutting down the internet completely. Ver highlighted that millions of dollars a month are being spent on real businesses through the Bitcoin currency.

BitPay Co-Founder and CEO, Tony Gallippi, followed up by explaining the merits of Bitcoin as an open source peer to peer payment network. Gallippi expressed that Bitcoin will continue to become successful and mainstream, and there will be a point in which many will start using Bitcoin and not even realize they are using it. Bitcoin serves as an expedient mechanism to get payment from Point A to Point B.

Shakil Khan discussed his first encounter with the Bitcoin currency and why he has now chosen to invest in Bitcoin startups and run Bitcoin news site, Coindesk. Shakil also emphasized the need to have information available for individuals and businesses seeking to invest in Bitcoin. As Bitcoin continues to grow in prominence, Shakil hopes to facilitate education on the interaction between Bitcoin and financial systems.

Of course, moderator, Martin Bryant, posed the typical, “who is Satoshi,” question. Gallippi responded candidly that no matter who founded Bitcoin, the currency is now having a positive impact and thriving. We can look forward to continuing to see Bitcoin as a topic of conversation and a credible payment mechanism.

Jonathan Silverman unveils the The Standard Bit – a Wall Street insider’s guide to Bitcoin and the emerging virtual currency space.

Here is Jonathan’s Story:

I first learned of Bitcoin in April 2011 – long before it was trading in the triple digits like it does today. I had just begun my career as a trader at one of New York’s prestigious bulge-bracket sell-side firms. There I had the best laboratory in the world to learn how to trade. Equities, currencies, bonds, commodities, futures, options – my mind was a blur that first year as I tried to take my scientifically-trained brain and forge it into one of a trader. One morning, after helping my team fend off an aggressive fast-money seller, I stumbled across a post on Tyler Cowen’s Marginal Revolution on Bitcoin – the virtual currency was entirely new to me. There he questioned if Bitcoin was in a bubble after making new highs as it pushed toward the $2 boundary. Granted that was a 2000% appreciation from a year prior. 2000 percent! I rubbed my eyes and checked my monitor once more. There the hockey-stick of a chart remained unyielding. A return of that size in the world of finance does not make sense. It is outrageous and absurd. It stinks of penny-stock or fraud or both. It screams to any sane investor that they should run in the other direction. Luckily I was not one of those. Trusting my gut – and in the process throwing out the window nearly every piece of investing advice I had ever learned – I bought.

Buying was not as simple a task as I had hoped. On the day I read Tyler’s post, the Bitcoin-US Dollar exchange rate (BTCUSD) closed at the price of $1.7949. Four weeks later, after jumping through half-a-dozen hoops to get cash onto Mt. Gox, Bitcoin’s oldest exchange, the price had more than tripled. I held my nose and bought in for an average price of $6.3308. During that waiting period I learned an invaluable lesson: the majority of speculators had recently discovered Bitcoin and were struggling to move deposits to purchase it. Each day I checked Google Trend data for Bitcoin related search terms and saw the network effect of an infectious idea at work. In a scarce liquidity environment, media attention pushed price and the price in turn drew new eyes to this grand experiment. A week later my roommate at the time – then a trader at another bulge-bracket firm – joined the fray. $8. $10. $15. We were flabbergasted by our good fortune. Convinced we had boarded a rocketship of a bubble, we settled on an exit strategy – . On Friday July 8th, 2011 the market looked grossly overheated as it broke $30 and liquidity had become dangerously one-sided. My roommate called this the top. I on the other hand had let my emotions get the best of me. I was leaving that afternoon for a four-day vacation where I would not have access to the internet or my cell phone. When I returned to land of the internet that next Wednesday, I coolly checked the level of BTCUSD. $21. Not awful. Taking a closer look at the chart, I saw that heavy selling over the weekend had knocked the price down to $10.25. I know a dead cat bounce when I see one. I hit every bid I could find to close out my position and I was gone.

In the aftermath of the bubble of 2011, I resolved to steady my thinking on this newfangled currency. Whether or not Bitcoin would survive, I could not tell, but Satoshi Nakamoto had opened Pandora’s box. There was no putting it back.

Virtual currencies have tremendous potential to reshape our world’s political and economic landscape. To Bitcoin’s naysayers I urge them to take a look at the lessons we can draw from this innovative new stuff. The technology behind the Bitcoin protocol alone could dramatically transform clearing and settlement processes for established financial products. There is much work to be done and the financial community is just beginning to take notice. So too are the regulators. Regulation of virtual currencies in the United States is well underway with FinCEN giving its first guidance on the subject in March of this year. Even under this purview there is room for Bitcoin to survive and thrive. In the long run I welcome this oversight. With the support of venture capital funding, the second generation of Bitcoin start ups are putting down roots. More importantly it appears that many of them will be compliant with US regulation and law by FinCEN’s deadline in mid-September. Wall Street would be wise to pay attention.

In the coming weeks I will be writing about Bitcoin and the broader virtual currency space with the established financial community in mind. Topics will include:

trading strategy and best execution

market structure and exchange topology

asset management and portfolio diversification

the state of regulation within the United States and abroad

new technologies in clearing, settlement, and custodial services

If you have any suggestions or requests, I am all ears. Please drop me a line. In addition to writing, I provide consulting services on the topics listed above. If you think I can help advance your virtual currency related project or investment goals, I would be more than happy to chat with you. I look forward to your readership and the great discussions it will drive.

Happy Trading,

Jonathan Silverman
[email protected]
[email protected]

In an apparent bid to keep pace with the regulatory restrictions surrounding Bitcoin, Mt. Gox released a statement on 30 May announcing their customers must now have their identities verified if they wish to withdraw or deposit “currency,” with the announcement differentiating “currency” from bitcoin. Users of the Tokyo, Japan based exchange may continue to make bitcoin deposits and withdrawals without having their identity linked with their account.

In the same vein, ecommerce payment processor OKPAY announced an end to its vacation from bitcoin and reintroduced the cryptocurrency into its payment ecosystem, albeit with more severe restrictions than had previously been in place. As of this writing, the date stamp on the announcement page had not been updated from their previous release announcing their suspension of bitcoin, leading to potential confusion as to when they had announced what. Citing unspecified “risks and dangers,” and alluding to Anti Money Laundering (AML) laws, OKPAY now disallows transfers from any exchange service dealing in bitcoin. Bitcoin service is now restricted only to verified users who have submitted proof of identity.

Mt. Gox had announced OKPAY’s separation (pdf) from the exchange on 28 May, and OKPAY appears to have finalized a divorce for the two services. Following on the heels of the internationally coordinated shutdown of alternative online currency provider Liberty Reserve for failing to meet AML restrictions related to “Know Your Customer” laws, among other issues, the timing of Mt. Gox’s new rules may indicate an attempt to stay one step ahead of a similar fate. Mt. Gox’s 30 May announcement referenced evolving regulations and AML rules as a background for the new account restrictions. Mt. Gox recently ran afoul of FinCEN requirements through subsidiary company Mutum Sigillum LLC for failing to appropriately register as a money services business, resulting in a court-ordered freeze of Mutum Sigillum’s financial accounts.

OKPAY’s reintroduction statement implies that by specifically excluding any new business from bitcoin exchanges, they may have been worried that any business with Mt. Gox’s unverified customers would subject them to the same legal hammer swung by law enforcement at its counterparts in the financial payment world. These developments indicate an understanding in the ecurrency community that business dealing in cryptocurrency specifically, and online payments in general, will either rapidly adapt to regulatory structure or face grinding legal headaches at best, and potential fines and incarceration at worst.

 

Charlie Shrem is 23 years old and one of the leading Bitcoin entrepreneurs, having founded BitInstant in 2011. One of the early “Bitcoin millionaires” he exemplifies the world of opportunity and adventure that Bitcoin has opened up to anyone willing to knuckle-down and start building the infrastructure that will make Bitcoin accessible to millions. He is also Vice-Chairman and co-founder of the Bitcoin Foundation.

 

Bitcoin Magazine: How and when did you learn about Bitcoin and what caught your eye at first?

Charlie Shrem: I got involved in the Bitcoin community really early on. I was an econ grad in college and obviously interested in the space. The more I learned about Bitcoin the more I had to learn. I had never even heard of the Austrian theory of economics (it was all Keynes this and Keynes that in college). The idea – save money if you want to grow the economy was so foreign, I thought, hey maybe this could work. And from there I just really dove into it.

 

BM: What pushed you into setting up a Bitcoin business?

CS: Gareth Nelson reached out to me in 2011 via the Bitcoin forums. We had never met but respected each other’s reputation. He had a great idea and really saw a pain in the Bitcoin ecosystem – moving money quickly. I recognized the opportunity and given my previous successful startup jumped at the opportunity to be more involved in Bitcoin. He handled the tech and I handled the business, it’s a perfect partnership.

 

BM: What would you say to encourage all those potential Bitcoin entrepreneurs out there?

CS: Bitcoin is such a young experiment, there’s so much opportunity for anyone with a great idea and the ability to execute it. I’d definitely suggest putting your idea to paper, researching the marketplace and really exploring all the challenges you might face. Build a team of people you can really trust who will get things done. If you can put together a prototype, great, do it. Then start reaching out to friends and family for some initial investment. The more money you get from angels, the more of the company you can keep for yourself.

 

BM: What are the online businesses that would benefit most from Bitcoin adoption and what are they waiting for?

CS:  All of them. Bitcoin makes so much sense for online transactions more than anything. Traditional banking infrastructure was never really designed for the online world and it’s fraught with issues, the worst of which are ridiculous fees and security concerns. Bitcoin solves these problems – transactions can be executed and verified for a fraction of the cost of the older payment methods and the security is unbelievable.

 

BM: Beyond being a better payment system, Bitcoin brings financial freedom to the masses. Why is this important? How will it change the world?

CS: There are a lot of people who are politically motivated by Bitcoin and very vocal about how it can solve the world’s problems. The phrase “Bitcoin will bring freedom to money like the Internet brought freedom to information” is really true. Whether or not Bitcoin (or another digital currency) ever replaces fiat is an open question. But even if it doesn’t, it’s disruptive. If it makes even a little impact (and I think it will) it really forces traditional payment systems to become more efficient, reduce friction and fees and increase security. Even these little changes when considered across trillions of dollars worth of transactions start to make a meaningful difference. If Bitcoin’s existence can force online money transfer fees to be reduced by even 2% just think of how much money is saved and can go to improving the world in real ways (instead of losing that $10 to a big bank you could donate it at your local soup kitchen)!

 

BM: Will established players and industries in the payment, banking (and central banking) world resist Bitcoin, or adopt it as an improvement on their current technology? How would you convince to embrace it instead of fighting it?

CS: We’ve already seen some signs that more traditional payment systems are starting to look at Bitcoin. You can be sure they’re talking about it behind closed doors and wishing they had thought to implement something like it themselves. I think we’ll see Bitcoin serving as a catalyst to push existing banking to take a hard look in on itself and really try to reduce the inefficiencies. The market will demand it – if Bitcoin is widely adopted and people understand how low the fees are, they’re going to look at the same types of transactions taking place via banks and wire transfers and ask the hard questions “Why does it take 5 to 10 percent to send my money overseas? Why does it take three days to move money between accounts when it’s an instant digital request?” These questions are going to spark changes to the traditional banking systems – how they choose to address them is anyone’s guess.

 

BM: Why is privacy important online? Is it just for porn, gambling and fraud? Is privacy a human right?

CS: Since its inception, Bitcoin has obviously really struggled with definitions of privacy and anonymity. There’s a big difference between regular, law-abiding people seeking privacy and those who seek to be anonymous for illicit activities. I believe that the right to privacy is fundamental. What exactly does it mean though? You should be able to buy legal items without it being tracked somewhere in a government database. Historically cash has provided this privacy. You could walk into a drugstore and buy medications for health problems that might be embarrassing and pay cash. Now, with credit cards everything is electronic and tracked. Bitcoin gives you some of the privacy back. I like to call it “cash with wings.” This basically means that it has all the conveniences of cash but you can use it over huge distances. People like to say “Oh, you could by drugs with Bitcoin!” You can buy drugs with cash. You’re not stopping people from doing the things they’re going to do but you shouldn’t penalize the people who are legitimately using a tool like Bitcoin to do things more efficiently in our modern world. At BitInstant we understand the need for financial regulations and have gone out of our way to be compliant – we know our customers. We’re working to make government officials and naysayers understand that Bitcoin adopters are just visionaries who understand the need for a fundamental shift in the way we think about money.

 

BM: Having your account blocked is a major problem with some online payment systems, and even bank accounts, as Cypriots learned to their misfortune. How does anyone put up with this now that you can use Bitcoin?

CS: Even though Bitcoin is gaining in popularity it’s still flying under most people’s radar. It’s still in a stage where people don’t understand it and aren’t aware of its benefits. There’s also mistrust that we have to overcome. People are more willing to continue with the status quo than trust a new system. It won’t be until more people are directly hurt by the current banking systems that they start to move away from it and look for alternatives. In the meantime, the early adopters (like me) will be here building the infrastructure and trust that ensures that Bitcoin will be here as an alternative to the pitfalls of the traditional banking structure.

 

BM: If the US-based Bitcoin Foundation is ever co-opted by regulators to undermine the thingsthat make Bitcoin so liberating… will you denounce it? When there is a major Bitcoin fork, what principles will you fight for?

CS: There’s an awful lot of speculation in that question. Right now we’re all (both Foundation members and the general Bitcoin community) doing our best to carve out a place for Bitcoin in the current regulatory climate. There are a lot of us who want to do things the right way and make sure Bitcoin is seen as legitimate. Speculating about the Foundation’s future run-ins with regulators doesn’t really get us anywhere. Right now the best we can do is to use the Foundation to promote Bitcoin, help protect the existing community and put it in front of people for more widespread adoption. As far as a fork goes, I don’t like to say. I’ve made my general opinions pretty clear in presentations and panels. But categorically stating my opinion about a forking situation that hasn’t come up yet is just silly. Things change all the time.

That’s the beauty of Bitcoin. It’s not controlled by a central power and everyone has more of a say in what happens to the technology. My opinion changes based on a lot of things – like regulation, trust, the support of the community, improvements in technology – so I’ll cross bridges as I come to them.

 

BM: Bitinstant has made buying Bitcoin with fiat extremely easy in the US and several other countries. What are your expansion plans? When are you going to partner up with some major airport money changers?

CS: BitInstant is committed to growth and helping more people in more places around the world acquire Bitcoin. But we’re only interested in growth the right way. We could move fast and enter new markets and new countries…but we won’t do it until we’re sure that it’s sustainable and we don’t get shut down. That means having the right partners and making sure we’re within local regulations with what we’re doing.

We’ve heard a lot of interest from people in the UK, Australia, Cyprus, Greece…the list is almost endless. And we’re going to add the countries to our list, do our due diligence and make sure we’re on solid ground in each country we move into.

 

BM: What other part of the Bitcoin infrastructure is in urgent need of building? What major problems need solving for Bitcoin to grow?

CS: One of the challenges that we’re facing at BitInstant is an information problem. Just making more people aware of Bitcoin and separating it from some of its more radical roots and supporters. We believe that Bitcoin has value for everyone, regardless of politics. So making sure that we’re doing our part to make the currency more accessible to the people it can really help the most is huge.

The mainstream media has taken a predictable turn in their treatment of the series of regulatory incidents regarding Bitcoin-related services this month. Technology Review wrote that Bitcoin is now growing “in a manner disappointing to some early enthusiasts” now that Bitcoin exchanges are eager to work hard on achieving regulatory compliance. Laissez Faire Books’ Jeffrey Tucker wrote a long plea arguing against “regulating Bitcoin like dollars”, and on June 2 CNBC followed up with the most alarmist article of all: according to them, Bitcoin is “sacrificing its soul to survive” the regulatory onslaught.

However, what all of these journalists have somehow completely failed to realize is that the talk about whether or not Bitcoin will be “regulated” completely misses the point. First of all, all of the regulation in question is currently completely targeted not on internal Bitcoin businesses, but on Bitcoin exchanges – that is to say, the intersection between Bitcoin and fiat currency, which is heavily regulated already. The closest that any government so far has come to regulating actual Bitcoin services is the half-hearted SEC investigation of pirateat40’s Ponzi scheme in 2012. Second, and much more importantly, Bitcoin is not, and never was intended to be, a clever legal scheme for evading regulations by virtue of not being classified as a fiat currency. The idea that regulators would simply sit back and allow such a loophole to continue to exist and simply nullify their regulatory agendas is highly naive wishful thinking at best.

Rather, the reason why so-called crypto-libertarians are attracted to Bitcoin so much is that much of it is unregulable on a practical level. True, in order to get bitcoins through an exchange you will need to give up identifying information and satisfy exchanges’ KYC policies, but once you’re in the Bitcoin system you’re all clear. Blockchain.info offers a mixing service that lets you trade your bitcoins for “anonymized” bitcoins at a 0.5% fee, deleting all records of the transaction 8 hours after the fact, and one can also take advantage of Silk Road’s mixer by simply depositing and withdrawing into Silk Road. While blockchain.info can be legally compromised, good luck subpoenaing “Dread Pirate Roberts“. One can even use more ordinary Bitcoin services that offer accounts as unintentional mixers by simply depositing and withdrawing from them; between actual mixers and such makeshift constructions one can do as much mixing as one’s paranoia demands. At the Bitcoin conference, two separate ideas were presented for decentralized mixers, allowing users to anonymize their bitcoins without trusting anyone at all. Thus, the potential to preserve one’s anonymity by using Bitcoin remains completely intact, and no regulation short of banning Bitcoin outright will change this. Coinlab’s attempts to create a legitimate front for Bitcoin do not in any way hinder the activities of drug users on Silk Road, and the activities of Silk Road need not interfere with exchanges’ and regulators’ efforts to promote more universally agreeable uses of digital currency.

If you are a regulator reading this article, the question you may be asking is, why shouldn’t I be worried? One answer is, although it can be very hard to detect specific activity within the Bitcoin system, moving large quantities of money out of Bitcoin undetected remains very difficult. If you sell the bitcoins at an exchange, the transaction will get recorded. If you use them directly to buy anything of very high value (eg. a car or house), that will also get recorded. Thus, while Bitcoin certainly does empower the small-time drug user buying $50 worth of marijuana on Silk Road, large-scale financial movements will remain easy to detect, and even anonymizing mixers get less effective the more money you try to put through them. Moving large quantities of money into Bitcoin is similarly difficult.

The second answer is a more pragmatic one. While the Bitcoin economy itself has grown by a factor of ten since last year, Silk Road, judging by the number of posts on its forum, has only doubled in size. This is similar to the growth of the internet; in 1995, scaremongering about the massive growth in online child pornography was all the rage. Now, however, we realize that as technologies mature more mainstream uses naturally take over, and the prosperity that resulted from having a platform for free and open worldwide communication may have done more to fight child pornography than stricter prohibition ever could.

This brings me to the next point: Bitcoin is not like Liberty Reserve. While FinCEN may or may not be correct in its pronouncement that Liberty Reserve was “mostly” used for criminal activity, Bitcoin has a number of positive attributes that Liberty Reserve does not. Liberty Reserve was a truly convoluted system to use, with users needing to go through a system of “exchangers” in order to get in or out, each one of which took up to a 5% fee. LR itself took a further 1% fee for transactions. Aside from its anonymity, the only redeeming trait that Liberty Reserve had was its lack of chargebacks, making it useful for a limited set of industries such as multi-level marketing. Bitcoin is completely different. Aside from its more controversial privacy properties, Bitcoin lets anyone send money from anywhere to anywhere in the world with minimal (often zero) fees. It is nearly instant, and is in many cases much easier to use than more traditional banking systems. It’s also very easy to develop software for, since all of the algorithms are open source and require no registration with any particular third parties (although there are third party services that can help).

Given all of these properties, there is no way to make a digital currency that does NOT offer some way of providing anonymity; if you make a digital payment system that allows users to construct cryptographically signed transactions, it will necessarily be possible for users to anonymously come together over an internet forum and apply the decentralized mixer protocol to it. And even without fancy cryptography, if a currency is international it will necessarily be possible for someone to set up an anonymous mixer in a jurisdiction that has different ideas about the correct balance between privacy and regulatory interests (especially when “taxes” paid directly to particularly malleable government officials are involved).

Government regulators like FinCEN have been notably quiet on Bitcoin itself lately. The FinCEN guidance in March 2013 mentioned decentralized virtual currencies, exchanges and even mining, but took great care never once to utter the word Bitcoin. The government spokesman discussing the Liberty Reserve shutdown similarly avoided mentioning Bitcoin itself, even when asked a question specifically about it. This suggests one likely conclusion: regulators are well-aware of the fundamental impossibility of fully regulating sufficiently advanced digital currency systems that was described in this article, and are treading carefully to take a pragmatic, watchful approach to see just how much information they can gather.

Under this interpretation, FinCEN undersecretary David Cohen, when stating that “exchange providers that comply with the law have nothing to fear from Treasury”, was speaking the truth. At this point, it is highly unlikely that mainstream Bitcoin exchanges will be struck down by state departments because they do not yet have quite all forty eight state money transmitter licenses needed to comply with the guidance; FinCEN knows that Bitcoin exchanges exist, and if they wanted to use this avenue to take Bitcoin exchanges down they could have done so a month ago. Bitcoin-based online stock exchanges and gambling platforms may be a future target; SatoshiDice did feel the need to block US users several weeks ago. As for Silk Road, for all the talk of Bitcoin “losing” its anonymity, every single Silk Road-related arrest to date has involved either buyers reselling drugs to too many people in physical space or searches and seizures within the postal system. The regulators are fine, Bitcoin is fine, and the future of crypto-libertarianism is fine. Stop worrying.

Bitcoin Magazine is proud to announce its new partnership with the Bitcoin Education Project (BEP).  BEP was founded by Charles Hoskinson earlier this year to reduce the knowledge barriers to entry for individuals to enter the world of Bitcoin, and to highlight Bitcoin’s utility in mainstream activities.  BEP holds to six key tenets of objectivity, transparency, accuracy, accountability, inclusion, and honesty.  The project also works to achieve the following three goals: to eliminate misinformation about Bitcoin, generate and vet content made by members of the Bitcoin community, educate to add 1 million additional Bitcoin users to the Bitcoin ecosystem by 2014.

This past month BEP also began a new partnership with Udemy to bridge the information gap and eliminate misinformation about the Bitcoin currency.  While this digital, decentralized, cryptocurrency is growing in prominence, education is still a necessity so those involved in and interested in the currency have an understanding of the fundamental purposes and principles behind Bitcoin.  Udemy, an online learning platform allowing instructors to host courses, is known as “The Academy of You”.  Launched in 2010, Udemy is now mainstream with over 7,000 premium and free courses and the opportunity for instructors to craft their own courses.  Udemy permits instructors to upload videos, PDFs, audio, zip files, PowerPoint presentations, and facilitates online discussions.

Through its partnership with Udemy, BEP now offers 7 introductory lectures on the Bitcoin currency, lectures on Bitcoin wallets, Satoshi Nakamoto, and bonus lectures on cryptography with additional lectures and insight from BEP Senior Fellows such as Jon Matonis.  With many lectures to come and an open forum for Bitcoin community members to request additional insight on issues of significance, BEP has tremendous growth opportunity within the Udemy space.

The Bitcoin Education Project is another step in the right direction for the facilitation of information sharing within the Bitcoin community and the process of educating individuals eager to learn more.  As we continue to expand and will be publishing our 1 year anniversary issue soon, we at the Bitcoin Magazine look forward to working with the Bitcoin Education Project to bridge the information gap and draw practical connections between daily life experiences and the Bitcoin currency.

If you would like to contribute your expertise to Bitcoin Magazine and the Bitcoin Education Project, please let us know!  We need to continually keep the community updated and seek to spread the word on the applicability of Bitcoin to everyday life.

 

 

Tangible Cryptography, LLC announced last night (UTC + 5) on bitcointalk.org that it had suspended operation of its bitcoin sales site, FastCash4Bitcoins.com. In the announcement, which was mirrored on FastCash4Bitcoins, the company cited communication they received from the Commonwealth (State) of Virginia on Friday, 31 May, as cause for the shutdown, which occurred the same day. According to Tangible Cryptography, a complaint had been received by the Commonwealth of Virginia State Corporation Commission alleging that the company had been acting as an “unlicensed money transmitter.”

This comes despite having promoted their service as not engaging in activities requiring a money transmitter license. FC4B allows its customers to sell bitcoins directly to Tangible Cryptography, with no third party involvement. Users had the choice of PayPal, Dwolla, ACH Bank Deposit, or Bank Wire Transfer for sales payment. This allowed FC4B to advertise that since they were a direct buyer of bitcoins, they did not need to meet the same regulatory standards that would be required of an exchange.

However, according to the announcement, a preliminary investigation conducted by the Corporation Commission concluded that FC4B’s business may fall into money transmitter territory. Under the complaint process in Virginia, Tangible Cryptography has 30 days from when notice was given to provide a written response to the commission detailing why their business does not require a money transmitter license. The notice from the state commission specifically alleges that FC4B is “issuing bitcoins,” which it implies may meet the standard for a “stored value.” FinCEN defines a Stored Value as “Funds or monetary value represented in digital electronics format,” which leaves the question of whether or not Bitcoin is a “fund or monetary value” muddled by FinCEN’s recent guidance on virtual currencies, which made a point of contrasting “virtual” currencies with “real” currencies.

The two pertinent points in this case are first, whether the company is indeed “issuing” bitcoins, and second, if Bitcoin can be considered a stored value. Both requirements would need to be met in order for Tangible Cryptography to legally be required to be licensed as a money transmitter. FinCEN’s March guidance fails to specifically deal with the unique situation Tangible Cryptography finds itself in. Under the section dealing with “De-Centralized Virtual Currencies,”  it is noted that businesses providing a third-party intermediary service for customers buying and selling virtual currency must obtain money transmitter licenses. Notably absent is the business model that Tangible Cryptography instituted, that of directly buying a virtual currency with no middleman involvement.

Tangible Cryptography may have been a victim of its own attempts to over-comply with perceived existing and future regulation. Tangible Cryptography, LLC was registered with FinCEN as a Money Services Business on 20 March, 2013. The FinCEN database lists “Money transmitter” as the MSB activity connected with the registration. Thus, it is possible that by registering as an MSB when it may not have needed to, Tangible confused state regulators into thinking that it also needed the state money transmitter license which it did not have, needlessly bringing this regulatory action onto itself. While the announcement indicates that a complaint was the beginning of Tangible’s current woes, the possibility of extraneous compliance with regulation that may not apply to a particular business is another potential pitfall that new Bitcoin-related financial businesses may need to contemplate.

 

The Bitcoin community took a rather heavy beating this month. Our leading exchange, Mt. Gox, was sued by its former partner Coinlab, lost three of its deposit and withdrawal partners, and the company is under federal investigation in the US. Another digital payment network, Liberty Reserve, was shut down by federal investigators, and the government specifically mentioned the service’s anonymity as a major reason behind the shutdown. However, judging by the price the community has proven to be surprisingly resilient. Bitcoin dropped 7.5% during the month, but the entire drop and more took place during the initial days of the month following the Coinlab suit. Since then, it recovered from a low of $79 and now stands at $117. A major piece of positive news driving the comeback was a series of investments from Silicon Valley, and A hugely successful Bitcoin conference, with over a thousand people attending, bolstered the community’s spirits and sent the world a clear message: Bitcoin is here to stay.

For those interested specifically in the Bitcoin conference, you can find our full collection of articles on the topic here.

The Regulators Are Moving In

• Coinlab, a company that had signed an agreement with Mt. Gox in February to take over the exchange’s operations in North America, turned against its former partner with a $75 million lawsuit on May 2. Coinlab claims that Mt. Gox has failed to uphold a single one of its contractual promises to assist the company with the migration, and has violated its agreement to discontinue serving customers in North America itself (whether this was actually part of the agreement as written is one of the questions in dispute).
• Mt. Gox’s Dwolla account in the United States was frozen by the Department of Homeland security, with the DHS claiming that Mt. Gox was acting as a money transmitter without applying for a money services business (MSB) license from FINCEN, the US money transmission regulator. According to the DHS warrant, Mt. Gox (specifically, its US subsidiary Mutum Sigillum LLC) also falsely claimed that they were not going to be involved in money transmission when signing up for their bank account in 2011.
• SatoshiDice started blocking US-based IP addresses, citing legal worries.
• Liberty Reserve was shut down by US regulators and its operators criminally charged, with Liberty Reserve’s anonymity being cited as a major reason behind the investigation and shutdown.
• After some Bitcoin users became worried that Bitcoin would be next, FINCEN followed up with an interview where chief Jennifer Calvery clarified that “that action was against one financial institution and one type of financial service” and “exchange providers that comply with the law [ie. the FINCEN guidance] have nothing to fear from Treasury.”
• In Canada, the regulators are taking a different path. The Canadian money transmission regulator, FINTRAC, sent a letter to Bitcoin exchanges saying that the exchanges are “not, at this time, engaged as a money services business in Canada”, and therefore “do not have to register your entity with us.”
• BitInstant told Bitcoin Magazine that they now have money transmitter licenses in 30 states – suggesting that the task of getting fully licensed is not quite so daunting as was originally thought.
• OKPay reduced the scope of its operations in the Bitcoin community to only processing payments for verified merchants, citing legal concerns to explain the decision

The Silicon Valley’s Embrace

• Coinbase received $5 million of investment mainly from the Silicon Valley venture capital firm Union Square Ventures, with additional support from Ribbit Capital, SV Angel and Founders Club.
• The Boost VC accelerator program announced that it would be investing an additional $50,000 into every Bitcoin company in the next group of startups that they would be working with starting June 24.
• BitPay raised $2 million from the Founders Fund, of which Peter Thiel is one of the two founding members.
• BitInstant announced that it has raised $1.5 million from Cameron and Tyler Winklevoss (best known for their role in founding Facebook). The two brothers also appeared as keynote speakers at the Bitcoin conference in San Jose.
• A new, Bitcoin-specific, venture capital group, BitAngels, was created at the Bitcoin conference, attracting 60 investors and raising a total of $6.7 million in capital.

Business and Charity Adoption

• BitPremier, a marketplace for luxury products and real estate targeting wealthy Bitcoin users, opened its doors on May 2.
• ASICMiner started selling its Block Erupter USB mining products, offering 336 MH/s for 1.99 BTC, and the company is continuing to sell its Block Erupter Blade devices with 10 GH/s for 49.99 BTC. The company’s valuation also crossed $100 million, making it the most highly valued “publicly traded” company in Bitcoin history.
• Gyft, a mobile gift card platform that offers digital gift cards for 50,000 physical retail locations across the United States, started accepting bitcoins.
• The Electronic Frontier Foundation began once again accepting Bitcoin donations. When the EFF stopped accepting Bitcoin in June 2011, the organization donated their 3505 BTC of existing donations to the Bitcoin Faucet run by lead Bitcoin developer Gavin Andresen. Now, Gavin returned the remaining 726 BTC from that fund to the EFF, which are now worth more than the 3505 BTC were when the EFF turned them away in 2011.
• The Free State Project-affiliated medical group Fr33Aid announced that the organization is now using Bitcoin as its main currency.
• The money transfer system WebMoney added a new unit to its repertoire of digital currencies, WMX, representing bitcoins, allowing Bitcoin users to buy WMX which can then be converted to other WebMoney currencies to purchase products at many merchants worldwide.
• Unterkunft.de, a website for renting living accomodations in Germany, started accepting Bitcoin payments.
• The Bitcoin payment processor BitPay passed 7000 merchants.
• Second-tier Bitcoin exchanges like BitStamp saw a considerable increase in volume relative to the dominant exchange Mt. Gox, with BitStamp on some days seeing up to half the volume of its main competitor

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Bitcoin Wallets Galore

• Bitcoin 0.8.2 was released, reducing the fee needed for small-value transactions to get fast confirmations from 0.0005 BTC to 0.0001 BTC. BitcoinQt and bitcoind clients will now also enforce a minimum transaction output size of 0.0000543 BTC (optionally changeable with a custom setting).
• CarbonWallet, an Electrum-compatible, browser-based Bitcoin wallet saw its first release.
• RushWallet, an improved version of the now-defunct InstaWallet that works without the site’s operators ever finding out their users’ URLs (and therefore private keys), also opened itself up to public use.
• Conformal, a company focused on building open-source software for privacy and security, revealed their latest project: btcd, an alternative Bitcoin implementation written in the Google-developed programming language Go.
• libbitcoin, another alternative Bitcoin implementation in C++ targeting asynchronicity and modularity, released a tutorial.