Month: December 2013

Gift giving during the holidays just took on a whole new meaning. eBay, the parent company of PayPal, filed patent application 20130339188, “Gift Token” with the United States Patent and Trademark Office (USPTO) on June 18, 2012. The USPTO published the application on December 19, 2013. The technology was invented by its engineers from Tamilnadu, India and assigned to eBay Inc. of San Jose, California.

The innocuous sounding application “Gift Token” was probably written in such a way as to shield trade secrets from competitive intelligence gathering. It is common for companies to obfuscate their filings to make them harder to decipher. Just like Subway’s Footlong doesn’t have to be a “foot long,” buried in the patent application eBay states that “Gift Token” does not have to be a gift:

“…Systems and method are disclosed for giving gifts or payment instruments in the form of security or payment tokens…The token can {be} a gift token. The token does not have to be a gift… the token can be a payment made by the user to the recipient, such as for goods received or services rendered…”  

the application abstract is more general in nature:

“…Systems and methods are disclosed for giving gifts in the form of secure tokens. A gift can be given from a user of a payment provider to a gift recipient. The recipient can be a member of the user’s family, a friend, or any other person or entity. The recipient can use the token to purchase a product using a checkout though the payment provider. The purchase can be made without requiring the user to create the user’s own payment provider account…”

Before I delve into the application itself I would like to describe what it is I believe eBay is trying to do with this technology. While the application makes no mention of Bitcoin or cryptocurrencies for that matter they appear to be after “programable money.” While this technology is not a digital currency, it is a wrapper around a currency….any currency.

eBay appears to be creating a cross between “colored coin” (more on this later) and a whitelist for a currency. Examples of a whitelist include Payment Pathways’ “Greenlist”, IBM’s “e-Currency Validation Authorization Services Platform” and Coin Validation.  

Interest in programmable money has taken off since this introduction of the popular Bitcoin protocol. Bitcoin itself has been called programmable money because it is a protocol like HTTP or “Hypertext Transfer Protocol.” More specifically Bitcoin (capital case) is the protocol while bitcoins (lower case) are the units of currency that move across this protocol. The movement of bitcoins across the Bitcoin network was just the initial use for the protocol (hat tip to Richard Brown and Andreas M. Antonopoulos  [YouTube] for explaining this). Additional applications being developed include certification such as Proof of Existence  and escrow and multisignature authorization found on Bitrated arbitration.  

On June 16, 2010, Satoshi Nakamoto, the founder of Bitcoin, stated in the BitcoinTalk Bitcoin Forum that this type of functionality was native to Bitcoin and was essentially dormant until developers begin integrating it:

“…The design supports a tremendous variety of possible transaction types that I designed years ago. Escrow transactions, bonded contracts, third party arbitration, multi-party signature, etc. If Bitcoin catches on in a big way, these are things we’ll want to explore in the future, but they all had to be designed at the beginning to make sure they would be possible later…”

Mastercoin Executive Director Ron Gross (YouTube) may have very well conceived of the colored coin analogy in a BitcoinTalk discussion on November 11, 2011:

“…the special “asset tokens” satoshis are colored, and don’t relate at all to normal satoshis. The one who owns the colored satoshi owns the asset.”

BitcoinX, now known as Colored Coin group, explains that it is a “a colored bitcoin minting and exchange protocol that works on top of an existing blockchain infrastructure” and further explains what a colored coin is in its Colored Coins – BitcoinX Whitepaper (which is also co-authored by Bitcoin Magazine’s very own Vitalik Buterin):

“… by carefully tracking the origin of a given bitcoin, it is possible to “color” a set of bitcoins to distinguish it from the rest. These bitcoins can then have special properties supported by either an issuing agent or by public agreement, and have value independent of the face value of the underlying bitcoins…”

Back to eBay’s Patent:

“…Systems and method are disclosed for giving gifts or payment instruments in the form of security or payment tokens, according to an embodiment. A gift or payment instrument can be given from a user of a payment provider, such as PayPal, Inc., to a gift recipient. The recipient can be a member of the user’s family, a friend, a sub-contractor, or any other person or entity. The recipient can use the token to purchase a product using the payment provider. The purchase can be made from a brick and mortar store or an online store. The purchase can be made without requiring the user to create the user’s own payment provider account…”

While being able to send a payment to someone who is not already a pre-existing account holder within the payment platform may sound like an innovation it must be stated that Paypal already has this functionality. As a Paypal Employee explains in the PayPal Community Help Forum:

“You can send money to anyone with an email address but in order to claim the funds they would have to open a PayPal account. What happens is that you send the money to their email address, they get an email letting them know they have received funds. They are then instructed to follow the directions to open an account to receive the funds into their PayPal balance.”

and similar to PayPal, “The token can be given without the user sharing the user’s credential with the recipient.“

Blockchain.info also has similar functionality with their Send To Anyone:

“Send Via Send Bitcoins using Email, Facebook & SMS…Send To Anyone Send Bitcoins to anyone via Email, SMS or Facebook even if they don’t have a bitcoin address or a My Wallet account.”

However, “Gift Token” has an additional feature that makes it particularly flexible:

“..a person who does not have an account with the payment provider {can} use the token…Whether the recipient has a payment provider account or does not have a payment provider account has no impact upon the recipient’s ability to use the token.”

This is extremely important feature and the reason why I determined that this particular patent application even merits discussion (not to mention that eBay had a monumental year for the sheer number of patent applications submitted to the patent office).

If this technology were to become ubiquitous, it could very well change our relationship with money.

The Colored Coin white paper explains how  “A company may wish to create a corporate currency, such as Air Miles rewards points, or even plain coupons.”

The eBay patent application further explains:

“…the token can be limited to use at a specified store, a specified group of stores, or a specified chain of stores. The token can be limited to use in purchasing a specified product. The token can be limited to use geographically. For example, the token can be limited to use within a specified city or group of cities, within a specified state or group of states, within a specified country or group of countries, and/or at any location or group of locations. The token can be limited to use temporally. For example, the token can be limited to use on weekdays, on weekends, from 11:00 AM to 1:00 PM on weekdays, and/or at any other time…”

“Open Money”

The technology behind this patent is reminiscent of Ericsson’s Open Money patent application 20130166398  “System And Method For Implementing A Context Based Payment System.”  which includes LDC$ or Location Dependent Currency which  I previously discussed on Let’s Talk Bitcoin. Those with a dystopian eye will be just as alarmed. While this technology can be used for good …as Ericsson put it… for the “good of society”…it can also be used for evil…to control society. There are very serious ramifications behind manipulating the fungibility of money.   

An innocuous illustration that eBay provided was that a parent can issue the Gift Token to their children with restrictions.

An example I can think of is that a child is given an allowance and that the technology would allow the parent to determine how it is used.  For instance Gift Token can be programmed to allow the child to purchase anything that is legal for a minor to purchase with the exception of no more than one sugary drink per day.

eBay’s filing further explains how it can be used to restrict and prohibit certain vices such as cigarette and alcohol consumption:

“…Products can be specified for which the token cannot be used to purchase. For example, a limitation upon the use of the token can specify that the token cannot be used for the purchase of alcohol or cigarettes. Rather than not allowing such items altogether, a limit can be placed on the amount of such purchases in a given time period. For example, $20 worth of beer and $10 worth of cigarettes can be purchased in one week…”

and further it explains how this technology can be changed based on local laws and ordinances:

“… the recipient’s ability to purchase alcohol or cigarettes with the token can change automatically due to a change in the legal age for purchasing alcohol or cigarettes when the change in the law goes into effect…”

However it isn’t hard to imagine a scenario where a company could use this to make restrictions on the salaries of their employees. For example if a organization wanted to cut down on healthcare costs, they could program their employee’s paycheck so that their salary cannot be used to purchase cigarettes. Though this sounds far fetched, remember that eBay’s goal is for this (or any) technology to become ubiquitous and that anyone (even non-account holders) can send, receive and spend this “Gift Token.”   

“Whether the recipient has a payment provider account or does not have a payment provider account has no impact upon the recipient’s ability to use the token”

Similar to Bitcoin an algorithm is used to secure the Gift Token. Bitcoin uses sha-256 (a.k.a Secure Hash Algorithm) while the Bitcoin-Qt client uses AES-256-CBC to encrypt the private keys in the bitcoin wallet. eBay suggests using AES-256:

“…the token can be encrypted. The token can be encrypted using any cryptographic algorithm, such as AES 256 for example… The payment server or an administrator can determine the strength of the encryption…” 

“Merit”

I spoke with David Birch, Global Ambassador and founding Director of Consult Hyperion. Mr. Birch is an internationally-recognized thought leader in digital identity and digital money.

For those of you concerned about the patentability of this technology Mr. Birch stated that, “The patent is trivial and obvious” and “I am baffled as to why the US Patent Office allows companies to patent this sort of thing.”

While Bitcoin is a technological achievement, the same probably cannot be said for eBay’s Gift Token.  However, whether or not this technology has any merit is up to USPTO and perhaps the legal system to figure out. Even if it is determined that Gift Token is not worthy of a patent being granted doesn’t mean the technology is vaporware nor does it mean that eBay would not try to pursue it.

Mr. Birch did question my comparison of Gift Token to Bitcoin and said that:

“The patent is about pre-paid “e-gift cards” (and is unrelated to Bitcoin). It is, essentially, tokenized Visa Buxx…The idea of programmable coins in Bitcoin is new and interesting. The idea of sending “restricted” funds is very different.”

Gift cards typically exist in walled gardens that restrict spending within an ecosystem.  For example one cannot spend a Target gift card at Walmart. Prepaid access cards such as “Visa Buxx” allow more flexibility but require the cardholder to use the card within a particular payment network. However, eBay’s gift token is special because it can be used virtually anywhere because anyone can accept it. While the spirit of the patent application may indeed be that of an e-gift card, its versatile nature permits it to be used for so much more. The difference between eBay’s Gift Token being a simple payment instrument and means to program money is not so black and white.   

A Tangled Web We Weave

Pierre Omidyar, the founder of eBay, recently wrote a piece for the Huffington Post “WikiLeaks, Press Freedom and Free Expression in the Digital Age” which revisited PayPal’s cutting off of WikiLeak’s PayPal account. Mr. Omidyar referred to the severance of services as a “suspension…for a period of several months” which baffled WikiLeaks (Twitter) who considers the ban to be indefinite. However, WikiLeaks was able to circumvent the financial blockade using Bitcoin.       

Julian Assange, founder of WikiLeaks has still not been charged with any crime in the United States…and yet PayPal cut off WikiLeak’s services. One has to wonder how a so called “enemy of the internet“ might use Gift Token much less the United States.

The US government supports freedom on the internet through grants to the Tor Project.  Examples include the US Department of State Bureau of Democracy, Human Rights, and Labor and the National Science Foundation. Tor was originally a U.S. Naval Research Laboratory project and states that it is used “every day by a wide variety of purposes by normal people, the military, journalists, law enforcement officers, activists, and many others.” One has to wonder if the Dark Wallet “Your keys. Your privacy. Your sovereignty” to “…preserve Bitcoin’s principles of privacy and freedom of financial speech” will be held in the same regard as the Tor project. With proposals like “Gift Token” I hope they are.

Note, Vitalik Buterin and Mihai Alisie of Bitcoin Magazine both are contributors to the Dark Wallet project.

Bow portion of Graphic via Vector Free

“Loved your jokes. Here’s some bitcoins.”

That short email was where it all started. Some stranger was sending me some bitcoin because he liked my routine about fiat currency.

It was a short stand-up piece that I’d performed on an Australian TV show and then posted on YouTube. I bashed fiat pretty hard and it must’ve hit a chord because I got quite a few emails.

One of them was from this guy sending me bitcoins…

I was vaguely aware of Bitcoin, but didn’t really know too much about it.

But now someone was offering me some of this strange new currency I started getting curious.

Clicking on the link in the email took me to coinapult. This guy was sending me 0.007 of a Bitcoin, which at the time was about $2. Eventually I figured out how to set up a wallet and accept this small change.

I’m not sure if it was the process of figuring out how to set up a wallet, or the fact I now owned a bitcoin (well, 0.007 of one), but from that point on…

I had bitcoin fever. Bad.

Over the next few months I read everything about bitcoin I could find.

All the problems I hated about fiat currency bitcoin solved: private, practically no transaction fees, no government or bank interference – it was all so perfect.

I knew I had to do a stand-up routine on bitcoin.

If you’re not a comedian that might seem like a strange thought, but all my best routines have been on topics I’m passionate about.

Writing a stand-up routine about decentralized cryptocurrency wouldn’t be easy, but I thought if I could figure it out it might be a really great routine.

I also realised something else…

Even though I’d spent hours researching bitcoin and watching bitcoin related YouTube clips for days I’d never seen a stand-up bit about it.

Stephen Colbert had done a pretty funny report on bitcoin and in a Q&A Josh Blue had said mining bitcoin was a hobby, but as far as I could tell nobody had done what I was trying to do.

Was that because bitcoin is still so new and I was the first to get to the topic?

Or was it because it’s such a complex topic that “writing a funny Bitcoin stand-up routine is impossible?

I perform regularly on an Australian community TV show (it’s called Live on Bowen. Imagine a low budget Letterman).

I realised if I came up with some jokes and performed it on the show, I’d be the first comedian to ever do a bitcoin stand-up routine (on TV at least).

“I have to do a segment on Bitcoin.”

Every Monday the writers and I meet up to plan out the segments for the show. When I walked in and said that things got weird.

Usually one of us pitches a topic, say “iphones”, and the writers will throw out jokes and ideas for the next fifteen minutes.

Not this time.

“What the hell is a bitcoin?” someone asked.

We spent the next forty minutes discussing cryptocurrencies, mining and who Satoshi Nakamoto is.

I think I gave them a good education on what Bitcoin is, but we didn’t come up with any jokes.

These are writers who regularly come up with sketches along the lines of “What if the president of France was a watermelon?” but getting their heads around a decentralised cryptocurrency was too much.

Maybe writing a comedy routine about bitcoin was impossible…

If I couldn’t get the writers to understand Bitcoin in a forty minute meeting, how could I explain it to an audience in a three minute TV spot?

Still, I had about three weeks to come up with a routine about bitcoin and I wasn’t about to quit now…

The race was on…

I started writing jokes about bitcoin and performing them at comedy clubs.  At first I got a lot of blank stares.

Imagine explaining Bitcoin to your parents. Now imagine they’re drunk and expect you to be funny.

Other comedians suggested I drop the routine, which is crazy because comedians are a pretty forgiving bunch.

If I was trying to develop a routine about Hitler they would’ve told me to keep trying, but one joke about SHA256 dies and they’re telling me to give up.

In the end this doubt was what pushed me to keep going. Now I had to prove to them (and myself) that I could write a routine about bitcoin.

Bitcoin became my Moby Dick.

I kept performing the routine, rewriting it and performing it again.

I’d go home after shows to read bitcoin blogs in the hope that I’d pick up just one little angle that could help me improve this routine.

I also kept looking for any other comedians doing bitcoin routines. It looked like nobody was.

Apart from a few memes, and some fairly amateur sketches, I couldn’t find any bitcoin comedy.

I just prayed another comedian wouldn’t come up with a bitcoin routine first…

Then as the day when I’d have to perform the routine on TV drew closer, another thought hit me…

I’d rewritten the routine about a hundred times by then and it was getting laughs at comedy clubs, but those audiences didn’t know about bitcoin.

How could I be sure the stuff I was saying in the routine was factually correct?

If only there were some experts I could test my stuff on…

Then, the day before the taping of the show, I was browsing meetup.com and saw there was a Melbourne Bitcoiner’s group.

They were meeting that night!

It was like a sign from God.

I shot the organiser an email “Hi, Can I come perform a stand-up comedy routine about Bitcoin at your meeting?”

I was fully prepared for them to write back asking if this was a prank, but instead I got a reply saying they’d let me give it a shot.

That night, after a fairly heated discussion about alt coins, Asher Tan (CoinJar co-founder and organiser of the Melbourne Bitcoin meetup) handed me the mic.

“I hope you know what you’re doing…” he said.

“Me too!” I thought.

I walked out to about a hundred bemused stares, but when my first joke got a wave of laughter I knew this was going to be OK.

After the show I sat around with some of the nicest people I’ve ever met sharing bitcoin stories and listening to their suggestions about how to improve my routine.

 Twenty-four hours later I was on stage in front of a live studio audience.

 The host gave me an introduction, the camera swung onto me, and it was show time.

 How did the world’s first ever bitcoin stand-up routine go?

 Well, I think it went great, the studio audience seemed to like it, and I’ve had nice feedback from viewers, but don’t take my word for it.

 Like Bitcoin I don’t expect you to trust a third party – go watch the routine on YouTube and make up your own mind.

On behalf of the Bitcoin Magazine Team, we would like to wish you all a Merry Christmas, Happy Hanukah, and a fantastic New Year!

Here is Holiday Greeting from Bitcoin Evangelist, BitInstant CEO, and Bitcoin Foundation Board Vice Chair, Charlie Shrem:

Seasons Greetings Bitcoiners!

What a wild year 2013 has been!

At the time of last year’s holiday message, BTC was $13.30 and on Jan 10th, 2013 I was predicting $14.00. As of Christmas morning, BTC is holding steady around$675.

Now, before all of you say “Bitcoin is not all about the price”, relax. You are correct. This year I’ve been fortunate to have travelled all over the world evangelizing Bitcoin. From Austria to Las Vegas, Panama, California, London, Amsterdam, Morocco, Argentina and more meeting Bitcoin communities and building lifelong friendships. One thing I’ll always remember, said to me by long time friend and Bitcoin Foundation general counsel Patrick Murk, “Bitcoin is the accumulation of the talent, hard work and dedication of the people who develop and maintain the protocol, build industries around the protocol, the merchants and consumers who use the Bitcoin protocol in their daily lives, and those who promote and protect the protocol. As more people become a part of the Bitcoin community, the value of the system increases.”.

Bitcoin is not simply a currency, or a payment system. Bitcoin is a technology that enables you and I to work together to make the world a better place. Bitcoin not only has the potential for global financial inclusion of the world’s poor, it also provides a stable money supply to people living in some of the world’s most corrupt and irresponsible governments.

We’ve had many ups and downs this year, literally. We saw the end of Silk Road and the dawn of government regulation. Some people thought we even found Satoshi. China emerged as a dominant player in the Bitcoin space. Senate hearings and various worldwide government bodies either embraced or tried to slow it down. I say good luck to that. To shut down Bitcoin you’d have to shut down the world’s electricity and the internet. Lastly, Canada and Australia joined the foundation’s initiative to bring together some of the most energetic Bitcoin communities in the world to fulfill our mission to protect, standardize and promote Bitcoin worldwide. Bitcoin is you, me, and all of our hard work. It’s our community and culture that we’ve all decided to make our own – and we will prevail.

Satoshi built Bitcoin for us so we that can carry the torch and continue to develop it for mainstream adoption. He gave us the land and now its up to us the build the roads, bridges, and tunnels. 2013 was the year of regulation. 2014 is the year of infrastructure so get ready to build! Circle’s $9 million and Coinbase’s $25 million investments are just the tip of the iceberg. An iceberg full of new ideas, talent and capital just waiting to be tapped by the right people to bring Bitcoin to the masses.

Looking forward to an even wilder year!

Happy holidays!

Charlie Shrem

Vice-Chairman, Bitcoin Foundation

CEO, BitInstant

 

Clearly Canadian, a popular North American premium sparkling water brand, has announced that they are going to be re-opening today, and will be accepting Bitcoin as a payment method. Clearly Canadian is a 30 year old company, whose products were very popular in the 1980s and 1990s, and is especially well known for its flavored sparkling water products including flavors such as wild cherry, green apple, mountain blackberry and even sparkling tea. Since then, the company’s founding management exited in the early 2000s, and for the next decade the company sank into relative obscurity, although the brand remains well-known among older generations of Canadians. Now, however, Clearly Canadian is intent on making a comeback. Today the company relaunched its website, offering what were four of its most popular flavors, and has announced a leaders referral program to get the word out. At the same time, however, Clearly Canadian is intent on recapturing the Canadian (and, of course, American) audience with a new feature: accepting Bitcoin.

Although flavored sparkling water is not a product that is typically associated with Bitcoin users, the Clearly Canadian brand is clearly recognizable to millions of people, making it one of the more prominent, and mainstream, businesses to start accepting Bitcoin. Yet another major merchant to add on to an ever growing list.

The full press release is as follows:

CLEARLY CANADIAN JOINS BITCOIN COMMUNITY

Ambassador Brand of Canada accepting Bitcoin in global online campaign.
(Richmond Hill, ON) Dec. 16, 2013, – Clearly Canadian, in keeping with the
ever evolving digital age, is opening up its coming online pre-sales campaign
to the global bitcoin community. “Online virtual currencies are clearly here to
stay – no pun intended”, according to Mitch Callahan, Clearly Canadian’s
Bitcoin Campaign Manager. “Just as Clearly Canadian pioneered the new age
beverage industry in the ‘80s and ‘90s…bitcoin, in a much more profound
way, is poised to change how we all transact business on a global scale and in
our daily lives. Clearly Canadian finds that truly exciting and we are proud to
be a new emerging member of the bitcoin community.”

Clearly Canadian is commencing an online pre-sales campaign for fans
worldwide Monday, December 23rd, two days before Christmas, to re-ignite
large-scale production and supply current demand. At its last peak Clearly
Canadian was producing in excess of 5 million cases annually. “We’d like to
pre-sell at least 25,000 cases of Clearly Canadian online to the global bitcoin
community, personally I hope we double, triple or even quadruple that goal,
but let’s see what happens. Pricing will be denoted in dollars but transacted in
bitcoins through BitPay, the leading bitcoin merchant processing platform. We
intend to be a long-lerm merchant in bitcoin transacted consumer goods,
hopefully the new currency’s volatility will remain low facilitating greater
adoption,” stated Mr. Callahan.

“Having a globally recognized consumer brand such as Clearly Canadian join
the bitcoin community is a powerful statement about the increasing popularity
and growing base of bitcoin merchants and users. Many are watching the
bitcoin market closely and we hope that this is the first of many established
brands that see the benefits of adding bitcoins to their payment
options. We are happy to have Clearly Canadian on board and wish the very
best of success in its campaign,” stated Tony Gallipi, CEO of BitPay.

About Clearly Canadian

Clearly Canadian, established 1987, is one of North America’s leading
signature food & beverage brands. Clearly Canadian is focused on producing
and marketing high-quality Canadian made consumer goods. Visit
https://www.clearlycanadian.com.

About BitPay
BitPay is a leading Payment Service Provider (PSP) specializing in

Paul Krugman, the Nobel Prize winning economist who likes to explain things to we mortals via the New York Times, is a man some people love to hate, right along with the Times. But we’re not about hatred here, we’re about the science of Bitcoin, so we want to point out to the good Nobelist just how he got it wrong in his “Bits and Barbarism” op-ed piece of December 22 in the Newspaper of Record.

Krugman is absolutely right about the barbarism of gold, past and present. For the vast majority of people, finding gold in your neighborhood is like the curse of oil; it benefits only the elites who can mine it, store it, and transport it. For everyone else, it is a disaster. Ask the Tainos, Caribs, the Aztecs. Ask folks in present day Papua, South Africa, Congo, Peru or Nevada how much Gold 1.0 is doing for them.

Where Krugman is wrong is in taking at face value (pun intended) the notion, spread by some media outlets, speculators and others that Bitcoin is Gold 2.0. It isn’t. In fact, the differences between Bitcoin and gold could not be more stark. The only intersection is a political one, an intersection of two different camps in a narrow political space that exists to push against a perceived common foe: central banks, federal governments and international cabals of the uber rich. This has nothing to do with the fundamental tendencies of these two, very distinct entities. Look at the rhetoric of gold fanatics. They do, as Krugman says, look to the (imaginary) past. Look at the aspirations of the Bitcoin community. They are solidly fixed on the future.

So let’s look at the differences between gold and Bitcoin. Gold is a physical representation of wealth created by the exploitation of land and human labor, be it slave, wage-slave or serf. Its very nature makes it amenable to centralization and hoarding in banks. It is difficult to transport and exchange, and it is relatively easy to guard with a few guns. It accumulates to those with ships and armies. Bitcoin is a digital representation of wealth created by the exploitation of non-human labor, that is, computer power. Its very nature makes it amenable to decentralization and networked distribution. It is easy to transport and exchange and it is (therefore) more difficult to guard. It will tend to accumulate with those within the network who facilitate its transaction. In this regard, it is much more like paper money than gold.

Gold is the natural preference of the already rich, and the envy of those who want to be like them. It is the store of wealth for those who can afford to hoard it. Bitcoin is the natural preference of those who are not rich, for whom the cost of every transaction is a burden; it is ideal for those who do not have the ability to accumulate large amounts of capital because poverty keeps them living hand-to-mouth.

Yes, Mr. Krugman, I agree with you about the barbarity of gold. But if you would just take the time to actually examine the nature of Bitcoin instead of using the misperceptions of others as a cudgel against Bitcoin, perhaps you’d discover something.

Isn’t discovering things that are new and perhaps not as they appear in popular misconceptions what Nobel Prizes are awarded for?

If there is an annual pre-Christmas Eve ritual in Washington, DC, and Wall Street, some invitation-only celebration within the travertine marble headquarters of one organization and several other joint ceremonies amidst banks of computer terminals, flat-screen displays and heavily carpeted floors, if such an event does exist – a December 23rd night of champagne toasts and conspiratorial communiqués – I do not know of it. Or, rather, I have yet to receive any such greeting.

But, for champions of bitcoins as a premier form of peer-to-peer digital currency, December 23rd should be the day – this year – when we draw the ultimate contrast between a mathematically-based concept, which owes its origins (in part) to the monetarist principles of the late Milton Friedman, and the moment when we can point to the calendar and say:

“This is the day, and this is the year, one hundred years prior, when fiat triumphed over sound finance. Now is the time to reclaim the intellectual legitimacy of hard money.”

For December 23rd marks the centennial of the birth of the Federal Reserve System, an independent central bank (with regional satellites), whose legacy – at best – is mixed. My conclusion about the Fed’s record is a charitable one, considering it is only independent to a degree; it must conform to a congressional mandate (the Humphrey-Hawkins Full Employment Act), which theoretically restricts its powers, while simultaneously enjoying the right to print money with abandon. Call these actions anything you like, inveigh against their influence, condemn their legality, bemoan their short-sightedness and expose their failures — but please, never associate the Fed with anything remotely similar to a free market.

The Fed’s wholesale printing of money, the phenomenon known as “quantitative easing,” is, in my opinion, an oxymoron and the single greatest act in favor of an alternative currency like Bitcoins. As to the name itself, quantitative easing, it is a misnomer because the qualifying adjective suggests there is a scientific underpinning to the policy, something calculable and definable. As in, “We know there should be x-number of dollars (‘M0, MB, M1, M2, M3, MZM’) in circulation at any given time. If we have less than that amount we exert deflationary pressure on the economy, while anything in excess of that standard brings us into inflationary territory.”
The not-so-secret truth is, however, that neither the outgoing Fed Chairman nor the incoming Chairwoman (pending her Senate confirmation) knows what that amount is. And, before I finish this point, as it is a preamble in defense of Bitcoin, let me also remind readers that all of this – the statements issued by the Fed, including the oracular pronouncements of Alan Greenspan, as well as well the reactions by traders to the perceived bullish or bearish news from the Central Bank — all of this proves there is nothing quantitative or scientific about the Fed’s actions or fiat money in general.

I write these words without any partisan rancor, so put aside the politics of the Fed as an institution, and ask yourself this simple question: If the Fed’s printing of money is right, as a matter of pure mathematics (meaning: the policy reconciles with an equation, which yields an expected outcome), why is there such volatility in the stock market alone, with massive upswings and sell-offs, based on no change in policy? Of course, emotion and the herd mentality play a role in the behavior of markets – man is hardly a rational creature – but if the policy is correct, rooted firmly in science, then the intended result should, after more than 5-years of “stimulus,” be clear: Significant economic growth, millions of new jobs and the fulfillment of Congress’s requirement – legislation signed by then President Carter – that by 1988 the unemployment rate would be zero!

Not only is the Fed not in compliance with the law, but the entire facade – including the very greenbacks and coins in our pockets – rests on a foundation of words – the “Full Faith and Credit Clause” of the Constitution – not numbers or any singular brand of economics. These factors make an alternative currency both inevitable and a necessity.
Making the Case for Bitcoins: The Triumph of Logic
The case for Bitcoins is, as described above, inevitable, accelerated by technology and modern communications. Indeed, one of Professor Friedman’s more famous remarks involves his advocacy for replacing the Fed with a computer. Each year, it “would print out a specified number of paper dollars” to augment the money supply. “Same number, month after month, week after week, year after year.”

“The Fed has had very few periods of relatively good performance,” he continues. “For most of its history, it’s been a loose cannon on the deck, and not a source of stability.” A spot-on assessment from a Nobel laureate with a prophetic eye in which the only change (in the 14 years since the delivery of that advice) would be to pluralize the computer to hundreds of millions of computers – server farms, fiber optic cables and data centers – linking us in one worldwide web. Welcome to the Internet, home of the peer-to-peer digital currency we call bitcoins!
In not so many words: Friedman’s words are right because his theory is right. The time between the issuance of the theory and the rise of bitcoins is a matter of technology, which is often the case with any scientific argument. Put another way, technology does not create a theory; it reveals and validates one. Such is the case with monetarism and bitcoins.

Such, too, is the case with physics, where the legendary Higgs boson (the “God particle,” first theorized by Professor Peter Higgs in 1964) is now, 49-years later, verifiable — thanks to the construction of a 9-billion-dollar super collider with a 17-mile circumference. Thankfully, the proof for the necessity of bitcoins does not involve such expensive technology.

Allow me, also, to defend Friedman’s prediction without endorsing or opposing his politics. That is, the logic of monetarism, however coincidental or integral it is to the libertarian beliefs of Friedman, is its own separate entity. We need not favor abolishing the licensure of doctors or the legalization of illicit drugs, two of several longstanding arguments made by Friedman and his ideological disciples, to acknowledge and accept the closest thing to an economic scientific fact: That there is global demand for and merchant recognition of bitcoins as a legitimate, alternative currency.
Communicate the Truth with Enthusiasm and Data
The responsibility, for supporters of bitcoins, is now one of communications. Our duty is to popularize this phenomenon – to explain and showcase the facts – before our opponents politicize this issue with heated rhetoric and the illogic of insults, in lieu of intelligence.

The intensity of criticism comes from those who dismiss any kind of change. Their faith, and it is nothing more than blind allegiance, is in a single paper currency, allegedly backed by the faith of the U.S. government.

Rather, it is faith by others – in us, and the U.S., to never fail to honor our debts – that would make the most fervent adherents of monotheism blush. Critics may cite history as their shield and source of credibility, but I place my faith in the universal truth of mathematics, because history does not repeat itself – patterns of behavior recycle themselves, instead – and I recognize the difference between the two. Or, as the saying (purportedly from Mark Twain) goes: “History does not repeat itself, but it does rhyme.”
Alas, a rhyme is no substitute for rhythm — and the long continuity of numbers, measurable and eternal, transcendent of the false barriers we erect against each other. A philosophical observation on my part, to be sure, but custodianship of the greatest subsection of history we know is predictable: Mathematics.
Bitcoins is, in that regard, the intellectual heir to an esteemed branch of history and a solid trunk of science. The goal is to make that tree of knowledge grow, free of the weeds of ignorance and the pestilence of imprudence.

On December 10 and 11 MediaBistro, a company that specializes in hosting blogs, courses and events on various topics relevant to the tech industry, held their second Inside Bitcoins conference in Las Vegas, in a similar spirit to their existing Inside 3D Printing and Inside Social Apps events. The conference took place at the MGM Grand hotel, the second largest hotel in the world, and used one large conference room seating over 1000 people and an exhibition room to host the event. Over a thousand people were present, including many of the largest businesses in the Bitcoin space. Although this was only one Bitcoin event of many in these last few months, with LaBitConf coming immediately before it, the Cryptocurrency Conference in Atlanta immediately followd by the Ripple developer event at the Future of Money conference in Las Vegas in October and the Amsterdam conference in September, over 1000 people showed up at the event – almost as many as in the first major Bitcoin conference that started the recent craze this May in San Jose.

There were several prominent speakers at the event:

• Bobby Lee – Bobby Lee is the CEO of BTCChina, the largest Bitcoin exchange in China and now the largest Bitcoin exchange in the world. BTCChina has taken the world by storm in the past two months, with its transaction volume rising from fourth place under MtGox, Bitstamp and BTC-E to taking over first place, at the time of the conference holding a larger market share than all North American and European Bitcoin exchanges (counting MtGox even though it is based in Japan) combined. Bobby Lee spoke about the uncertain state of Bitcoin regulation in China since the recent round of Chinese regulatory announcements. Some argue that the Chinese government is only forbidding the banking system from participating in the Bitcoin economy directly and businesses could not denominate prices in BTC, while others claim that the Chinese government is forbidding businesses from accepting BTC outright, relegating the role of Bitcoin in China to purely serving as a store of value and method for buying online services from foreign and Hong Kong-based merchants; Lee took the latter position.
• Alan Reiner – Reiner is the CEO of Armory, a company building what is currently the most powerful and secure Bitcoin wallet including features such as a built-in elliptic curve point calculator, a paper wallet backup mechanism and offline transaction signing. Recognizing that such a wallet is of little use to the average user, Reiner has decided to make Armory target corporate users interested in securely managing large amounts of funds using complex configurations involving multisignature transactions and Shamir’s Secret Sharing for security. Armory recently raised a $600,000 investment round led by precious metals guru and Bitcoin advocate Trace Mayer.
• Jered Kenna – Kenna is the CEO of Tradehill, a Bitcoin exchange that was the second largest in 2011, shut down in 2012 due to regulatory and banking issues, and was revived in 2013 as a Bitcoin exchange for businesses and accredited investors. At its peak, Coinbase and BitPay used Tradehill as a sort of “exchange for exchanges” to sell the bitcoins that they receive from users and merchants. Now, however, Tradehill has unfortunately essentially shut down, as regulatory obstacles have prevented it from getting any banking relationships. Jered Kenna’s speech, however, was a very positive “state-of-the-union” address on the topic of Bitcoin in general.

Also of interest are the businesses:

• Lamassu – Lamassu was first formed by New Hampshire residents Josh and Zach Harvey in early 2013, with the goal of creating the first functional Bitcoin ATM to allow customers to buy bitcoins with cash. The company presented its first functional prototypes at the Bitcoin conference in San Jose in May, at Porcfest in June and at BTCLondon in July. Since then, Lamassu has been hard at work fortifying the machine on both the software and hardware level and making it easier to use. Very recently, Lamassu has started actually shipping out the machines to their first batch of customers at a price of $5000.
• KryptoKit – KryptoKit is a powerful, lightweight and easy-to-use Chrome extension that serves as an encrypted messaging app and a Bitcoin wallet. The application, built by Anthony Di Iorio and Steve Dakh starting November 2013, has attracted a large amount of media attention recently, with articles on both major Bitcoin news sites and even mainstream media websites. KryptoKit’s main advantage over existing platforms such as the browser-based blockchain.info wallet and the Enigmail encrypted email plugin is the sheer level of convenience that it provides; with KryptoKit, you can pay without even leaving the browser tab that you’re paying from, and the interface makes it easy for you to create and share a GPG key and seamlessly performs the encryption, signing, decryption and verification operations in the background. Although its interface is not perfect – the concept of sharing public keys, for example, is still not intuitive to most people – it is a massive step toward making a Bitcoin wallet and secure messaging app that is easy to use for the masses.
• Butterfly Labs – although the company had a rocky start when it first released its application-specific integrated circuit (ASIC)-based mining hardware in early 2013, it is now rapidly picking up, and has recently processed an order for $1 million worth of mining hardware.
• yBitcoin – yBitcoin is a company releasing another Bitcoin magazine, which handed out its first issue at the conference. However, yBitcoin’s magazine has a very different focus from Bitcoin Magazine; yBitcoin’s magazine is not intended to cover current events or update often, and does not target existing Bitcoin users; instead, it serves as an easy-to-read introduction to Bitcoin for those who have not yet had much exposure to Bitcoin. Issues of yBitcoin magazine will also be released for free; the magazine intends to fund itself with advertising revenue.

Altogether, the conference sent a clear message: the Bitcoin scene is getting big, fast. At the conference, one could spot not just prominent Bitcoiners, but also high-level executives of major corporations, individuals looking to buy large quantities of mining hardware, and investors walking around with millions of dollars ready to pour into whatever Bitcoin businesses they see as the most promising. Although the latest round of Bitcoin’s growth may have died down somewhat, with the price stabilizing around $400-$700 following news of serious regulatory difficulties in China, the groundwork is already quietly being laid for Bitcoin businesses to make the leap to the next level. The next few conferences are going to take place in Miami in January 2014, Berlin and the Philippines in February, Austin in March, and Toronto and New York in April. Hope to see you there!

Five years ago Saint Satoshi penned a brilliant idea. This idea was given freely to us. It has since fostered an arena where programmers cooperate, collaborate and compete to build viable alternatives. The latest entrant is Dogecoin.

Dogecoin began life as a sarcastic remark on Twitter: “Investing in Dogecoin, pretty sure it’s the next big thing.” After gaining traction online the idea became a reality. It has spread primarily through tipping on Reddit.

Dogecoin is a variation of the Bitcoin source code that, like Litecoin, uses Scrypt. However, with Dogecoin, the technical aspects are less interesting than the social. The technical aspects are familiar. The marketing, based on a popular meme series, is novel.

It has touched a nerve. Its value has soared and recently corrected. In a short space of time it has captured a large amount of value and the scenes imagination.

Despite this flying start Dogecoin is still just a puppy. Its future is uncertain. Of course, the same can be said for all alts and Bitcoin too, albeit to a lesser extent.

For now Dogecoin has been most successful in holding a mirror up to the community.  It is forcing us to reflect at a key point in this technology’s evolution. This article’s title is deliberately provocative. Dogecoin will be used as a conduit for a deeper analysis of how decentralised crypto-currency arrived at this point in history.

Bitcoin is entrenched. It is the original. All others spring from it. It is the base currency on exchange, with a multi-billion dollar market cap. It is the yardstick by which we measure the overall health of the space. It is king.

Dogecoin is the newest alt on the scene. It started life as a joke on social media. It takes a light-hearted approach to otherwise serious issues of value, finance and liberty. It is an unashamedly jolly prankster. It’s young, innocent and foolish. Dogecoin is a jester.

The two are seemingly worlds apart. But are they really so different? They are, after-all, the same core technology. Branding and marketing are where they diverge.

In a world of infinite possibility what does Dogecoin need to replace Bitcoin?

How to build a successful alt: just add water.

Peter Schiff and Erik Voorhees debated the viability of crypto-currency this November. During the discussion Schiff questioned whether Bitcoin would endure: a fair question. In response Voorhees pointed to the years and billions spent building the necessary infrastructure and architecture around Bitcoin.

Such infrastructure is key to the long-term success of any coin. But Bitcoin is not necessarily as far ahead as some would have you believe.

Bitcoin as a transaction network, up until six months ago, was very much a Satoshi Dice story. Some estimates have the game accounting for up to a half of all transactions on the blockchain. Satoshi Dice acted to drill the blockchain: testing its strength and viability as a global payment network.

In addition to Satoshi Dice and up until more recently, a significant number of Bitcoins were being transacted through the Silk Road. Estimates are rough and hotly debated. But the silk-road is certainly the marketplace where Bitcoin gained footing and gathered steam. The Silk Road showcased the potential of Bitcoin to the world.

Dogecoin would benefit from the addition of these two key ingredients. Indeed, there is already a Satoshi Dice clone for Dogecoin. A Silk Road clone is still lacking. One could imagine a Black Market that only accepted Dogecoin as capturing the world’s imagination and securing sustained publicity.

However, for a coin to have true long-term viability, still more is required. Dogecoin must foster a community around it: a clique of passionate individuals acting to build the necessary foundational layers on top of the protocol adaptation.

Going forward, varied implementations of the protocol are the primary foundational layer required to sustain any coin.

Currently there are approximately half a dozen well know implementations of Bitcoin. A healthy network requires diversity. Diversity helps to protect against vulnerability. For Dogecoin to have longevity then developers must work on implementing it. This foundational layer is fundamental to the architecture.

In the initial stages the rewards for such important code are not easily identifiable or guaranteed. So, to get even more reductive, Dogecoin must inspire.

Inspiration will be the lifeblood of Dogecoin. If individual actors are not inspired to work on the core code then a core group of dedicated and passionate developers will never form.

It goes deeper still. Individuals must be inspired to associate and cooperate to ‘evangelise’ the coin. Dogecoin will live and die by its ability to sell a raison d’etre: something above immediate profit that motivates people to action. This message must be capable of sustaining momentum over time.

Dogecoin has been successful in doing this already. While conceived in jest, Dogecoin has a serious intention. As David Gilbert of the ibtimes notes “Dogecoin is envisioned as an anti-bitcoin” now that bitcoin is increasingly “seen as the plaything of serious investors and businessmen such as the Winklevoss Twins.”

This comical approach to an otherwise serious technology is where Dogecoin has found its niche and gained traction. As Gilbert notes further, “It’s not taking itself as seriously, it’s not being used by people worrying about whether they’ll become rich.”

The long-term potential of this message remains to be seen. However, at this early stage, it has already showed a clear ability to inspire. Clarity of purpose is slowly and organically forming around Dogecoin. The core fan base already exists and social media traction has been achieved. A strong spring-board for next level growth now exists.

Dogecoin’s core supporters must be so inspired by this message that they go forth and inspire others. Network effects will eventually take hold. A Dogecoin Jesus will certainly be required.

A community driven by a broad unity of purpose will foster network effects that necessarily create brand recognition. Brand recognition for Dogecoin will lead to acceptance in trade. The market mechanism will then see entrepreneurs build payment processor companies. Such companies are necessary for interaction with Dogecoin.

The Recipe for Success

Dogecoin, to replace Bitcoin as the leading cryptocurrency, will require: 1 Satoshi Dice clone, 1 black market, 1 Dogecoin Jesus, 2 payment processors, a cohesive raison d’etre (smothered lovingly with inspirational rhetoric), 3 oz. of infrastructure, a pinch of core developer talent and a splash of evangelical zeal. Place in the oven and bake at 250 degrees for 5 years. Oh yeah, don’t forget to add water.

Of course, all this assumes that Dogecoin needs to follow precisely in Bitcoin’s footsteps to replicate its success. This is not necessarily true. It could blaze its own trail. However, with an analysis of the budding Bitcoin ecosystem, a formula emerges. Dogecoin would do well to follow this formula. The path has been beaten, so why not? And may this recipe inspire one thousand other tasty alts to rise.

In her recent post on Crooks and Liars, Karoli, whose pieces I’ve been reading for some time and generally find well done and intelligent, unfortunately chose to pick up on and excerpt some foolishness from Alex Payne’s recent – and rather unimportant – screed against Bitcoin. Payne’s piece is particularly vapid and one I didn’t think worthy of response, but Karoli’s is more interesting as it goes to issues of moral superiority, fantasy, and narrow-mindedness. Plus, as I say, I think Karoli is both a good writer and worth reading.

Karoli frames her piece with the headline “Is Bitcoin a Libertarian Utopian Dream?”

Short answer; yes, it probably is that for some. But people have utopian dreams about all manner of things.

What Payne’s article (I read it completely when it first came out) doesn’t do is refute any of Bitcoin’s technological innovations, innovations that are undeniable by anyone who actually looks at what the protocol does, or has any real experience with it. What Payne’s article does do is make unsubstantiated opinion statements couched in simple linguistic tricks like “Bitcoin is “generally viewed”” and “Bitcoin is viewed by many technologists” without saying who these experts are, or backing up these statements in any way. I particularly enjoyed the “Bitcoin is regarded as a flawed but nonetheless worthwhile experiment” bit. What exactly is a ‘flawed but nonetheless worthwhile experiment’? A worthwhile experiment that has some flaw in its experimental method? The Bitcoin protocol has been put to the test, worldwide, for 5 years. It’s still working today. Any experiment with that kind of real-world field test is hardly ‘flawed’. Or how about Payne’s assertion that “The only thing “profound” about Bitcoin is its community’s near-total obliviousness to reality.” The bold emphasis is Karoli’s, indicating that that’s the principal point about Payne’s position, that only those who agree with him have any grip on reality.

Are there Libertarians among Bitcoin advocates? Yes, and some Anarchists too. And some merchants trying to make money. There could be some speculators wanting to get rich. There could be some social activists and human rights advocates like me among them too. But also among them there is Richard Brown, a high level technical analyst for IBM’s Banking and Financial Markets Division. He described the fundamental achievement of the Bitcoin protocol as ‘unimaginable’ just a few years ago. Watch his remarks yourself. http://www.youtube.com/watch?v=VDO7TDMlxsY

The thing is, Alex Payne, former Chief Technology Officer at Simple Bank (an online bank), writes his blog called “Alex Payne Writes Here”. So that means he has to write something, or so he thinks. His writing reveals that he doesn’t like people who have utopian ideals or who imagine a more just future. That’s his real problem, not Bitcoin. And Karoli’s dislike of Bitcoin is not because of any real experience or analysis; as she states at the very top, “All of the buzz around Bitcoin has disturbed me since Dan Backer filed with the FEC to allow his tea party groups to accept Bitcoin for contributions and expenditures.” She doesn’t like Dan Backer, therefore Bitcoin is some kind of Tea Party threat to humanity. Not exactly a sound evaluation.

Is Bitcoin a Libertarian Utopian Dream? Maybe. Is socialism a utopian dream? Is democracy a utopian dream? Did Dr. King have a utopian dream? Maybe humanity counteracts its own evil and narrow-mindedness with utopian dreams. The lions may someday lie down with the lambs.

Do you harbor any utopian dreams? That’s not necessarily a bad thing, you know.

Happy holidays.

This post was released for Issue 15 of Bitcoin Magazine as part of a series of  articles about puzzles and games that started with Issue 12.

Time for maze crawling! This is a maze that I invented in 1996. I first called it “4-dimensional maze” (you’ll figure out why), but I don’t like that definition much. It’s more like a self-referential maze, a tricky concept.

You’ll need two coloured pencils (red and blue for example) and a notepad for bookkeeping in case you wish to submit your answers for a prize (see below).

BACKGROUND STORY AND HOW TO CRAWL

Two prisoners are trapped in a maze. But it’s not an ordinary maze, as the actions of each prisoner determine the options of the other. The maze is made of a square grid of rooms. Some rooms have arrows painted on the floor. The rooms are connected by gates so prisoners can cross them when they’re open. But here is the tricky part: wherever a prisoner is, his available gates are determined by the arrows of the other prisoner’s room!

So prisoner A can only move one step in any of the directions indicated by the arrows on prisoner B’s room, and vice versa.

Both prisoners start in separate rooms, and both have to reach the same exit room. Notice that it is allowed to have both prisoners on the same cell at any moment.

Here is an example of how the prisoners move inside the maze:

FIGURE 1: Example of movement.

The Red prisoner can move one step left or right. The Blue prisoner can only move one step downwards. If the Red prisoner moves one step left, the Blue prisoner will be able to move upwards.

Warning: You must think ahead in order to avoid getting trapped!

CHALLENGES

Challenge 1: Move both prisoners to the exit room indicated with a yellow frame¹·¹.

Figure 2:  Challenge 1

Challenge 2: Move both prisoners to the exit room indicated with a yellow frame, while picking up as many bitcoins as you can. Can you pick up all of them?

Figure 3:  Challenge 2

Challenge 3: Move both prisoners to the exit room indicated with a yellow frame, while picking up as many bitcoins as you can and avoiding the Minotaur’s room¹·². Can you pick up all the coins?

Figure 4:  Challenge 3

Challenge 4: The giant maze!

Figure 5:  Challenge 4

Please post your answers in my forum¹·³:

http://nestorgames.freeforums.org/bitcoin-magazine-puzzles-f16.html

… and I will reward the best post with a copy of one of my games. I’m looking forward to discussing your findings. Thank you for reading!

You might also enjoy my previous posts:

– Bitcoinstellations

– Rise of the machines

– Creativity as problem solving

——————————————————————————————

1.1 Mazes generated by computer.

1.2 Special thanks to Silvia Romeral Andrés for the minotaur illustration.

1.3 Please use the following notation: “Blue Left” (Or BL) means ‘The Blue player moves one space to the Left’. So the 8 possible moves are: RU, RD, RL, RR, BU, BD, BL, BR.

 

The Bitcoin Alliance of Canada has made a filing with the Canadian Intellectual Property Office opposing an attempt to trademark the word “Bitcoin” in the country. The trademark attempt, filed by Neil K Adams on Dec 17, attempts to trademark the use of the term “Bitcoin” under, among other things, the categories of “computer programs and computer software for electronically trading traditional currency and virtual currency”, “currency exchange services”, “cash management” and “financial services, namely, providing secure payment options to members of an online community via a global computer network through the use of traditional currency and virtual currency”. One day after the request was filed, Stuart Hoegner, main legal and regulatory counsel of the Alliance, made a filing with the Trademarks Opposition Board asking the CIPO not to grant the trademark. The full text of the opposition filing reads:

The Bitcoin Alliance of Canada (BAC) has become aware that an applicant has applied to the Canadian Intellectual Property Office (CIPO) for the “BITCOIN” word mark in Canada. This application has not been granted by CIPO.
We oppose this application. Bitcoin is, on its own, purely descriptive and not distinctive, and this application covers wares and services that go to the heart of the bitcoin protocol. We don’t object to trade-marks that help consumers differentiate among competing products and that protect producers’ valuable investments in reputation. However, the word “bitcoin,” all by itself, is a word that should be left in the public domain and free to the public to use. We believe that registration of this trade-mark in Canada would potentially inhibit the ability of Canadians to use this innovative new technology, stifle innovation, and impose unnecessary costs on Canadian merchants and consumers.
No other governmental authority of which we are aware has granted a trade-mark in respect of this single word with the breadth of wares and services included in this application.
Therefore, the BAC has drafted an open letter to CIPO regarding this application. The application can be found here [hyperlink]. We trust that CIPO will do its usual great work and seriously consider the legal standard for registration under the Trade-Marks Act. Intellectual property law should protect and foster true innovation – not become a redoubt for trolls and those trying to subvert the inventions of others.
The BAC was formed to promote, protect, and raise awareness of bitcoin use in Canada. We will continue to work with like-minded individuals and organizations to help this amazing technology benefit all Canadians.

The Bitcoin Alliance of Canada has been making considerable progress in the past month since it announced its upcoming conference in April and launched its new website. The organization already has several hundred members signed up, including a substantial portion of paid ($25 per year) and lifetime ($125) members, and new members are joining every day. Additionally, Toronto, one of the three largest cities in Canada in terms of Bitcoin adoption alongside Montreal and Vancouver, has recently gained its first Bitcoin-accepting restaurant: the Smoke Bourbon BBQ House west of Bathurst on Harbord Street. Between this, the Bitcoin Embassy’s partnership with the Bitcoin Foundation, the increasing interest in Bitcoin startups building Bitcoin debit cards and point of sale terminals and the massive media attention around Bitcoin ATMs, Canada is positioning itself to become one of the most promising locations for Bitcoin adoption in 2014.

One of the more interesting alternative cryptocurrencies to have come out of the dungeon that is the Bitcointalk altcoin forum is something called “Quark” (or sometimes “QuarkCoin”) – a cryptocurrency that aims to be “super secure” by employing multiple advanced hash algorithms in place of Bitcoin’s plain SHA256. The currency has acquired significant interest in the past few weeks, especially so because it has been picked up not just inside the Bitcoin community, but also among two mainstream figures: Bill Still, an American journalist, film producer and author responsible for the films The Money Masters and The Secret of Oz, and Max Keiser, host of a show with millions of viewers on the Russia Today TV network. So what is this new coin that seems to have so suddenly come out of nowhere, and why has it succeeded in getting so much attention where even Peercoin and Primecoin have failed?

Quark differs from Bitcoin in three key ways: its proof of work algorithm, its block interval and its distribution model. The proof of work algorithm in any (Bitcoin-like) cryptocurrency is the function that miners must compute in order to create valid blocks; in Bitcoin, for example, a valid block must have a SHA256 hash starting with 0000000000000000000 (that’s fifteen hexadecimal zeroes). Because SHA256 is essentially a pseudorandom function, the only way to create such a block is to keep trying, making an average of 2⁶⁰ attempts, before you eventually create a block that is valid. Artificially making block creation so hard is a security measure; it ensures that attackers will not be able to flood the network with illegitimate blocks, and therefore a fraudulent transaction history, without having more computing power than the entire legitimate network combined.

The proof of work algorithm in Quark is more complicated than Bitcoin, but not excessively so; instead of using just one hash function as Bitcoin does, Quark uses six: BLAKE, Blue Midnight Wish, Groestl, JH, Skein and Keccak. The six algorithms are implemented in series, with nine steps; three of the steps randomly apply one of two out of these six functions depending on the value of a bit. The point of this is twofold. First, it is intended to make Quark more resistant against the “black swan” risk of a single hash function getting cracked. Second, it is intended to make the currency secure against specialized hardware or even GPUs; “Being only CPU mined,” the introduction reads, “this coin offers the average individual the rewards of mining.”

The block interval in Bitcoin is 10 minutes, meaning that the “difficulty” (ie. the number of zeroes that a valid proof of work must have its SHA256 hash start with) automatically adjusts so that the network produces one block per ten minutes. In Quark, the interval is an ambitious 30 seconds. The distribution model in Bitcoin is an exponential decay model: for the first 210000 blocks (~4 years), 50 BTC is released per 10 minutes, for the next 210000 blocks 25 per 10 minutes, then 12.5 per 10 minutes, and so on in an exponential decay until eventually issuance will stop entirely in 2140. Quark’s issuance model is a similar exponential decay, but much faster; it starts off at 2048 QRK per block for three weeks, then 1024 for three weeks, and so on until it reaches 1 QRK per block after about seven months. Unlike Bitcoin, however, Quark then stays at 1 QRK per block forever – a “permanent linear inflation” model whose inflation rate will start off at 0.5%.

So What Are The Flaws?

Unfortunately, although Quarkcoin tries to make a number of bold and daring improvements on the Bitcoin parameters, it arguably fails in its objectives on almost every count. We can go through the various changes that Quarkcoin made, and see that almost each and every one of them either does a substandard job of doing what it is intended to do or even introduces problems of its own.

First, the hashing algorithms. As described above, the intent of having six hash algorithms is (1) to protect against “black swan” attacks on hash algorithms, and (2) to make the coin unfriendly to specialized hardware. The first purpose seems reasonable at first glance; if one of the six hash functions get cracked, that particular block will always be found instantly, and the other five hash functions will remain standing. However, the way that it was done manages to be simultaneously superfluous and inadequate.

One thing that must be understood about hash functions is that, unlike most public-key algorithms, hash functions are often very opaque in their implementations, relying on complicated permutations and arbitrary substitutions and transforms rather than elegant mathematics involving modular exponentiation or elliptic curve points. The design of hash functions attempts to maximize properties known as diffusion, confusion and nonlinearity – essentially, professional cryptographers literally come together and try to figure out how to make a function as opaque and jumbled up as possible so that no one, including the cryptographers themselves, can figure out what’s going on inside.

As a result, hash functions tend to naturally have many built-in redundancies, and it shows. When the MD5 hash function was cracked, it went down slowly. In 1993, researchers first found a “pseudo-collision” – two changes to an internal parameter called an initialization vector that lead to the same output. In 1996, researchers found a “collision” – two inputs that produce the same output – to one specific internal component of MD5, the compression function. It was not until 2004 that these insights were converted into a full collision attack on MD5 itself. Even today, MD5 is actually not fully broken; althoush collisions, finding X and Y such that MD5(x) = MD5(y), can be done in only a million computational steps, pre-images, or finding X such that MD5(x) = Y for a prespecified Y, still take over 2¹⁰⁰ steps (although no longer quite the initial 2¹²⁸. Hence, hash functions like SHA256 are already highly redundant and black-swan proof. In fact, if a critical black swan event does occur, it will likely be something like P=NP or quantum computing that affects all hash functions at once.

Furthermore, there is one place where the algorithm does not use redundant hash functions: the Merkle tree. Quark’s Merkle tree still uses good old SHA256. What’s more, an attack on Bitcoin’s Merkle tree does not even need the harder pre-image attack – a mere collision attack, albeit a highly specialized one, will suffice to make a double spend and even fork the entire network. The process is simple: make two transactions, T1: A -> B and T2: A -> A, such that hash(T1) = hash(T2). Publish T1. Then, publish T2 later and spread around blocks containing T2 in place of T1. Now, suppose B tries to spend the bitcoins that he received in a transaction T3. Some nodes, which have T1, will see that T3 is spending the bitcoins from T1 and thus recognize T3 as legitimate, and eventually a miner will make a block, B1, containing T3. Other miners, that have T2, however, will see T3 as invalid because it is spending bitcoins that have been sent to A, and thus reject B1. They will eventually make a new block B2 without T3. From there, the blockchain will split in half, with some blocks following B1 and others following B2. All this requires only a relatively simple collision attack against SHA256, and Quark does nothing against this.

The second application of Quark’s multi-hash mechanism is its resistance to ultraefficient mining through specialized hardware. However, the combined hash function created by composing BLAKE, groestl and the other functions does not have any particularly special properties; it is simply a hash function which takes up nine times as many lines of code. Producing specialized hardware devices (ie. ASICs) for mining it will certainly take nine times as much work, but once they exist they will be every bit as efficient as Bitcoin ASICs. They only do not exist now because there is not enough interest in Quark. A better way to make an ASIC-resistant coin is to use so-called “memory-hard hash functions” – functions that take a large amount of memory, as well as time, to calculate, so devices that attempt to do the computation millions of times in parallel will need to have petabytes of memory on hand; Litecoin does this, as does Primecoin with its sieve-based prime number chain algorithm, albeit unintentionally.

Next, we come to Quark’s 30 second block time. The idea of making blockchains with faster confirmations is a seductive one; Litecoin started the trend with its 2.5-minute blocks, Primecoin has 1-minute blocks, and now even faster coins like Krugercoin exist with 15-second blocks. Although accepting payments with any of these currencies is equally near-instant, as confirmations are not really required for security in most applications, such currencies have definite advantages in high-security applications such as gambling sites and depositing to exchanges. However, below roughly one minute such currencies run into two problems. First, there is the issue of “stale” blocks – when a miner finds a valid block, it takes about twelve seconds for that block to propagate through the network, and if any other miners find a valid block in those twelve seconds their work is essentially wasted. With a 10-minute block time, this is only a two percent decrease in de-facto network security. With a 2.5-minute block time, it becomes eight percent and with a 1-minute block time it becomes about 17% – significant, but far from fatal. Below one minute, however, these stales start to seriously threaten the security of the network.

The second issue is one of centralization. Suppose that miners are now organized into mining pools, where one mining pool necessarily has more market share than the others. Suppose this top mining pool has a 25% market share, and its next competitor is at 15%, and the baseline stale rate is 33%. Solo miners have 67% efficiency due to the stale rate. The 15% mining pool, however, itself mines the block 15% of the time, and so starts immediately working on the next block without delay. Hence, the 15% pool’s stale rate is only 33% * 0.85, or 28% – or 72% efficiency. The 25% pool enjoys 75% efficiency. Thus, new miners have an incentive to join the largest pool, making it even more powerful. This effect inevitably leads to large centralized mining pools which, combined with the reduces network security, means that one mining pool will almost certainly have de-facto control over the entire network. With Bitcoin and its 2% stale rate, this is not a significant issue. With Primecoin at 17%, this is a moderate concern. With Quark, this is arguably a fundamental flaw.

One possible solution to the first problem comes from a recent paper by Yonatan Sompolinsky and Aviv Zohar which suggests a way to actually include stale blocks as part of the blockchain; if a new currency integrated this, it may be able to address the security loss potentially down to even below a 10-second block time. However, the solution does not fully address the second concern; if these stale blocks that are part of the chain receive their mining rewards, then the currency becomes much weaker because there is no longer any incentive not to support fraudulent double-spending attacks, and if the stale blocks do not receive their rewards the efficiency centralization issue remains. Perhaps with some compromise, however, 10-30 second block times can be made viable in the future.

Finally, we have the distribution model. 50% of all Quark units were distributed within three weeks, a much steeper distribution curve than Bitcoin or any other cryptocurrency except perhaps Mastercoin and Ripple. Many have come to call his model a de-facto premine, “premine” being the technical term for when a currency is created with a number of units already in the hands of some centralized party. The Quark developers have made a post addressing this concern, saying that their currency is more fairly distributed than any other altcoin, showing that the percentage of all Quark units owned by the top 100 addresses (59%) is actually right in the middle of those of other major cryptocurrencies (cf. Namecoin at 56%, Litecoin at 48% and Peercoin at 64%).

However, this is somewhat misleading; of all of these other currencies, the percentage in question is the percentage out of those coins that are already in circulation. In the case of Litecoin, Peercoin and Namecoin, there are still many millions of currency units left to be distributed – and there is no particular reason why these new currency units should go to the same early adopters who were lucky enough to secure entire percentages of the currency’s money supply earlier in its life cycle. With Quark, the currency will take 100 years for its money supply to expand by 50%, so the 59% is not likely to go down by much any time soon. Ultimately, it is very hard to create a currency with a fair distribution model, and any specific technical approach will likely only last a few months before people with money and resources catch up to it at least to some extent. The only stable approach may be to simply premine it and then give out 0.001% to the first 100000 people that show up with a passport or at least a unique cell phone number.

The concerns that Quark seeks to address – Bitcoin’s slow block times, the unfairness of altcoin distribution and the threat of specialized hardware – are all very valid issues, and Quark’s recent success highlights the importance of these problems. However, Quark in its current state is not the solution. Litecoin and Primecoin are both very valid alternatives that seek to target many of the same goals, and have done so much more successfully. Hopefully, in time an even better cryptocurrency will be developed that will actually have all of the desired properties that we currently want; and ultimately every attempt and even every mistake made along the way is a stepping stone to achieving that goal.

What comes to mind first during the holiday season? Many are interested in purchasing gifts for friends and family members. Yet, there certainly is a need to give to those in need. During Bitcoin Black Friday, the BitGive Foundation successfully raised $4,850 in Bitcoin for the Save The Children’s Philippines Relief Effort directing funds to the Typhoon Haiyan Children’s Relief Fund. Bitcoin is simply the easiest way to send in and process donations to organizations providing relief around the world. BitGive Foundation’s Executive Director, Connie Gallippi put out the following press release:

BITGIVE Foundation – Raises $4,850 for Save the Children

A Charitable Giving Organization of the Bitcoin Community

(Sacramento, CA – December 11, 2013) – The BitGive Foundation, the charitable giving organization of the Bitcoin community, provided its first donation yesterday to Save the Children for their Typhoon Haiyan Children’s Relief Fund. The Foundation raised $4,850, exclusively from the Bitcoin community, as part of Bitcoin Black Friday. BitGive has also worked with event organizers to develop a broader charitable drive as part of Bitcoin Black Friday and involve other charities in the event.  

Founder and Executive Director of BitGive, Connie Gallippi, is very pleased with the progress of the Foundation thus far, which launched earlier this year, and thrilled to see their first donation drive a success. “‘Tis the Season of Giving, and we hope to see more donations to charity in Bitcoins, including BitGive and Save the Children.” The Foundation is running a holiday donation drive ‘Give a Bit this Holiday Season.’

Madeline Finch, Board Member and Secretary of the Foundation says, “We are excited to be entering the world of philanthropy on behalf of the Bitcoin community, and Save the Children’s relief efforts in the Philippines is exactly where we want to see our first donation drive make a big difference.”

To share their vision and continue to educate audiences about Bitcoin and charitable giving, Ms. Gallippi recently presented on the “Positive Social Impact of Bitcoin,” alongside Elizabeth Ploshay of the Bitcoin Foundation Board, at the first annual Latin American Bitcoin Conference in Buenos Aires, Argentina, December 7-8, 2013.  

The BitGive Foundation, launched earlier this year, is a charitable giving organization of the Bitcoin community, whose mission is to provide gifts to environmental and public health causes worldwide. BitGive has received several early donations from Bitcoin mining companies KnCMiner and Butterfly Labs, which have grown ten-fold in value, as well as in-kind donations and services from Perkins Coie, LLP and BitPay, Inc., which also processes Bitcoin donations to charities at no cost.  

More donations in Bitcoin have come in through the easy two-step donation process on their website. The Foundation has a multi-million dollar long-term goal for global giving and is confident that the Bitcoin community will support that bold vision.  

BitGive would appreciate your donation this holiday season. To support the BitGive Foundation, donations are being accepted at: http://bitgivefoundation.org/donate.html

###

Contact:

Connie Gallippi

1-916-625-6BIT

[email protected]

On the tails of the LaBitConf, the first ever Latin American Bitcoin Conference, the Bitcoin Foundation announced the full launch of the International Affiliate Program to foster further development of Bitcoin communities around the world. In addition to opening up an international office in the United Kingdom, the Bitcoin Foundation also took the Bitcoin Association of Australia and the Bitcoin Foundation Canada on as the first two affiliates. The Bitcoin Foundation issued the below press release.

Bitcoin Foundation’s International Affiliate Program ramps up for 2014

Opens international office in the United Kingdom

“Bitcoin is an open source protocol with a global presence. We are experiencing rapid adoption worldwide and are excited to welcome Bitcoin Association of Australia and Bitcoin Foundation Canada as our first two affiliate chapters. In addition, we are engaged in talks with India and Argentina and have received strong interest for collaboration from countries like China, Germany and the Netherlands,” said Jon Matonis. Jon Matonis said, “Strengthening and equipping local Bitcoin communities worldwide is at the core of the foundation’s International Affiliate Program and a priority for 2014. London is one of the most international cities in the world and the foundation will be best positioned to fulfillment of its mission to protect, standardize, and promote the use of Bitcoin worldwide.

WASHINGTON, D.C. (December 12, 2013) – The Bitcoin Foundation announced the launch of its International Affiliate Program today, a commitment to empower local Bitcoin communities around the world, with the opening of its London office, led by Jon Matonis, Executive Director. “It is with great pride and excitement that the Bitcoin Embassy announces that it will host the Bitcoin Foundation’s Canadian chapter. Considering how similar our respective missions are, this is a logical collaborative and strategic partnership. We look forward to pooling our resources and ideas to continue promoting and supporting Bitcoin in Canada,” commented Guillaume Babin-Tremblay, Executive Director, Bitcoin Embassy. Since its founding, the foundation’s membership has grown to over 1,000 members with over 50% from outside the United States. This support has enabled the foundation to build a model infrastructure as well as finance teams and initiatives crucial to Bitcoin’s adoption, all in represent and support the inherently global Bitcoin community from there.”

In the rapidly evolving world of new technology and startups, being the first to execute is key. The London office will provide strategic support as well as a “turnkey operation” and “organizational toolbelt” for countries to quickly and seamlessly establish the necessary infrastructure, credibility, and presence to lead localized educational, media, and outreach efforts. Each affiliate will be governed, led, and managed locally by its own board of directors and team while benefiting from the collaborative relationship and shared resources, connections and support from Bitcoin Foundation’s international office.

“Initiatives like the Bitcoin Foundation’s International Affiliate Program help Bitcoin to expand across the globe at the grassroots level,” said Shakil Khan, founder of CoinDesk, angel investor, and personal advisor to Spotify’s CEO.

Jason Williams, President of Bitcoin Association of Australia’s Board of Directors, agreed, “We share a common goal – the adoption of Bitcoin worldwide. This unification of world-class teams across continents, working in a coordinated and collaborative effort, best positions Bitcoin for success.”

In addition to an international team of core developers, public affairs professionals, and attorneys, the foundation supports a robust quarterly grant program that supports projects that strengthen the core infrastructure in a way that is broadly helpful if not always commercially viable such as Coinpunk. The foundation also provides sponsorship of talented individual developers such as Addy Yeow, creator of Bitnodes, and it hosts the annual Bitcoin conference in different regions of the world. Bitcoin 2014 will be hosted in Amsterdam and

the foundation is a proud sponsor of the International Financial Cryptography Association’s First Bitcoin Technical Workshop held in Barbados next March. The foundation will maintain its U.S. office in Washington, D.C. to focus on U.S. individual and corporate membership, public policy and public relations.

Bitcoin Foundation’s UK office is located in London’s city centre with close proximity to leading financial companies and media outlets.

Follow us at @BTCFoundation for the latest!

ABOUT: The Bitcoin Foundation is a member-driven non-profit organization dedicated to serving the business, technology, government relations, and public affairs needs of the Bitcoin community. The foundation works to protect and standardize the Bitcoin protocol and software, to broaden the use of Bitcoin through public education and by fostering a safe and sane legal and regulatory environment, and to support local Bitcoin efforts by connecting a network of Bitcoin communities worldwide. Think Globally, Act Locally. Join us!

TWITTER @BTCFoundation

CONTACT //

Bitcoin Foundation

Jinyoung Lee Englund Director of Public Affairs

EMAIL [email protected]

CONTACT // Bitcoin Association of Australia

Tristan Winters

EMAIL [email protected]

TWITTER @BitcoinAA

CONTACT // Bitcoin Foundation Canada

Guillaume Babin-Tremblay

EMAIL [email protected]

TWITTER @BTCCanada

This post was released for Issue 14 of Bitcoin Magazine as part of a series of  articles about puzzles and games that started with Issue 12.

This is a short story about how one of my favourite game designs came to life. I hope you enjoy reading it as much as I enjoyed my journey. You can play the game with paper and pencil.

BACKGROUND

Part of my work at the Computing Department of Imperial College London consists in providing real world applications for their findings in Artificial Intelligence research. Such research is focused in developing efficient searching algorithms in order to attack large decision trees.

And what is a decision tree? Suppose a Tic-Tac-Toe game with free opening (playing on the centre square on the first turn is not mandatory). I have 9 possible first moves (I have to decide which one to play). On your turn, you have 8 possible responses for my first move (you have to decide which one you play). Then I have 7 responses on my turn, and so on. If we draw a diagram with all possible moves, it will look like the following figure. Notice the tree structure that is generated. Every node of the tree, where a branch splits into several other branches, is a decision point.

Figure 1: The Tic-Tac-Toe tree (condensed).

Finding the best move in a given turn is a problem. These algorithms try to solve it.

The decision tree for Tic-Tac-Toe is quite small. But the trees for games like Chess or GO are gigantic (the number of different possible games of GO is larger than the number of particles in the universe). When coding an Artificial Intelligence algorithm for playing these types of games, we have to assume that browsing the whole tree is impossible. So we use algorithms that find optimal solutions without searching the whole tree (the best possible solution in a given time), even if they’re not the best moves overall.

The most advanced algorithm uses a very smart mechanism to achieve this. It tests promising moves by playing thousands of game simulations for those moves. This process is called exploitation, and it converges to a solution (optimal or not) over time. But at the same time, it tests other moves just in case it’s missed a potentially better one. This is called exploration, and it diverges from the possible solutions already being tested, in order to find another ones. The algorithm perfectly balances both processes with outstanding results¹·¹.

I’m not a computer scientist, so it took me a bit to understand this mechanism by just reading the code. But being a teacher myself, I know that the best way to understand something, is trying to reword it so you can teach it to a kid. So I took what initially looked like a complex algorithm, and turned it into a simple diagram.

Figure 2: The T-shaped diagram.

This ‘T-shaped’ diagram shows how the algorithm balances both convergent (arrow pointing down) and divergent processes (two-headed arrow on top).

After coming up with this diagram, I realized that this resembles how humans try to solve problems. We use several areas of expertise to attack them (divergent thinking) and at the same time we exploit the most promising ones (convergent thinking). And we do this for every stone we find in our path. Moreover, the more we balance both ways of thinking, the more efficient we became in solving the problem.

SOLVING A PROBLEM: GAME CREATION

When I create games, I’m in fact trying to solve a problem: to design a good game¹·². But when I’m designing a game, I’m not aware of the design process itself. I’m just focused on the game.

That day in 2012, with all this in mind, I was willing to create a tile-laying game¹·³. After spending several weeks trying to exploit a handful of mechanics and components without success, I became self aware of the creative process that I was executing, and realized that something was missing. I was too focused on the exploitation part of the process, while ignoring the exploration part.

As I mentioned above, exploration relates to divergent thinking. In 1967 in order to measure Divergent Thinking, J.P. Guilford developed the Alternative Uses Test. It gives you two minutes to think of as many uses as possible for an everyday object like a chair, a spoon, or a paper clip as you can. A regular person can think of up to 15 different uses for the given object. The more creative you are, the more uses you are likely to think of. But the population group that gives the highest score for the test is… kids!

So I decided to plug a bit of divergence on my design process by asking for help to the most divergent person I’ve ever met: my daughter. She was four at that time.

• Sweetheart, would you like to design a game with daddy?

• Yes, daddy.

• Great! How do you want it to be?

• Look, daddy. We place a sheep here, a wolf here, and a dog in the middle, so the wolf doesn’t eat the sheep. The wolves want to eat the sheep, but the sheep escape from the wolves and the dogs bark the wolves to scare them so they don’t eat sheep.

• !!!

I drew the tile in 5 minutes with some cliparts:

Picture 3: The tile.

… and two days later the game was finished!

SHEEP, DOGS AND WOLVES

Two players (Sheep and Wolf) share a common pool of 23 rectangular tiles like the one in figure 3. Instead of using tiles, you can play with paper and pencil (see below). The ‘sheep’ player must save as many sheep as possible (by placing dogs next to wolves, but keeping the sheep away from them), and the ‘wolf’ player must eat as many sheep as possible (by placing wolves next to sheep but not next to dogs). The game takes place over two rounds. In the first round, one player plays as the sheep, the other as the wolves. In the second round, the roles reverse. Whoever saves more sheep playing the ‘sheep’ role wins the game.

You’ll need a graph paper, a regular pencil and a colour pencil (red, for example).

White circles will represent sheep, red circles will represent dogs and black circles will represent wolves. Draw a tile according to the figure.

Figure 4: Game setup.

Starting with the ‘sheep’ player, players take turns drawing a tile (sheep-dog-wolf²·¹) in any orientation and direction (not diagonal), and touching at least one already drawn tile (corners don’t count as ‘touching’).

Figure 5: Example of game state after Sheep’s first move. Notice how the new tile has been placed vertically pointing upwards.

The game ends when each player has taken 11 turns²·². To get the ‘sheep’ score, do the following, in order:

1. Draw an ‘X’ on each and every wolf that has at least 2 adjacent dogs (corners don’t count). These wolves are ‘scared’ of the dogs and won’t eat sheep²·³.

2. Draw an ‘X’ on each and every sheep that is adjacent at least to one wolf that is not scared of the dogs. These sheep have been eaten by the wolves.

3. Count the remaining sheep (the ones with no X’s on them), which are ‘safe’. This is the ‘sheep’ score.

Figure 6: Example of endgame. Sheep scores 11 points.

 THE CHALLENGES

Challenge 1: Find the best move for the wolf player.

Figure 7: Challenge 1.

Challenge 2: Find the best move for the sheep player.

Figure 8: Challenge 2.

Challenge 3: How many tiles can you fit into a 7×7 grid so that no 2 dogs are placed next to each other (touching) and the ‘sheep’ score is maximum?

Please post your answers in my forum:

http://nestorgames.freeforums.org/bitcoin-magazine-puzzles-f16.html

… and I will reward the best post with a copy of one of my games. I’m looking forward to discussing your findings. Thank you for reading!

You might also enjoy my previous posts:

– Bitcoinstellations

– Rise of the machines

———————————————————————————–

1.1 It uses the mechanism for all moves of all game simulations of every move, through an iterative process.

1.2 I’m not saying that I’ve solved it yet, I just say that I’m trying!

1.3 A tile-laying game is a game where players take turns placing tiles on the playing surface. A popular example is Dominoes.

2.1 You cannot alter the order of the 3 animals. The dog has to be always in the middle. This is, Dog-Sheep-Wolf is forbidden, for example.

2.2 You can play more or less turns upon agreement.

2.3 The X’s may be drawn during play (to add some clarity).

The growth of Bitcoin over the past four years, together with the recent storm of political revelations on the part of organizations like Wikileaks and Edward Snowden, has brought a renewed interest into developing and promoting the mass adoption of consumer-grade cryptographic technologies. Bitcoin was arguably the first of the trend, giving the user full control over their funds with no trusted third parties whatsoever, and encryption and decryption done on the client side. Since then, we have seen encrypted email replacements like BitMessage, blockchain-based identity systems like Namecoin and even entire encrypted social networks such as Diaspora and tent.io. At the same time, we have seen a trend in making Bitcoin wallets easier to use – first, we had the bulky desktop client Bitcoin-Qt, but more recently we have seen the lightweight desktop client Electrum, numerous mobile phone clients and even in-browser wallets like blockchain.info. Now, however, Kryptokit, a new project released by Anthony Di Iorio and Steve Dakh seeks to combine both trends and take them to the next level.

Enter Kryptokit

The part of KryptoKit that shows itself to the user at first is perhaps of more immediate practical interest to Bitcoin users: the Bitcoin wallet. KryptoKit takes the idea of blockchain.info’s wallet, which comes packaged as a Chrome and Firefox extension, and pushes it one step further – with Kryptokit, in order to use the wallet you do not even need to open a new tab. Instead, the interface simply exposes itself as a popup from the top right corner of the browser window, allowing users to send and receive bitcoins directly from whatever page they happen to be browsing. In fact, KryptoKit goes even further – every time you go to a new page, the wallet processes the page, captures every Bitcoin address it can find, and lists all of the addresses at the top of the interface. You can then click on any of the addresses in the list to automatically select it.

This is not the first time Di Iorio and Dakh have developed a Bitcoin wallet. Over the past six months, the two have spent a considerable amount of time on another project: RushWallet, an online Bitcoin wallet that has no usernames and passwords. Instead of using usernames and passwords for security, each individual RushWallet account is identifies by a “secret URL”, where the URL itself contains all of the information needed to generate the wallet’s address and private key. This core idea behind RushWallet was not new; a similar “secret URL” based wallet known as InstaWallet had existed since 2011. However, Instawallet faced two major problems, which ultimately proved to be its undoing. First, the funds were stored server-side, rendering all users’ funds vulnerable if the server was hacked. Second, when the user would enter their unique wallet URL in the browser, the URL would naturally go to the server as part of the HTTP request to retrieve the webpage. This information would then, as happens by default, be kept in a server log file. In April 2013, as it turns out, InstaWallet’s server was hacked. Fortunately, the attacker was unable to seize the funds directly, but they did manage to retrieve many URLs from the server’s database, allowing them to immediately proceed to empty a large number of compromised accounts. InstaWallet was quickly taken offline and would never come back.

RushWallet fixes both of these problems. In RushWallet, the funds are stored client side – part of the URL is the seed for the private key, and the Bitcoin cryptography is done using Javascript code executed inside the browser. The part of the URL that stores the seed in Rushwallet is the “hash” – the part after the number sign. For example, if the URL is http://rushwallet.com/#Hq23BbGtL9Nwu4BARbciZ2bAVBpWVrP8QuemfQQrt1kUyCoy5G, the hash is Hq23BbGtL9Nwu4BARbciZ2bAVBpWVrP8QuemfQQrt1kUyCoy5G. Because of the way HTTP was designed, the hash part of the URL actually never goes to the server, so aside from quietly and deliberately inserting malicious Javascript code into the application RushWallet itself has no way of accessing the funds. And it worked. “Secret URLs are a proven system,” Di Iorio writes, “and we never had any issues with it.”

Seeing RushWallet’s initial success, Dakh decided that it was time to take the project a step further. “Just a couple weeks ago,” Di Iorio relates, “[Dakh] messaged me that he was working on something new. It turned out to be a Chrome extension. At first it was a frontend with blockchain.info, but then we incorporated RushWallet and it works perfectly now. Deposits and withdrawals are instant, the secure URL system is trustworthy and it works properly.” The wallet is very easy to set up; when a user first loads the wallet, they can securely create a new private key by moving their mouse around to generate random data, although they can also import a brainwallet if they so choose. From there, the wallet simply functions as any other ordinary Bitcoin wallet would. The security model works just like Rushwallet; “credentials are stored client-side, so nothing goes to the servers,” Di Iorio says. And now, after weeks of development and testing, Di Iorio and Dakh are ready to finally release their wallet to the public.

“Enkrypted” Messaging

However, despite its unprecedented ease of use, the wallet is arguably not even the most impressive part of Kryptokit. That honor goes to the other tab of the extension: the encrypted messaging interface. The messaging interface is based on GPG, a popular open-source implementation of the original PGP protocol invented by Paul Zimmerman in 1991, which is still the gold standard of secure email today. KryptoKit functions as a fully self-contained GPG platform, allowing users to create new GPG keys inside the interface, but one can also import an existing key from other PGP/GPG applications such as Enigmail.

Once a user has a private key inside KryptoKit, the user can then ask their friends for their public keys, and load the public keys into KryptoKit. Once two users have each other’s public keys and their own private keys loaded into KryptoKit, they can encrypt messages for each other, and send the encrypted messages through the application. The encryption is handled seamlessly; once KryptoKit is set up, all that a user needs to do is write the message, select the recipient, enter their password and click “Send”. The recipient will then immediately see a notification that they have a new message, and will be able to view it, entering their password to unlock their private key so they can decrypt the message. The decryption, once again, is seamless; once the recipient clicks “View message” and enters their password, they will simply see the message appear in unencrypted form in a popup.

Aside from perhaps the unfamiliar aspect of users needing to ask their friends for a public key, KryptoKit offers what is literally the simplest possible interface for GPG encrypted messaging that one can create. Users need to enter their password to send and receive messages, but aside from that all of the cryptography is handled automatically inside the application. In theory, applications like Enigmail, a plugin that seamlessly integrates GPG encrypted email into the popular desktop mail client Thunderbird, have existed for years; in practice however, fewer and fewer people use desktop mail clients every year, and the ease of use of simply installing a browser extension and having everything “just work” is unprecedented. Even among users who do not care about encryption, the concept of having a messaging app in the top right corner of their own web browser is by itself a powerful feature, so KryptoKit has a serious potential to take off even among less technical users to a much greater extent than previous applications like Enigmail.

One possible suggestion for KryptoKit to target the non-technical market even further is to improve the one aspect of the application that is still unintuitive: the key management. Ideally, KryptoKit would include an interface to public key servers such as those at Maiz and MIT, and perhaps even the decentralized key server that is the Namecoin network, so that users can simply search for their friends’ names inside of the application and have the public key downloaded from the key server and imported into KryptoKit automatically. The app would also, of course, provide the opposite functionality – allowing users to upload their keys to Mainz and MIT’s keyservers from inside the application. At that point, KryptoKit may even choose to remove all references to “encrypted” inside the application – it would simply be a messaging app that requires a password, and the key management would be in the background, accessible to those advanced users who are interested in working with the lower-level cryptographic details, and otherwise simply serving as a passive reassurance that the messaging is secure.

There are also plenty of other directions in which KryptoKit can go much further, and the developers themselves have stated that many of these improvements are already planned for future versions of the software. The first obvious next step is to offer, in addition to its current email-style messaging platform, a chat interface, perhaps using the OTR protocol instead of plain GPG. OTR has the advantage that it is possible to send a message “off the record” (hence the name) – although the recipient certainly can copy the sender’s message and paste it to whoever they want, the protocol is designed in such a way that the recipient will not be able to prove to anyone else that it was the sender who sent the message. From there, other forms of communication are also feasible; voice and video communication is perhaps next in line. Finally, the last step would be to include a fully fledged social network, that would also serve as a decentralized marketplace with a functioning reputation system. Altogether, Di Iorio summarizes, “you [would] have a social network that is secure and encrypted and is also a payment mechanism, all in a file less than 1 MB”.

In the near term, however, there are also other, more general, priorities that Di Iorio intends to address. “The next step is to put the community behind this,” Di Iorio explains. “We could put bounties for people to either add functionality or put $10000 behind some private key [as a challenge to locate security vulnerabilities].” For monetization, Di Iorio reassures users that he will definitely keep the app free. “It’s about getting numbers and people using it,” Di Iorio explains. Instead, he says, “we could localize an ad spot at the bottom of the extension. If you’re in Canada, it would be a link to CaVirtex, or localbitcoins. If we were to do it that way, we would actually be adding value in the ads.”

And his claim is correct; given that the GPG feature of KryptoKit by itself will be enough to attract many users, the app may well introduce new users to Bitcoin, and they would benefit from having an easy link to a local exchange where they can buy bitcoins. But even without any of these features, KryptoKit is here, now. It offers a highly user-friendly and efficient Bitcoin wallet, and its messaging app can be set up within minutes. If you already use encrypted email, you can even import all of your friends’ public keys right away. If either of these features interest you, you should consider downloading KryptoKit and starting to use it today.

One of the commonly cited problems that many people see with Bitcoin as a payment method is the fact that all transactions are final and irreversible. With credit cards, if you buy something but never receive the product, you can issue a chargeback to recover your funds potentially weeks after the transaction. With Bitcoin, on the other hand, no such option exists. Of course, in many cases the lack of chargebacks in Bitcoin is actualy an advantage; in transactions where the two parties have an established relationship, or one party is a reputable business, the possibility for any kind of fraud on the merchant’s side is quite low, and the lack of an institution to mediate chargebacks is what allows Bitcoin to avoid the high fees charged by credit cards and Paypal. But nevertheless, there are definitely many industries in which the level of consumer protection that credit cards offer is very useful – and, so far, in those cases Bitcoin has had little to offer. Now, however, Bitrated is positioning itself to be the first mainstream Bitcoin service to change that fact.

Bitrated’s solution to consumer protection is in some ways an old one: escrow. Rather than a customer sending a payment to a merchant directly, the customer sends the payment into escrow, and the funds are released from escrow only when the customer confirms that they received the product or service. However, Bitrated makes one major addition to the model: multisignature transactions. Rather than the customer sending money directly to a trusted escrow agent, the customer sends the money to what is called a “2-of-3 multisignature address” constructed using the customer, merchant and escrow agent’s public keys. The mechanics behind a 2-of-3 address are exactly what one might guess from the name: funds sent to this address can only be spent with the cooperation of any two of the three parties.

The process for making an escrow transaction in Bitrated works roughly as follows:

1. Suppose that Alice wants to send money to Bob through escrow. To start off, Alice goes to the Bitrated website and goes to “Browse arbitrators”. She then selects an escrow agent (say, Trent) and clicks “Start transaction”.
2. Alice pastes the conditions of the transaction (eg. “in exchange for the 0.5 BTC, Bob ([email protected]) agrees to send Alice ([email protected]) a new Samsung Galaxy S4 smartphone, still in the box and undamaged”; for actual escrows, Bitrated offers a helpful page listing important details to include in the contract). She clicks “start”,
3. The Bitrated interface provides Alice with a link. Alice sends this link over to Bob, and Bob opens the link in his web browser, and accepts the contract.
4. At this point, the Bitrated interface generates the 2-of-3 multisignature address between Alice, Bob ad Trent (because only Trent’s public key is required to make such an address, this can be done without Trent’s participation). Alice sends funds to the address, and after one confirmation (usually 0-15 minutes) Bob sees that the funds are in escrow.
5. When Alice wants to release the funds, she enters Bob’s address and an amount to release, and clicks “release”. The interface creates a transaction sending the specified amount to Bob’s address, and signs it with Alice’s private key.
6. Bob sees a pending transaction in his interface, and he clicks on it to inspect it. Seeing that the transaction is sending funds to his address, he clicks “approve”. The interface signs the transaction with Bob’s private key and the transaction is published, completing the transfer.

If Alice and Bob have a dispute, at the bottom of the page the interface presents a link which either of the two can send to Trent. At that point, Trent will contact Alice and Bob to gather evidence from both of them, and adjudicate the dispute. If he rules in favor of Alice, he will construct a transaction sending the funds to Alice’s address and sign it. Alice will then need to approve the transaction, at which point she will have her funds back. If Trent rules in favor of Bob, the same process occurs between him and Bob.

What are the advantages of this multisignature escrow process? There are three main factors to consider. First, in all cases where there is no dispute Trent is not involved at all. As a result, nearly all transactions will have no fee. If Trent gets involved, he will likely charge a fee, but the fact that fees are charged only when the escrow agent is actually brought in ensures that the system is paid for primarily by the very same people who make the heaviest use of it – a drastic change from the credit card system, where the fallout from fraud is evenly spread across everyone in the form of a 2.9% fee charged to every merchant and ultimately passed on to every consumer, regardless of how much due diligence each individual consumer does to deal with reputable merchants. Second, even if Alice and Bob bitterly disagree over whether or not Bob adequately fulfilled the conditions to receive the payment, if they both agree that Trent is doing a bad job of adjudicating, or is charging excessive fees, the two can sign a transaction together to send the funds directly into another escrow with another escrow agent. Finally, Trent himself has no opportunity to run away with the funds. In theory, Trent can conspire with Alice to split the funds fifty-fifty and leave Bob with nothing, but such a situation would require two of the three parties involved to be dishonest, rather than only one.

If multisignature escrow is so attractive, why has it not been done before? The answer is, of course, that it has been done; the tools to do so have existed since 2012, and are now available in the form of moderately easy-to-use command line tools such as sx and my own pybtctool. Bitrated innovates over such cruder “do-it-yourself” escrow solutions in several places. First, the service is very easy to use. Anyone can understand how to use Bitrated even if they have no idea how multisignature transactions or public and private keys work. And for those users who are more advanced, Bitrated provides the option for users to add their own public key instead of having one generated for them by the service.

Second, the service is very well-designed from a security standpoint; although Javascript web applications do have some inherent weaknesses, with the exception of those flaws (which can also be avoided if Bitrated chooses to release a version of their service as a Chrome extension rather than a website) Bitrated appears to be doing everything right. Bitrated itself keeps no data on its server; all of the information associated with any particular escrow transaction is stored in Alice or Bob’s URL. Here’s one example of what Bob’s URL looks like:

https://www.bitrated.com/tx.html#DO-NOT-SHARE=&alice=A0Wt4mpYCsUGk3Hj5ltGy3OAs
6%2Fp48k%2B7mmX9xIP4fm3&trent=AwiltCrGDPdhQSCXAeBPa3bcuRhTYb0iU%2F%2B5KIcvKHJG
&terms=SnVzdCBhc3N1bWUgdGhhdCB0aGUgc2Vjb25kIHBhcnR5IGlzIHJpZ2h0IGluIHRoZSBldmV
udCBvZiBhIGRpc3B1dGUu&proof=H96yEdTbcRxpfKdkGAf7C8B7%2FKHJm1Fx7c%2FzrOgKfHPoLq
6WVISJQgwZFJo5d9WXrd9wdbKhEY%2FdFjbji6YYROs%3D&bob_priv=c9F6LSfqy9MA9dD%2FHb3o
HqCisGYpsSR3M6btuS0RrvcB

The first thing that we see is that most of the data is hidden behind a “hashtag” (a technical term for a number sign). This is an idea originally conceived by the creators of RushWallet, an online “instant wallet” service requiring no username or password. The reasoning behind this choice is that the data behind the hashtag is actually not sent to the server, meaning that the server learns almost nothing about any of the transactions that take place over its site. Right now, the server does see partially signed transactions, but in future versions even that data transfer would be encrypted. Then, we see five parameters: “alice”, “trent”, “terms”, “proof”, “bob-priv”, each with a value that is made up of around fifty letters and numbers. All five of these parameters are base64 encodings; the value of the “alice” parameter represents Alice’s public key, the “trent” parameter Trent’s public key, “terms” the terms, “proof” a signature of the terms by Alice (proving that the terms were not modified in transit) and “bob_priv” Bob’s private key. Alice has a similar URL but with her private key and a signature from Bob instead of herself. Thus, even if BitRated shuts down, Alice and Bob can still decode their URLs and, perhaps with the help of a more technical user, get their funds out.

One area where Bitrated is still lacking, however, is in the choice of escrow agents. The escrow agent list is essentially unmoderated, and although a sort of reputation system is present it is still difficult to determine how trustworthy an escrow agent is. A partnership with professional escrow agents that are vetted by Bitrated may improve the service in the short term, especially if Bitrated intends to target those users who are not yet used to the concept of evaluating and choosing their own escrow agents. Bitrated’s current architecture also presents a problem on the escrow agent’s side: escrow agents have no way of filtering escrows. In fact, it is technically possible to use literally anyone who has ever sent a Bitcoin transaction as an escrow agent without their permission. On the one hand, this does make life easier for Alice and Bob – Alice does not need to wait for her escrow transaction to be approved before sending the funds. On the other hand, many escrow agents will likely want to set restrictions on the kinds of deals that they adjudicate – perhaps even limiting deals to a few standard transaction types. Although escrow agents can certainly simply state their policies on their webpage and refuse to even look at arbitration requests from noncompliant escrows, the service could be improved by creating a more explicit interface for escrow agents to set their policies.

What is the future of Bitrated going to be? At this point, Bitrated is still limited in scope; the service as it stands is designed only for person-to-person transactions with an active participant at each end. One possible next step that Bitrated may wish to target is facilitating semi-automated transactions such as e-commerce setups. If Bitrated is correctly set up to deal with such transactions, online e-commerce startups should be able to “plug in” to third party arbitration with minimal effort. All they would need to do is show the customer a multisignature address instead of their address, and provide an interface for the customer to confirm that they received a given product. If Bitrated reaches that stage, then multisignature arbitration may well become a mainstream, low-cost alternative to traditional credit card transactions with chargebacks. Such a system would protect the merchant and the customer, and if a given merchant always delivers what they promise and never gets into a dispute the fees on both sides would be quite low. The future of consumer protection with cryptocurrency is only just beginning.

After the recent regulatory announcement on the part of the People’s Bank of China, the Bitcoin markets and many in the Chinese Bitcoin community have been in a state of panic. Although the day after the event was relatively calm in the Western world, with Bitcoin markets dropping only by 10% and the Bitcoin reddit covered with threads reassuring readers that the announcement was a positive for BItcoin. In China, however, the price immediately crashed by 25%. The next day, however, Baidu Jiasule and China Telecom stopped accepting Bitcoin, and the mood rapidly began to turn sour. Bitcoin markets on both sides were in disarray, both crashing by about 50% from the pre-announcement highs over the course of twelve hours before making a partial recovery. Now that the initial shock of the news is over, what is going to happen next? Exactly how will the Chinese Bitcoin community react from here, and what are the consequences going to be in the medium to long term?

First, it is important to note what the immediate causes of the price crash were. Although no one has access to an alternate universe simulator, and so we can never truly know what would have happened had certain events gone differently, certain facts about the Bitcoin economy allow us to make solid educated guesses. First of all, the bulk of the rise from $125 to $1000 was backed by Chinese speculation. Evidence that China was “leading the rally” is plentiful, ranging from technical analysis on price movements around the time when Bitcoin broke through the 165 USD / 1000 CNY level, to BitcoinQt download statistics showing China climbing up to (and, as of the time of this writing, staying at) first place in the number of downloads, and the rapid growth of volume in Chinese exchanges, culminating in BTCChina taking over first place. The trigger that many felt was the true turning point that started the rapid rise, however, was Baidu Jiasule, a subsidiary of Baidu, accepting Bitcoin for its services. Soon after that, China Telecom, a state-owned telecommunications company that is the second largest in the industry in China, also started accepting Bitcoin for reservations of their latest Samsung phone. These two companies, the so-called “Chinese Google” on the one hand and a state-owned telecommunications company on the other, were seen as by far the largest endorsement of Bitcoin that has ever happened to date. And now, in the span of a few hours, they are both gone.

In reality, however, the influence of both companies has always been overhyped. The Baidu announcement was not “Baidu accepting Bitcoin” to anything close to the extent to which, say, Namecheap accepts Bitcoin for its entire array of products and services. Rather, Baidu Jiasule is only one small subsidiary of Baidu. In fact, the company received very few actual customers – the 1.37 BTC that the company did receive was the product of Western Bitcoin users sending Baidu donations to show support. Similarly, in the case of China Telecom, China Telecom was not accepting Bitcoin for its telecom services; it was only taking it for pre-orders of the latest Samsung phone. The Chinese economy is much more organizationally centralized on both a government and corporate level, but what many do not understand the system to some extent naturally compensates for this to a partial extent by giving individual corporate divisions and local governments considerably more independence. Although Baidu Jiasule almost certainly did get approval from Baidu’s management before taking Bitcoin, neither Baidu mangement nor Baidu Jiasule ever intended for the announcement to be anything close to a company-wide endorsement. Now, the portion of the Bitcoin bubble that relied on this mistaken assumption can be officially considered to be popped.

What About the Regulations?

The public opinion on the first day after the news, when Baidu Jiasule and China Telecom had not yet stopped accepting Bitcoin and much of the reaction was still positive, was arguably the more correct viewpoint. Most Chinese Bitcoin users active on the forums and various semi-private channels interpreted the news in a cautiously positive manner, although the markets clearly acknowledged that the announcement is putting a brake on Bitcoin’s prospects in the very short term. In order to understand why the news is positive, however, one must understand what is going on in more detail both by itself, and in the context of the Chinese regulatory strategy as a whole.

The regulatory announcement had five parts, of which the first two were the most important. First, Bitcoin is classified as a commodity, not a currency, meaning that Bitcoin exchanges do not need to register under currency trading regulations. Second, “financial institutions and payment institution” are forbidden from buying and selling bitcoins or offering Bitcoin-related products and services. The category of “financial institutions and payment institutions” is a restrictive one – essentially, it only includes banks and perhaps the Chinese equivelents of Visa, Mastercard and Paypal. Bitcoin exchanges are still free and clear to operate. This is made more clear by another section of the announcement, requiring exchanges to register with telecommunications authorities – why would the Chinese government require exchanges to register with anyone, if exchanges are not even allowed to exist?

Joseph Wang, who describes himself as an “Ex-VP Quant [at a] Big Investment Bank”, writes the following opinion on Quora:

The PBC has basically given the green light for bitcoin trading and exchanges. They are trying to keep bitcoin trading “separate” from the other parts of the financial system so that if bitcoin blows up, then nothing bad will happen. The thing that I think they are worried about is a Lehman style situation in which something blowing up in derivatives brings down the rest of the economy.

Three months ago, the situation in China was simultaneously much more calm and unclear. Although it was evident that Chinese interest in Bitcoin was present, and growing, the Chinese government was remaining silent on the matter, and no one was certain whether the silence should be interpreted positively or negatively. Some believed that the Chinese government had basically quietly given the Bitcoin economy the green light; others argues that the government was simply “institutionally unaware” of Bitcoin’s presence, and if Bitcoin were to grow to any significant extent they would eventually clamp down hard. I personally was in the former camp, and even argued that the Chinese government was moving to establish Bitcoin as a sort of “special economic zone”.

China’s special economic zone (SEZ) program was first created in the early 1980s as part of China’s economic modernization initiative, creating specific locations with business-friendly policies in order to attract foreign investment, as well as experiment with different ways of increasing economic freedom so as to determine which policies would be best to expand to China as a whole. The idea would satisfy the more conservative elements of the Chinese government, which wanted to exercise the precautionary principle and keep the bulk of the country under tight control, but would also allow a high degree of freedom to those industries that needed it. The result has been an interesting one; although mainland China remains heavily controlled by the Chinese government, the various special economic zones, and especially semi-independent territories like Hong Kong, have come to be economically favorable jurisdictions even by the standards of the west. The idea has its parallels in Western thought, with the recent statement by Larry Page that he wanted to “set aside a part of the world” for unregulated experimentation, and to an even greater extent with the recently popular concept of seasteading.

And now, with the People’s Bank of China’s announcement, the establishment of Bitcoin as yet another one of these areas – the first ever that only exists in cyberspace, has essentially become official. The announcement specifically forbade the existing Chinese banking system from interacting with the Bitcoin economy, but otherwise created an environment for the Bitcoin economy that some have described as even more free than that of Europe. Although exchanges are required to follow know-your-customer guidelines and register with telecommunications authorities, aside from this they do not need any kind of financial license in order to operate. The Bitcoin economy will be allowed to grow, and businesses related to Bitcoin mining, trading and using Bitcoin as a payment mechanism – provided that prices are not set in BTC – will be allowed to continue to exist and prosper.

In fact, for those advocates of Bitcoin who appreciate it for its community aspects and because it has no connections to the existing financial system, this is even positive news, as the Bitcoin economy will be growing on its own without being rapidly “taken over” by the banking sector. In the short term, this may not be positive for Bitcoin’s price, as multi-billion-dollar speculators and hedge funds inside of China will not be able to participate in the Bitcoin economy through instruments like the Exante Bitcoin fund or SecondMarket’s offering in the United States. In the long term, however, if Bitcoin continues to grow, the Chinese government will undoubtedly allow Bitcoin to interface with the mainstream financial system in due time – that is, of course, if Bitcoin and other more powerful crypto-financial networks do not outright replace it.

El Passion (http://www.elpassion.com), a small web design and mobile application development company with 23 employees based in Warsaw, Poland apparently has a passion for Bitcoin.

In July of 2013 they became the first company in Warsaw to accept BTC. They gave a presentation and then in August staged the first Bitcoin party in Warsaw, having convinced a local bar to host the event. No word on whether the tavern accepted BTC for beer, but the attendees had fun slapping QR code stickers for the waitresses’ tips where every guy was sure to look. It’s unclear how many actual tips were paid that way, but it gave a good excuse for up-close scanning of big breasts.

In October they gave a Bitcoin mining workshop, and now El Passion has expressed its love for Bitcoin once again by becoming the first company in Poland to offer its employees their salaries paid in Bitcoin. According to their press release, they paid “most” of their November payroll in BTC, but again, no word on what the acceptance rate was among the employees*. At least one, Andrej Shevchenko, says he took 100% in BTC, though “most of the salaries were paid in part in Bitcoin.”

“Open source is a big part of our company culture, so sending bitcoins peer-to-peer is a logical step forward for us,” El Passion said in a recent statement.

###

* El Passion sent this update “15 out of 26 people declared they want at least some of their salaries in BTC.“

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

The document, translated into English on Reddit, has five sections, of which the first two are most interesting:

1. Correct understanding of the properties of Bitcoin. Bitcoin has four main features: lack of geographical restrictions, anonymity, no central issuer and a limited supply. Although Bitcoin is referred to as a “currency”, it is not issued by a monetary authority and does not have the legal tender status of a currency, so it is not at all money in the true sense. Bitcoin should be a specific virtual commodity, and does not have the legal status of a monetary equivalent.

2. Financial institutions and payment institutions cannot develop Bitcoin-related services. At the present stage, financial institutions and payment institutions may not set a fixed price in Bitcoin for products or services, act as a central counterparty for trading Bitcoin, underwrite insurance related to Bitcoin, directly or indirectly provide other services related to bitcoin, including registration, transaction, clearing and settlement services, issuing Bitcoin-related financial services, or using Bitcoin in investment trusts and funds.

The next three sections are also important, but more mundane. The third section requires Bitcoin sites to register with the telecommunications regulatory authorities, the fourth section clarifies that Bitcoin sites are expected to have anti-money-laundering policies similar to those demanded of US and European exchanges, and finally the last section emphasizes that Bitcoin businesses should help promote the “correct understanding of virtual commodities and currencies, rational investment, control of investment risk and protection of financial safety” and “guide the public to establish a correct conception of money and investment”.

So Is This Good or Bad?

The second section appears to be by far the most damning at first glance; if interpreted incorrectly, it may seem to essentially state that Bitcoin trading and offering products and services in exchange for Bitcoin is illegal entirely. However, in reality the restriction is much weaker than it seems; although the restriction does prohibit nearly all Bitcoin-related activity except perhaps trivial services like offering a Bitcoin price chart, it only applies to “financial institutions and payment institutions” – essentially, Chinese banks and perhaps also services like Alipay, the Chinese equivalent of Paypal.

Thus, investment funds like the SecondMarket fund in the United States, or the proposed Winklevoss offering, which have been seeing significant attention and interest on the part of US-based Bitcoin investors, are most likely out. Direct banking integration similar to the deal between bitcoin.de and Fidor Bank will also be impossible, at least for the time being. Bitcoin exchanges, on the other hand, will be able to continue operating, since Bitcoin exchanges are not “financial institutions” or “payment institutions”, and most of them will not need to make any substantial changes to the way that their businesses operate. The fact that exchanges are not included as financial or payment institutions has been confirmed as the most probable interpretation by several Chinese Bitcoin users, and is the arguably the only interpretation that makes sense – otherwise, why would the People’s Bank write that Chinese Bitcoin exchanges are not allowed to operate in one section and then state that they are required to register with telecommunication authorities in another section? Whether or not a Chinese Bitcoin exchange will be able to offer a payment service like BitPay, however, is still an open question, and one which Chinese Bitcoin users are actively researching.

The first section, clarifying the regulatory status of Bitcoin, is even more favorable. Because Bitcoin is now officially classified as a virtual commodity, and not money, a large class of financial regulation now simply does not apply to Bitcoin businesses. “If Btc is considered money at current stage, all exchanges [would have to] gain their license to continue,” 8BTC’s James Choi explains. “The financial license is very hard to get.” But since Bitcoin is not classified as money, “they don’t need the license.” Bitcoin exchanges will still be regulated as telecommunications services, but they will not need to endure anything close to the sort of heavy financial regulatory burden borne by exchanges in the US.

On the other hand, being classified as a virtual commodity does leave open one potential worry: are Bitcoin trades covered by China’s 17% sales tax? Fortunately, there are several considerations in the Chinese Bitcoin community’s favor. First of all, China’s sales tax is a value added tax, so in theory, if someone can show that they bought bitcoins at one price and then sold at another price, they would only be required to pay tax on the difference. Second, the tax affects only those individuals and institutions that are actually directly engaged in buying and selling bitcoins, and if Chinese Bitcoin exchanges only act as intermediaries and do not buy and sell bitcoins themselves they will likely be in the clear – although, of course, they will be required to pay corporate tax on the profits. The situation is similar in the Chinese stock markets – although, in theory, investors are required to pay capital gains tax on their earnings, in practice many do not, and tax enforcement generally focuses on making sure that exchanges and brokers pay their dues.

The Bitcoin price dropped by over 20% when the news first broke, but has since quickly recovered over half of the drop. For many people, this report has certainly been a reality shock, as a significant number of Bitcoin users perhaps naively saw China’s initial acceptance of Bitcoin as a sign that the Chinese government was positioning itself as a progressive bastion of freedom that would not try to impose any regulation on Bitcoin exchanges at all. From a more realistic standpoint, however, the news is nothing but positive. The regulatory uncertainty that existed earlier has been substituted with a definite regulatory framework, and one which imposes a regulatory burden on Bitcoin exchanges themselves much lighter than that in the United States, and perhaps comparable to that in Europe.

Direct integration with Chinese banks will not happen yet, but in practice this may well simply mean that the Chinese Bitcoin community will have more time to evolve on its own without being rapidly taken over by the professional banking sector. Bitcoin exchanges can now move forward without fear that Bitcoin or even Bitcoin exchange will be banned outright. Finally, the Chinese Bitcoin community may see a glimmer of hope for Bitcoin in the opening words of the second section of the regulatory report: “at the present stage”. We can only wait and see what the next stages of Bitcoin’s growth will bring.

Bitcoin is changing the way we think about money and transactions, and during its brief existence has changed the way not only businesses operate, but has also been instrumental in setting new standards for charities. The cryptocurrency gets a bad rap as being a tool of drug dealers or other unsavory criminal elements, but it has changed thousands of lives through its application in unconventional charities (recently dubbed “Bitcoin charities.”) These charities shatter preconceptions of what a deflationary currency can be used for and how aid gets directly to those in need. Bitcoin charities run more efficiently, help the individuals assisted be more self-sufficient, and avoids the high fees and inconvenience of payment systems such as PayPal.

Sean’s Outpost, Bitcoin Not Bombs, and Fr33 Aid have used Bitcoin to feed, clothe, and medically aid those in need on the local and global levels. Accepting Bitcoin makes for swift confirmation times that allow charities to get the funds they need immediately so they can get to work efficiently. These Bitcoin charities are also thorough about documentation, something mainstream charities will need to adopt if they want to survive in the emerging crypto-economy.

It’s easy to straw man cryptocurrencies as currency for criminals, but there’s a growing narrative that it is not only being used to help people, but vastly outpaces older forms of aid. When the City of Pensacola discussed outlawing homelessness in an attempt to hide growing poverty, a man named Jason King reacted by setting up Sean’s Outpost, a Bitcoin funded homeless outreach charity. The ordinance eventually passed. When Bitcoin reached $50 in February of 2013 and speculation over its value increased, King cut to the heart of the matter.

“Hey, obviously this is a very interesting time to be in Bitcoin right now, but if you guys want to argue over whether this is reality or not, one Bitcoin will feed over 40 homeless people in Pensacola right now,” King said. “If you guys want proof Bitcoin is real, send them to me, I’ll cash them out and feed homeless people.”

And then he did exactly that; the operation has since expanded and has provided over 20,000 meals for the homeless in the region. Sean’s Outpost has built a reputation for being one of the most well documented Bitcoin charities, posting pictures of the meals and projects fueled by Bitcoin.

Additionally, through Bitcoin donations only, King bought nine acres of property named Satoshi Forest that will be converted into a permaculture, alternative energy based homeless sanctuary. While officials try to hide the problems the city is facing, King and the activists at Sean’s Outpost have shown that issues of poverty can be solved through direct action and the generosity of Bitcoin users.

Bitcoin Not Bombs, another Bitcoin nonprofit which helps start-ups accept Bitcoin, has used Bitcoin donations to clothe hundreds of people in California. Through their Hoodie the Homeless campaign, people could donate Bitcoin for hoodies that would be given to those facing harsh winter conditions. There was a tremendous outpouring of support and Bitcoin Not Bombs made sure to get footage of where the Bitcoin donations went so you were absolutely sure that your Bitcoin clothed people in need and didn’t line the pockets of CEOs. Davi Barker, the Campaign Navigator of Bitcoin Not Bombs made an excellent point in his article about the project.

“One man in particular sticks out in my mind,” Barker wrote. “His name was Doug, and although he’d never heard of it, the design of the hoodie interested him. After a brief explanation of what the digital currency was, his eyes lit up as he realized the potential. Of particular interest to him was the ability to manage an account from a smart phone, giving financial freedom to those who cannot open legacy bank accounts. Some of the advantages of Bitcoin for homeless people are obvious. A major problem homeless people face is robbery. Having no home means having no security, which means it’s difficult to ever accumulate enough wealth to change their conditions. Bitcoin is uniquely difficult to physically steal.

Bitcoin not only helps charities reach individuals more easily, but also empowers them with control over their wealth. Homeless populations face unique circumstances and greatly benefit from using a currency that provides additional security and flexibility.

The effectiveness of Bitcoin charities in addressing the needs of individuals is not limited to local cities or regions, though. Fr33 Aid, an educational organization that does outreach about medical aid and is run by volunteers skilled in the medical profession, used Bitcoin donations to get aid to those affected by the recent typhoon in the Philippines. They fed and cared for thousands of Filipinos, and photographed their work so that donors could see their donations in action. The campaign is still active and can be donated to, and more people globally are seeing the need for wider acceptance and implementation of Bitcoin.

Bitcoin also solves the problems faced by smaller charities when it comes to processing fees. Teresa Warmke of Fr33 Aid ran into hurdles using PayPal to get funds to the Philippines. While Bitcoin is still on the verge of breaking into the mainstream, it is far ahead of other money transfer services. Warmke noted her problems with PayPal.

“The next day though I was sending over $3K with the first full day of donations received, plus my matching contribution. This time it resulted in them flagging me as potentially fraudulent, and then they only allowed me to do an e-check, which takes about a week longer than usual, or credit card, which carries hefty fees…The next day, though, they defaulted to credit card for the next payment rather than transfer or e-check, which resulted them gouging me for a fee to send the donation. Have I mentioned lately how much I HATE PayPal? Way to gouge people trying to send money to one of their oldest friends to help folks in the Philippines!”

PayPal ended up refusing to refund the exorbitant fees despite them overriding defaults on their account set by Fr33 Aid. Bitcoin allows users to select miner fees which speed up transaction confirmations, but these are optional. This built-in feature means you can expedite funds for a very small fee or choose no fee if that suits your needs. Also, there is no entity that can withhold Bitcoin from the needy if they decide that an account needs to be seized or payments delayed. The speedy response meant that Fr33 Aid was able to tackle remote parts of the Philippines that larger aid organizations could not reach. This efficiency adds to Fr33 Aid and others being on the cutting edge of charities.

Documentation of donations is imperative, especially when it comes to sending funds internationally. Not all charities do this, however, and in times of national disasters, even the most seemingly reputable charities have documentation issues or misallocation problems. The seamless ability of Bitcoin to transcend borders means organizations get to work immediately without having to wait on slower payment processing companies. The way in which some charities collect donations is outdated; Salvation Army still doesn’t accept credit cards despite innovations like Square that make it easy for people who don’t carry cash. Like cash, older charities are becoming ancient because of their antiquated methods of collecting funds.

Through meticulous documentation and direct action eased by the nature of Bitcoin, Bitcoin charities like Sean’s Outpost, Bitcoin Not Bombs, and Fr33 Aid are laying a solid foundation for future charities. Innovation by Bitcoin charities is building momentum that will only increase and if older charities don’t jump on the Bitcoin bandwagon and become more transparent with their donations, they will be left behind.

 

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

BitPay issued the following press release:

BitPay Drives Explosive Growth in Bitcoin Commerce

Also Sees Rapid Enrollments in All-Inclusive Processing Plans

ATLANTA — December 2, 2013 —  BitPay, the world’s leading merchant processor for virtual currencies, announces that in November it processed a record 55,288 bitcoin merchant transactions, representing a 165% increase from October.  Strong activity from KNC Miner, Gyft, and Amagi Metals led the increase.

During the Bitcoin Black Friday event on November 29, BitPay processed 6,296 bitcoin transactions in a single day, making it the most popular day in the history of bitcoin commerce.  On November 29, more than 6% of all transactions on the bitcoin network were spent on goods and services through BitPay’s platform.  

“BitPay’s order volume is the most accurate indicator of the real bitcoin economy, and today that economy is soaring higher as merchants are seeing tremendous value in accepting bitcoin payments,” states Tony Gallippi, BitPay Co-founder and CEO.  “We are building the most powerful, reliable, and scalable tools for businesses to accept bitcoin.”

Last year, the Bitcoin Friday event was BitPay’s largest volume day in 2012 and the company processed 99 transactions.  The year-over-year growth of BitPay on Black Friday is 6,260%.

BitPay continues to enroll new merchants at a rapid pace, onboarding over 3,000 merchants in November to exceed a total of 14,000 bitcoin-accepting merchants. Shopify’s integration of BitPay into its checkout process now makes BitPay available to 75,000 merchants using the Shopify ecommerce platform.

Enrollment in BitPay’s all-inclusive processing plans is also accelerating. By selecting one of the all-inclusive plans, BitPay merchants can choose the software features they need, and process an unlimited number of transactions with zero transaction fees.  

“No merchant service provider riding on the traditional interchange rails can offer all-inclusive pricing because there are three or four middlemen who take a cut of every transaction,” says Gallippi. “Some processors tease merchants with flat-rate pricing, but there are many hidden fees and limitations that make flat-rate offers an illusion.”

Square, which offers a flat-rate credit card processing plan for $275/month, recently announced they would be discontinuing this plan on February 1, 2014, and would charge merchants a 2.75% or 3.5% processing fee on every transaction.

About BitPay

BitPay is a Payment Service Provider (PSP) specializing in eCommerce and B2B solutions for virtual currencies. Visit https://bitpay.com.

Contact

Jan Jahosky

407-331-4699

[email protected]

 

 

Written By: BigChubbyCat (8BTC)

Translated By: James Choi (8BTC)

Edited By: Elizabeth T. Ploshay (Bitcoin Magazine)

I. The difference among physical carriers

Before discussing currency competition, we should define the difference between different monetary carriers.

1. Carriers for precious metal money: metal atoms (Au, Ag, Pt, etc)

2. Carriers for paper money: some mixture of plant fiber

3. Electronic money: electronics

There have been other forms of carriers in the past. For example, past carriers of horns, seashells and feather money were parts of animals, which are essentially protein and calcium. Carriers of different physical natures compete against each other. Competition results from human behaviors such as selecting, comparing, eliminating and hoarding.

Additionally, compulsory enforcement is also a human behavior, which does have an impact on the result of selecting monetary carriers. However, compulsory enforcement itself is not competition. The currency competition I will refer to, is market competition based on voluntary activity by each individual. The different physical natures of monetary carriers lead to currency competition, which also applies to carriers of the same physical nature. Precious metal money competes against paper, and paper money against electronic money. Different currencies also compete against each other under the form of the same carrier. For example, metal carriers like copper, gold, silver, and aluminum have played the role of monetary carriers at different phases in history. Humans cause currency competition, namely through mining technology, the process of smelting and forging, etc. There are often different forms of the same metal with subtle competitions, like gold bricks of regular shape, gold bullions of irregular shape, more standardized gold coins, etc.

II. The Differences of Origin

From the perspective of the origin of money, there are two types of money:

1. Free money, which is chosen spontaneously by the market. Examples include gold, silver, platinum, Bitcoin, Litecoin and Ripple, etc.

2. Fiat money, whose acceptance is mandated by the government.

III. Currency Competition

1. Free money (precious metals) VS fiat money (paper money)

This game has already ended and the winner has come out. Sadly a lot of people, however, are still not aware of the result. The collapse of the Bretton Woods system and the monetary history itself have told us the fact that paper money did not win. The great influence of positivism and the weird logic of I think therefore I am, however, has twisted the cognition of many individuals, who still think that the paper money we use today has defeated gold and silver through fair market competition.

One with any historic common sense would not agree on such incorrect opinions which result from a misunderstanding of the definition of competition. Many get confused between the concept of competition and unscrupulousness. Currency competition, as a matter of fact, refers to the voluntary selection through the free market, which excludes the compulsory intervention by non-market factors.

2. Competition Among Free Money

A. Competition among precious metal currencies

There is competition between gold, silver and platinum. In the era of metal money, the most popular monetary carriers were gold and silver. Today, platinum has become ornamental due to its inferior physical nature (less flexible than gold or silver) and the difficulty to mine platinum. Platinum can be considered one of the losers in this currency competition, along with iron and aluminum.

The metal money competition has two winners, namely gold and silver, which is also revealed in the choice of central banks and individual savings accounts holding gold and silver. The existence of paper money is nothing about competition, but mandatory acceptance, caused by two totally different processes.

Although gold and silver meet the standard of four basic monetary attributes, they still have some tiny (not fatal) defects, relating to divisibility and transportability.

Divisibility. Both gold and silver can be easily cut into small sizes, but there are limits in the cutting. Gold must be large enough to be seen and carried by individuals. This defect is not fatal and may be fixed by alternative option, namely silver. Just like the units of length where lightyear and nautical mile are not suitable for daily life and the Metric system is, when the minimal unit of gold can not meet the demand, silver may be used for settlement.

Transportability. Metal money is not suitable to carry for long-distance and in large quantities. Payment via electronic process through bank systems, on the other hand, may repeat the failure of the fractional reserve system.

3. Competitions among crypto currencies

There are almost no obstacles in the cutting of electronic currencies, as one can simply divide a Bitcoin into 10 0.1B or 100 0.01B. The electronic transfer is so convenient that there can be a zero transaction fee.

 This advantage comes with the cruelty of competition, as probably no more than one crypto currency will in the end survive under the impacts of adhesiveness, network effect and power laws competition. The cruelty is bidirectional, as not only Litecoin or Ripple but also Bitcoin itself are under such pressures. As long as the development of Bitcoin goes against any basic monetary attribute, it will collapse soon. It is a cruel selection of winner-take-all. But it all depends on the choice of the market, which is voluntary and spontaneous.

IV. The Collaboration Among Parallel Currencies

However, the market relationship among currencies is not purely “cruel competition”. A cryptocurrency is not a perfect solution, neither is a precious metal currency. Both have some monetary attributes that the other need, and both are free money whose total amounts cannot be controlled.

Cryptocurrencies can cover the mentioned defects of precious metal currency, with better divisibility, better transportability and quicker payment, while the latter can cover the market that the former could not reach, namely locations without network or equipment, people unable to learn about cryptocurrencies, and places without electric power, etc. The market will spontaneously find the exchange rate accepted by both sides, like 1BTC = 15g silver. As long as the market accepts it, cooperation can be reached.

V. The theory of scarce currency is wrong

If a substance becomes money, there is no such thing as scarcity, as the monetary attributes require the substance to be infinitely divisible. If a substance is scarce, it cannot be turned into money.

The scarcity of currency is a false statement. It mixes up some basic economic concepts, namely money, commodity and price. Money itself is a commodity. To become money, however, this commodity must have the attribute of infinite divisibility, or it will be replaced. When the requirement of its monetary attributes are met, there is no scarcity of currency in this commodity. Since it is infinitely divisible, the total amount of this currency would not be scarce, no matter how the total amount of commodities and services change, or how the population and economy develop. Money is what the economy uses to store value, so when it plays the role of exchange medium, it is the money itself that decides the price, not the other way around.

The total amount of money is the important factor in deciding the price. Price itself cannot threaten the total amount of money, since it is the wrong price and would be rejected by the market. For example, let’s assume that there were only 50 tons of gold in the era of the gold standard. The 50-ton-gold would be the decisive factor for price for people to trade in the market. If somebody sold something at the price of 51 ton of gold, scholars who mix up the concepts tells us that currency is scarce.

Clearly, anyone with common sense knows that this deal is impossible to make. The price is senseless and incorrect, let alone when the competitors of the seller would jump in and lower the quote. Even when there is no competitor, the price is still invalid, simply because no one could afford to buy it. So if people agree on the theory of scarce currency, they will accept the compulsory power that manipulates the market and price. Due to the incorrect price, people give up on honest gold and choose paper money which has in essence, a limitless supply. Finally, the currency is no longer scarce, thanks to selfless central bankers who offer their help.

This is not the truth, however. This is just the logic always held by the positivist. As a measurement for price, the purchasing power of money itself is only a reflection of the commodity trading in the market. The oversupply of commodities leads to the decrease of price and those who expand recklessly get punished, yet those who expand reasonably can provide cheap yet qualified service. The whole process results from human behavior instead of a simple mathematical function. First, only some people expand recklessly. Secondly, when the losers quit the market, the price will stop and fall and the economic cycle will make people look for more reasonable investment and thus recession ends. Thirdly, both consumers and suppliers are human beings, whose behaviors cannot always be calculated and predicted precisely by mathematical constants.

Therefore, the success and the failure of an economy, as well as its prosperousness and recession, are caused by human beings. To end a recession, the spontaneous adjustment from human behavior is surely needed. Ending a recession has nothing to do with money. The economy is like a car and money the tree beside. It is the human who drives and brakes the car, although the faster the car is running forward, the faster the tree seems to be behind at a distance. One should understand the relative reference of physical movement, rather than that of backward movement of the tree which drives and provides power for the car.

Thus, it can be concluded that neither money nor central banks help the economic cycle. Does one really believe we should adjust the backward policy of the tree to keep the car driving? A good driver should not pay attention to the tree outside the car, or a car accident may happen. A good economy should not pay attention to its money, and neither should it manipulate the money or interest rate because what is caused by man should be solved only by man.

VI. Gresham’s Law is wrong.

The traditional understanding about Gresham’s Law is wrong, yet it is still used to explain the elimination of gold and silver by paper money.

This law is also called, “the law of bad money drives out good.” People tend to keep the money of better commodity value and spend money of inferior commodity value. At the end of the day, the market is full of the bad money and good money is out of circulation. People who don’t think themselves, will easily accept this point of view, yet it only describes something that really could never happen.

Nobody can hoard good money and spend bad money forever. If one will not accept bad money, then how will many others accept it long term. This logic can be applied to the paper money we use today. Many would like to spend broken paper money first and keep unbroken money. Yet, we also know that you can’t do that forever. As market participants, others would not accept broken paper money either, which means the so-called Gresham’s Law could not last for long. In contrast, sellers with superior commodities hold a dominant position in price negotiation and they will only accept good money, forcing others to pay in good money.

The essential problem of Gresham’s Law is that Gresham didn’t figure out what the market really needs. Trying to explain with positivism, he took something only happening in a limited range of time and places as a core rule and misread the relationship between man and money.

The fact is, people use bad money not because bad money drives out good money, but because people need good money. Gresham’s Law only describes the preliminary stage of currency competition, yet fails to mention the result of the overflow of bad money and the end of the competition.

One can tell from history that the overflow of bad money could be disastrous. No one likes bad money and it cannot survive forever. When the bad money runs out of market credit, tremendous monetary disaster takes place. When people need good money, the market would be full of good money. Good money drives out bad money. This is the law for the whole process of currency competition.

Bitcoiners, entrepreneurs, investors and those interested in learning more about the lead cryptocurrency will gather next week in Las Vegas for the second Inside Bitcoins Conference. With an impressive set of speakers and a unique venue, the conference will certainly be a success! There is still time to register and in fact, Mediabistro will provide all Bitcoin Magazine readers a 15% off discount for conference admission. Bitcoin Magazine is a proud media partner of Inside Bitcoins and is offering Bitcoin Magazine readers 15% OFF with code MAG15 – Register Now!

Mediabistro issued the following release on next week’s conference:

Inside Bitcoins Conference is Heading to Las Vegas December Next Week – Get 15% OFF

As Bitcoins grow more prevalent with increased media exposure, the number of people interested in the cryptocurrency continues to increase. After an overwhelming turnout for Mediabistro’s Inside Bitcoins conference this past summer in New York, they’ve decided to bring the innovative event to Las Vegas this December 10th and 11th.

The event kicks off with an opening keynote on “A State of the Union for Bitcoin”. The presentation will be given by Jered Kenna, the Founder and CEO of Tradehill, a company that quickly grew to become the second largest Bitcoin exchange after its inception in 2011.

Over the two conference days, attendees will participate in networking sessions, debates, and discussions on relevant topics concerning the cryptocurrency, including Bitcoin compliance and regulation, the future of free market money, the Bitcoin exchange ecosystem, and how to bring trust and legitimacy to the market.

Inside Bitcoins was able to secure an impressive roster of speakers, including Rob Banagale, CEO and co-founder of Gliph; Steve Beauregard, CEO and Founder of GoCoin.com; Robert Cho, Vice President of SecondMarket; Bobby Lee, CEO and Co-Founder of BTC China; Adam B. Levine, Editor-in-Chief of Let’s Talk Bitcoin!; and Ardon Lukasiewicz, Founder of Bitmarkers. View the full speaker list.

You can of course pay for your conference pass in Bitcoins! 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 is a proud media partner of Inside Bitcoins and is offering Bitcoin Magazine readers 15% OFF with code MAG15 – Register Now!

 

One of the topics that comes up again and again with regard to Bitcoin is the idea of “intrinsic value”. Unlike nearly all other goods which we interact with on a day-to-day basis, whether they are tables and chairs, apples, theater tickets, digital books or even financial derivatives, bitcoins seem to have no value in and of themselves – they are simply entries on atn arbitrary database. And yet, at the same time, each one of these entries is now worth roughly $1000 on Bitstamp and even more on MtGox and BTCChina. This strange duality, the unique property of simultaneously being completely valueless in one sense and yet so exremely valuable in another, is perhaps the biggest psychological barrier for many individuals to accepting Bitcoin as a legitimate economic instrument; the feeling that one’s wealth in BTC has no solid “floor” to stand on, aside from an ill-defined and foggy entity known as “the market”, is notably difficult to overcome.

Some economists even go so far as to say that Bitcoin cannot become a true currency for this reason, and is doomed to blow up and eventually permanently pop as a speculative bubble. But at the same time, others argue that Bitcoin does have intrinsic value, and still others claim that intrinsic value is not just unimportant, but is in fact a completely useless mental construction with no economically valid definition – all value is subjective, as many have become used to saying. The purpose of this article will be to explore this question in more detail; what is intrinsic value, and to what extent do both Bitcoin and other currencies that we use today have any?

What Is Intrinsic?

The first definition of intrinsic value, and the one that economists of the “subjective value” tradition are the most keen to strike down, is the literal one – the idea that there is some kind of inherent “value” property in objects and substances, that can be scientifically measured and defined much like density and temperature. This theory is obviously false; the best thought experiment to see why is to imagine oneself on a desert island with a thousand automobiles and no water. If, in those conditions, someone were to offer you a glass of water (~$0.00001 in modern society) in exchange for an automobile (~$10000), chances are eventually you would take it.

Why? Because of the concept of marginal value. Normally, water is so cheap because it is already so plentiful – although the difference between having zero litres of water and one litre of water per day is that of life and death, the difference between 99 and 100 litres of water per day is only a slightly less comfortable shower. Similarly, having one automobile as opposed to zero is a significant boon for personal transportation, whereas if you already have 99 the 100th is nearly useless. Also, the value of an automobile is situational – even the first one is nearly useless without a source of gasoline. As another example from the real world, up until about 1800 the Middle East used to be one of the poorest parts of the world, but ever since the technology emerged to make oil useful it has become one of the richest, at least for that portion of its residents that had the weapons to seize and defend oil reserves at the time that they became lucrative.

However, most educated people understand the above, even if not everyone has fully absorbed it psychologically. Thus, there is another meaning to the concept of “intrinsic value”, one that does not fall down in the face of philosophical scrunity so easily as many subjectivist economists are keen to believe. And the idea is this. In mathematics, there is a concept of well-foundedness – for example, the sets {1}, {1,2,3} and {1,2,{3,{4,5,6},7,{8,{9}}}} are “well-founded” – you can only descend a finite amount, and eventually you hit rock bottom. However, the object {1, {2, {3, {4, ... }}}} is not well-founded – it descends forever, and in fact under standard set-theory axioms mathematicians do not even consider it a set.

With intrinsic value, the idea is similar. Here, however, we check whether the chain of justification for why something is useful has a foundation. With a chair, for example, the chain has only one step: you want a chair because it makes you comfortable. The desire to be comfortable is a fundamental human primitive – it does not depend on the existence of anything else. With an object like a robotic arm in a factory, the situation is more complex. The factory owner buys (or builds) a robotic arm because it lets the factory produce screwdrivers more quickly. The factory owner wants screwdrivers because he (or she) can sell them to distributors. The distributors want the screwdrivers because they can sell them to consumers. Finally, the consumer buys a screwdriver because they van use it to repair furniture, which supports their desire for comfort. The chain is longer, but at some point it ends. With a bitcoin, the situation is different. Alice wants a bitcoin because she can give it to Bob in exchange for products and services. Bob wants it because he can similarly use it to obtain goods or services from Charlie. Charlie wants to do the same with Dave. And then, finally, Zachary wants to spend the bitcoin with Alice. The chain of justification never ends. Hence, Bitcoin’s value is not “well-founded”.

An alternative, and equivalent, definition of intrinsic value is this: a product has intrinsic value if a hypothetical godlike agent can change its value only by changing people’s memories – without changing their preferences. If, tomorrow, the mischievious Econo-God decided to change everyone’s memories and all of the price signs in the stores so that chairs were worth 10 times less, the resulting economy would not be stable. People would still have the same level of desire for comfort, and the difficulty of producing chairs would not change, so there would be an excessive demand for chairs at the lower price, causing the price to adjust back up – in fact, it would adjust all the way back up to something close to the original price. Now, consider the experiment with Bitcoin. Now, the Econo-God changes people’s memories so that Bitcoin was invented in July 2013, and Primecoin came first in 2009. Also, the Econo-God would change the value of a bitcoin to $4 and the value of a primecoin to $1000. Would anyone realistically suggest that the value of a bitcoin would quickly spike up back to its original levels, or even ever reach a value one fifth as large as Primecoin? Likely not. Thus, Bitcoin’s value is inextricably tied to arbitrary details of history – hardly something that can be called “intrinsic”.

What Is Intrinsic, Really?

However, at this point, we encounter an interesting philosophical roadblock: what exactly is the difference between a preference, infrastructure and a memory? Alternatively, at what point is something an intrinsic preference, and at what point does it need to be justified? Consider the following three cases:

1. The Econo-God adjusts the value of some high-end furniture designer’s furniture down to $10, and IKEA furniture up to $3000
2. The Econo-God adjusts the value of Gucci bags down to $10, and some particular currently unknown Chinese vendor up to $10000
3. The Econo-God adjusts the value of bitcoins down to $4, and primecoins up to $1000

What is the difference here? We can clearly see the difference in case 3 – the difference between BTC and XPM is an arbitrary product of memory, whereas in cases 1 and 2 we are dealing with clearly different physical goods. However, even between cases 1 and 2 there is a difference. The difference is this: in case 2, Gucci bags are what’s known as a Veblen good – a good whose value increases as a consequence of its price goes up. In layman’s terms, a status symbol. Thus, if the price of a Gucci bag goes down to $10, people stop valuing it as much because everyone has one and it loses its exclusivity property. However, in the case of the high-end furniture, their products are objectively superior – the fact that high-end furniture is more comfortable than the average produce from IKEA is based on built-in human preferences for comfort, not any kind of emergent value generated by society. Thus, case 2 seems to be actually closer to case 3 than case 1 by the second definition of intrinsic value.

However, looking through the lens of the first definition, there is a slight difference. In the case of a bitcoin, Alice desires a bitcoin because she can use it to pay Bob, who can use it to pay Charlie, and so on ad infinitum. In the case of a Gucci bag, Alice desires a Gucci bag because she can use it to impress Bob (or perhaps Betty), who actually has the property of being more impressed by Gucci bags than those of the unknown Chinese vendor as a preference – albeit one caused by the Gucci bag’s high price and limited supply. Thus, the chain of justification is actually well-founded, although the economic effects of a Veblen good make the situation identical to an infinitely descending chain in practice.

In Bitcoin vs Primecoin, we see another effect. Bitcoin does not only have more public renown than Primecoin; it also has a higher level of network security, and more merchant adoption. If the Econo-God makes the Bitcoin/Primecoin switch, many Bitcoin miners will stop mining because mining will no longer be profitable at $4, but because there was already capital invested into Bitcoin mining the network’s computing power will not decrease to quite the same level that it would be at had the price originally been at $4. Similarly, many merchants will feel silly that they had somehow decided to accept the new and obscure Bitcoin and not the more mainstream Primecoin, but much more will end up simply accepting both than currently accept them now. Thus, taking the second definition of intrinsic value, it seems like Bitcoin actually does have some limited intrinsic value from the invested capital.

How do we translate the above reasoning into the first definition of intrinsic value? The simplest approach is this: Alice wants to send bitcoins, and not primecoins, to Bob first of all because Bob values bitcoins 250x more, but also because Bob has some existing infrastructure to accept them, and the payment is more secure because the Bitcoin network is stronger due to its higher level of capital investment – both of which are properties of the real world, and not Bob’s memories. Thus, Bitcoin seems to have some intrinsic value in a relative sense, although it is difficult to see in an absolute sense.

Finally, as it turns out, Bitcoin does have some limited “absolute” intrinsic value: the Bitcoin protocol can be used for other purposes than just money. For example, there is now a service that allows you to use the Bitcoin blockchain to provide cryptographic proof that you had created a certain document before a specific time. A similar service on top of Primecoin would be less useful because Primecoin has less computing power in its network, and so is less secure. It is important to make one point here: we are talking about the intrinsic value of bitcoins and not the Bitcoin protocol. However, there is a simple patch: the intrinsic value of a bitcoin is its use in paying transaction fees for these kinds of alternative blockchain uses.

So what is the point of all this? Why do we even care about intrinsic value? Why is the subjective value of a bitcoin, and indeed any currency, not enough? One answer is stability – in practice, preferences usually change more slowly than social prejudices, so a bitcoin is more likely to lose 99% of its value in a year, and stay there, than a chair. This is indeed an issue; however, this is true of all currencies. Although gold is often praised for its intrinsic value, in reality its intrinsic value is extremely low. This can be seen both analytically and empirically. From an analytical standpoint, gold’s three main functions are as a store of value, electronics and jewellery. As a store of value, gold’s value is non-intrinsic. As jewellery, gold’s value is intrinsic, but because it is a Veblen good it is de-facto non-intrinsic; if gold necklaces could be bought from any dollar store no one would care about them. And finally, in electronics gold is used largely in wires for its electrical conductivity – and there in minute quantities. If its non-intrinsic value and Veblen good value was stripped away, gold would likely be worth no more than $30 an ounce.

And we can see this empirically too – as recently as 2001, gold was only worth $275 per ounce, and now it is worth over $1200. Are we to believe that people used gold for electricity five times less back then? Even Ayn Rand, perhaps the most famous proponent of gold as the one true currency, praised it not because it is shiny and electrically conductive, but rather because it has been used as a medium of economic trade for the past six thousand years. Thus, perhaps Bitcoin may have even more intrinsic value, relative to its market value, than gold does; an even if it does not, Bitcoin has a trump card that even gold does not – its absolutely limited supply of 21 million units. With Bitcoin, there is no risk that we will find billions of new bitcoins on the moon, or that some nuclear fission alchemist will figure out a way to cheaply transmute new bitcoins into existence out of primecoins. Thus, once Bitcoin matures from being a startup currency to a more mature alternative, with enough adoption to ensure that it cannot grow by another factor of 1000 and enough infrastructure to ensure that it cannot instantly disappear, there is reason to believe that be at least as stable in value as gold. Will it be? Only time will tell.

With the precision of Occupy Wall Street, the Dark Wallet symposium assembled in a cold social center near the center of Milan. People trickled in from this country and that with no specific expectation. A dozen or so cultures represented, all present with the purpose of delivering tools to the people.Dark Wallet is not about the antithesis of anything, rather the embracing of an ethos.

[youtuber youtube=’http://www.youtube.com/watch?v=PuPo5NJ-AZQ’]

Video by System D media

One might think of a trip to illustrious Milan would entail fashion, flare and fame, but the MACAO social center was as far removed from those ideals as I was from home. Living in a squat definitely lacks a certain appeal to many, but with the removal of vanity comes much more focus on enabling social action.For Dark Wallet, MACAO was to be a platform to introduce and educate the public on how Bitcoin and similar technologies can introduce a dismantling of the corruption we call “government”.

 To be clear, there was little-to-no organization. Although each person was left to fend for themselves,there was a social bond that encouraged us all to act with respect towards each  other.Beginning with basics like sleeping quarters, we all contributed to ensure everyone’s  essentials were taken care of: bedrooms here, bathrooms there, kitchen downstairs. So it went for the first few days as visitors trickled in, but it wasn’t long before trips to the market were being coordinated and full meals were being prepared by and for the entirety of the crew.

Can’t cook? There’s always dishes and trash detail. Without a single appointed or elected official, the community with thriving with minimal conveniences. This self-organization is a libertarian’s dream of the future of communities. There were no rules—all you have to survive on was your merit.

As the week marched on, Bitcoin ideals abounded, with smoke-laced discussions on the depths of anarchism often entering into our collective conversation. Discussions ranged from the ultra technical to the ephemeral, from hallways to desks to couch. Everyone spoke with everyone in every possible permutation of English, French, Italian, Spanish, Portuguese, and Romanian.

Along the way, there have been some exciting moments, including a visit from Cody Wilson & his tagalong cameraman, the excitement of breaking the $1000 barrier, and celebrating the success of Sean’s Outpost and Satoshi Forest with Jason King. To say this is a unique event would be a massive understatement and the excitement inside our event reached a fever pitch when Richard Matthew Stallman, founder of GNU Project, came to stay in the very squat we called home.

In retrospect, the week was far more about the sharing of ideas and honing of goals. Dark Wallet set out to create special software, but stands to have more far-reaching effects on Bitcoin software as a whole with hopeful implications for all humans. As the week closes out, we stand with a platform before us, ready for implementation.

Written by Taylor Gerring

Written by: James Choi (8BTC)

Edited By: Elizabeth T. Ploshay (Bitcoin Magazine)

Jiangsu Telecom, a branch of China Telecom, the largest fixed line service and 3rd largest mobile telecommunication provider in China, recently announced its decision to accept Bitcoin for one of its promotion campaigns.

Bitcoin has been in the spotlight these days in China. With its soaring price and full coverage by CCTV, China’s state broadcaster, Bitcoin has drawn abundant attention in the world’s 2nd largest economy. Although there is no official statement from the government about the legal status of Bitcoin, one can still sense the supportive attitude from every hint released by different parties related to the government. The decision made by Jiangsu Telecom, a branch of one of China’s key state-owned-enterprise (SOE), to accept Bitcoin can be considered as one more important hint from the government.

The news was released by Jiangsu Telecom’s Weibo, a Twitter-like service in China. It encouraged Bitcoin holders in China to pay 0.1 BTC to make a reservation for a Samsung W2014 package, which includes a new Samsung mobile phone and service fee discounts. Customers who pays 0.1 BTC now can get a discounted price on the day when the package is released. The amount of the price deduction depends on the BTC exchange rate against CNY on the release day, with a promised minimal deduction amount of 500 CNY. The campaign also sets an example for Bitcoiners. If a customer pays 0.1 BTC now to reserve the package, he or she could get a deduction of 800 CNY later when the BTC exchange rate reaches 8,000 CNY. If the rate falls to below 5,000, however, the customer can still get the 500 CNY deductible.

The campaign is endorsed by Jackie Chan, the famous Hollywood movie star. Although Jackie Chan has endorsed products before, this endorsement and deal will most likely be a greater success. Some people are making jokes on Weibo, commenting that the government is actually using its massive destructive weapons against Bitcoin. The clear attitude of the Chinese government towards Bitcoin, however, has never been revealed. When asked about his opinion, Yi Gang, the vice president of the Central Bank of China, said that it is impossible to legalize Bitcoin in the near future in China. Sophisticated observers conclude, however, that it is actually a positive signal, as Yi put it in a way implying that the government has no intention to make Bitcoin illegal. Moreover, Yi also admitted that it is every citizen’s right to purchase and sell Bitcoin. With all these comments and news, we may make an optimistic guess about the future of Bitcoin in China.

The United States Air Force has quietly been working on a Bitcoin payment gateway. Through an SBIR or Small Business Innovation Research grant to the Department of Defense, Utica New York based Critical Technologies Inc. has been working on a commercial product for the Air Force since applying for the grant back in 2012 (starting Fiscal Year 2013). Coincidentally, the Bitcoin Foundation began its grant proposal process in 2012 and also awarded its first grant in 2013.

SBIR further explains explains its grant program for small business conducting federal research and R&D on its website:

“{Grants are for} Federal Research/Research and Development that has the potential for commercialization. Through a competitive award process, SBIR enables small businesses to explore their technological potential and provides the incentive to profit from commercialization. By including qualified small businesses in the nation’s research and development (R&D) arena, high-tech innovation is stimulated, and the United States gains entrepreneurial spirit as it meets its specific R&D needs.”

Critical Technologies was granted awards totaling $899,611 for Phase I [Mirror] (technical merit, feasibility, and commercial potential) and Phase II [Mirror] (commercial potential proposal) for “Remote Attestation and Distributed Trust in Networks (RADTiN).” Phase II began on August 5th, 2013 and will continue through August 4th, 2015 before the Air Force decides whether or not to pursue commercialization objectives of phase II. However, SBIR does not fund Phase III awards. Phase III could potentially involve a contract directly with the Air Force but that remains to be seen.

The proposal has a lot of jargon such as “$SWAP constraints” and acronyms such as IoTaP (Internet of Things and People), MANET (Mobile ad hoc network), DAA (Direct Anonymous Attestation) and DAM3ON (Distributed Attestation for Mobile, Multicast & Multiple Operator Networks) that left me a bit flummoxed.

However, it was not difficult to find the objective behind this project:

“The goal is secure and trusted transactions in a distributed Network Centric Operations environment.”

Network Centric Operations, also known as “Network-centric warfare” is a type of military war theory pioneered by the Department of Defense. The Air Force’s military networking gateway for network-centric warfare known as BACN or Battlefield Airborne Communications Node, recently finished 5,000 combat missions. “Essentially, the BACN system has the capability to enable a soldier on the ground to use a cell phone to text message jet fighter and bomber pilots operating in his area” explained John Keller in Military & Aerospace Electronics Magazine when the technology was first being deployed.

Image Credit: Bitcoin not Bombs

Getting back to the Air Force’s Bitcoin payment gateway, the award states that the project could enable a trusted gateway between bitcoin wallets and point of sales machines which would most likely include cash registers and vending machines:

“..the most unique commercialization opportunity is in the emerging digital currency/commerce marketplace. Using the team”s already existing reputation (as the enablers of the world”s first BitCoin/vending machine transaction) and relationships, the RADTiN/DAM3ON software will be demonstrated as a key enabling technology for the establishment of trust and the security of transactions between digital wallets and physical point-of-sale machines. The key to penetration in this emerging marketplace is to maximize automation (ease of operation), verified security of your smartphone and digital wallet, and trust in the sales machine, the protection of your data in motion (to the machine) and at rest (in the cloud). The ability to clearly attest to the security of your smartphone, your digital wallet, and your data before, during, and after the transaction will be of interest to the firms attempting to broaden this emerging economy. The demonstration of this technology will allow the team entry into these diverse marketplaces, and represent a unique potential commercialization opportunity for a DoD SBIR research effort.”

While Bitcoin is a trustless payment protocol, as layers are added to Bitcoin there is an increasing need for Bitcoin users to be able to trust the systems they are using. This technology appears to bridge this widening gap in trust.

No Stranger to Bitcoin

While I don’t think this means that combat troops will be beaming bitcoin to (and from) B52 bombers any time soon, there are some interesting connections between Bitcoin and the military industrial complex.

The Bitcoin Project at Bitcoin.org promotes that Bitcoin could potentially be used by the military by stating that “Bitcoin transactions are secured by military grade cryptography.” This is a reference to the SHA-256 hash algorithm. Moreover, the National Institute of Standards and Technology (NIST) issued a mandate which requires federal agencies to stop using SHA-1 certificates, effective January 1, 2014 (PDF). Department of Defense posted (PDF) its SHA-256 migration plans back in March 2011.

Further, the Critical Technologies grant states that:

“Warfighters need to be able to trust the systems on which their lives depend. Cases include an individual human trusting an individual computer, an individual computer trusting a server or network to which it is connecting, a server or network trusting an individual computer connecting to it, and (new here) one network trusting another with which it is inter-connecting.”

Stuart Card, PhD and Chief Scientist of Critical Technologies describes Critical in his LinkedIn profile:

“We develop and apply dual-use (military & commercial) technologies in the intersection of mobile wide area wireless, storage and sensor networking, ensuring high QoS, reliability and security of services despite resource constraints (think RAID, but across multiple communications, storage and sensor resource types). Lately we have begun work to bring the benefits of digital cash (e.g. Bitcoin) and true free markets to individuals and small organizations on the Internet.”

Mr. Card is no stranger to Bitcoin. On January 5th, 2012 Upstate Networks, Inc. (UNI) developer of BTCVend and DroidVend, released a proof of concept demonstration of the first-ever vending machine purchase using Bitcoins (with change returned in U.S. dollars).
The video released on Youtube, shows Mr. Card purchasing a bag of popcorn using a QR code and a smartphone Bitcoin wallet.

[youtuber youtube=’http://www.youtube.com/watch?v=pDOcLros-w0′]

The Military Industrial Complex

While it is uncertain exactly how the Air Force would use a bitcoin payment gateway there is certainly a need for the military to have the ability to use any currency in the theater of war.

This Youtube video from Air Combat Command “Finance Unit Deploys to Iraq” explained how the Air Force Financial Management Detachment joined the Army by filling joint taskings. An article from Grand Forks Air Force Base from May 2011 further explains how the Air Force finance units were used to transfer currency in “Airman delivers cash, military pay services to Soldiers at austere locations.”

There is a really interesting U.S. Army Command and General Staff College Textbook, Text ST 63-1, Division and Corps Logistics (1997), supporting core logistics instruction in the Command and General Staff Officers Course which explains in the chapter “Sustaining Soldiers and their Systems” that “Currency is like another class of supply, a commodity required to execute the battle”:

“Finance units disburse currency (cash/money) to battlefield commanders. Currency is like another class of supply, a commodity required to execute the battle. This commodity can alleviate shortages and timing problems related to procuring various classes of supply and services within the AO. Because of this, finance units can be a significant force multiplier. Therefore, finance unit commanders must be prepared to meet the twin challenges of providing support and surviving on the battlefield.”

It also explains how the finance unit provides “banking and currency support”:

“…. Currency support includes supplying US currency, foreign currencies, US Treasury checks, foreign military scrip, military payment certificates, and in some operations, precious metals (gold, silver) to US forces and allies in the theater. Because of the US and allied forces’ operating requirements, limited banking support may be needed. Liaison with the HN banking industry is essential due to the dependence on foreign currency.”

As well as the responsibility to ”control currency in the battlefield”:

“Stringent controls are enforced on the amounts of US currency, military payment certificates, and foreign currencies available and used on the battlefield. This is necessary to reduce black market activities, to secure individual soldiers’ money, and to help control problems related to either US or HN currency inflation.”

US currency controls have in part been addressed by prepaid access cards (also known as stored value cards) called Eagle Cash Cards. Master Sgt. Debra Clayton, U.S. Central Command quoted Juan DeJesus, a Department of the Army Eagle Cash manager in Military.com article “Eagle Cash Helps Manage Money”:

“The Eagle Cash card is … helping the military save money because it is expensive to transport U.S. currency overseas and costs money to provide security for the currency while in flight.”

and further:

“Every time a servicemember spends U.S. dollars in the Middle East theater, it’s potentially helping fund terrorism because the U.S. dollar has stronger market value in this region.”

A Tangled Web We Weave

While some might be surprised to learn the government is investing in a “bitcoin startup” like Critical Technologies, the military has been involved with more controversial financial technology. Perhaps most memorable in recent times was the so called “terrorism futures market.” In 2001, DARPA began experimenting with “market-based concepts to intelligence.” This included DARPA’s FutureMAP (Future Markets Applied to Prediction) which used prediction markets to predict terrorist attacks. DARPA, otherwise known as Defense Advanced Research Projects Agency, commissions advanced research for the Department of Defense. Prediction markets should be familiar to those of you who follow bitcoin pundit Max Keiser who started one of the first, if not the first prediction market with HSX (Hollywood Stock Exchange) which he received patents for (including patents for virtual currencies).

The government’s use of currency in military operations was also exposed in Peter Joseph’s documentary Zeitgeist with the John Perkins “Confessions of an Economic Hitman” interview (extended video interview). If conspiracy theories are your thing, look no further than Reddit user nicolaosq’s controversial post in the r/conspiracy subreddit “Bitcoin was created by DARPA.”

Final Thoughts

While it is possible that the Air Force specifically wants a Bitcoin payment gateway with RADTiN, it is also possible what they are really after is a better way to feed Snickers bars (YouTube) to their servicemen. But in all seriousness, the grant and Critical Technologies seem to indicate that RADTiN is a dual use technology. That is to say, it is possible that its use as a Bitcoin payment gateway is incidental to its use with Network Centric Operations. While RADTiN can be used as a Bitcoin payment gateway, this within itself is not necessarily the reason why SBIR issued the grant.

The industrial age gave us plenty and we are thankful. Above all we give thanks for networked computing: making possible our new information age. We are at the very beginning of this information era. There is a whole lot more to come and a side we are only just beginning to see, if we look hard enough.

 The ‘digital revolution’ ushered us in. Information technologies and digital systems are now ubiquitous.  The information age has necessarily given rise to the ‘information economy’. In this new economy, information is already a type of currency. But only now has currency become pure information. Indeed, with Bitcoin, value has become pure information.

So Bitcoin is an earth-shaking invention of the early information age, forged in mathematics. It’s a creation so strange that many still struggle to come to terms with its importance. For those who have already made the leap we are forced to re-assess everything.

But remarkable as Bitcoin is, it leads to an even more profound conclusion: that wealth too is information. And, as such, it can now exist entirely in one’s own head. From this remarkable idea we draw the most glorious of designs: the ‘Brain Wallet’.

It’s the best thing yet to come out of the Bitcoin space. A new generation of libertarians are daring to contemplate what was once thought impossible.

A Brief Definition:

A brain wallet is simply a unique, memorisable pass-phrase from which all private keys (and therefore Bitcoins) can be restored. The best current example is the Electrum wallet.

Anyone, anywhere, can download this free piece of software. By remembering 12 simple words a users wealth effectively exists only in that users head. It is simple in use but complex in design: a truly powerful concept.

Consider then, how is the state to confiscate wealth in this new information age?

Tragedy and a Thought Experiment:

In Hitler’s Germany, according to historian Gregg J. Rickman, “when it came to robbing Jews, very little was missed”. This is the most extreme example in modern history of a state gone mad.

Everything was confiscated, “Jewish bank accounts, insurance policies, securities, jewellery, property, businesses, pensions, art wine, books, manuscript and stamp collections…clothes, shoes, hats, household and business goods”, all taken by a tyrannical state.

All these things were goods: physical representations of ‘wealth’. In the case of bank accounts, the wealth was a claim on the ledger of a central body: easily seized by tyrants. Likely this wealth was earned over generations. Only to be gone in an instant of despotic madness.

In the pre-information age we could only rely on the physical world to represent wealth. That is all. As a result we were vulnerable to the tyranny of state. In the information age we have a new paradigm: the digital.

Now we can not only denominate wealth digitally, but also have it exist entirely in the digital realm. It’s a grand concept. And it’s here now.

A Modern Context:

In November the Bitcoin Foundation went to Washington. During this visit congress was formally introduced to crypto-currency.

The community watched with baited breath as the US began the process of learning Bitcoin. The same community was taken-a-back by a fairly benign response. Washington decided it would take no immediate action. For now, it would wait and watch.

Of course, it was clear that no one really understood the broader implications. As senator Carper put it, “I understand the words, but not the sentences.”

For the apparatus of state realisation will be a long process. It will dawn over time. For now they play the sheep. As they necessarily continue the wealth confiscation process they will reveal themselves as wolves.

Continued wealth confiscation is a certainty for the US and much of the Western World. Currently it is less brutal than the Nazi version. But it is a longer, more insidious process: a slow grind.

The future obligations of the US Federal Government are enormous. It has promised its citizens hundreds of trillions of dollars in welfare benefits, well into the future. To pay for these promises it has two options: print money or increase taxes. Both options are limited. You can’t tax more than 100% and you can’t print money forever.

As we gradually approach the conclusion of these two options the state will be left with no other choice. Direct confiscation and capital controls are coming. To some extent they have already begun.

There is already precedent for this in US history. In 1933 President Roosevelt exercised an obscure piece of authority. Bank safety deposit boxes were seized. Trade of gold and silver was prohibited. US citizens were ordered to hand over precious metals to the Federal Government.

Confiscation in the information age will be a challenge. The state will require new methods worthy of digital wealth.

Thought Police and Torture – Our Orwellian Future:

Computing advancements to brute-force hack pass-phrases will be met with equal development from hackers. This will be a difficult path for the State.

As a result, the state will necessarily resort to torture or ‘thought police’. These are their only viable options for wealth confiscation. The state is hard out of luck. With the brain wallet the information age has truly taken it up a gear.

Nevertheless, technology itself has no moral compass. It can’t. Only we can. The same advancements in science that provide for brain wallets also make mind reading possible. Thought police are an inevitable part of our future.

Research is already being conducted to extract images from subject’s minds. Even now we are able to hear a person’s internal monologue. This technology is primitive, but it exists.

In a perverse tit-for-tat, the State will continue to  develop technology to read our thoughts and confiscate digital wealth. Hackers will also continue to develop technology for the people, to protect that same wealth.

As for torture, well that requires no technology. While restricted by constitutions, laws and international agreements these are only bits of paper. The state can and most likely will simply ignore those, as it has in the past.

A Great Hope:

To quote Arthur C. Clarke, “Any sufficiently advanced technology is indistinguishable from divinity”. We are entering a period of ideas unfathomable to even our parents. In some sense we already possess the power of the divine.

Bitcoin is one of these ideas. It is a technological marvel. As such it will necessitate equal technological marvels from states wishing to profit from our labour.

The information age is only just beginning. The majesty of this moment is tremendous. Enjoy the ride.