2014
SPRING
Introducing the Future of Money
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Merchant Adoption Soars Overstock.com Accepts Bitcoin
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Meet Leading Entrepreneurs Building the Bitcoin Space
Your Favorite Bitcoin Apps Returning to an App Store Near You
Coming Spring 2014
avalonic.com 4
yBitcoin.net
SPRING 2014
ON THE COVER
IN THIS ISSUE 7 WELCOME FROM THE PUBLISHER 58 LAST WORDS FROM THE EDITOR-IN-CHIEF
GUIDES 8 WHAT IS BITCOIN?
30 HOW MERCHANTS BENEFIT
Everything You Thought To Ask—and More
Should Your Business Accept Bitcoin?
By Erik Voorhees
By Tony Gallippi
10 WHY BITCOIN HAS VALUE Notes on the “Network Effect” By David Perry
34 MERCHANT ADOPTION Why Target, Wal-Mart and others will come around By Trace Mayer
12 yINVEST? The Most Promising Investment Opportunity of Our Age? By Tuur Demeester
15 GUIDE TO BUYING BITCOINS The Basics to Get You Into The Market By CoinDesk
36 WHAT IS BITCOIN MINING? A Crypto-currency Worth Digging For By Alexander Lawn
40 HISTORY AND EVENTS Bitcoin’s Brief Historical Timeline and Upcoming Conferences By Bitcoin Magazine
21 ENSURING BITCOIN SECURITY Tips on Safety and Accessibility By Andreas M. Antonopolous
24 GROWING THE MARKET A Bitcoin Shopping Guide By Alan M. Silbert
24
48 GET-TO-KNOW Leading Figures in the Bitcoin Movement
56 GLOSSARY A Guide to Bitcoin Terms
“From feedom to freedom” as the clever slogan trumpeting the February 24 debut of Neo and Bee, a Bitcoin-based financial enterprise in Cyprus whose backers most emphatically state is “not a bank.” Neo and Bee’s sparkling new headquarters building in the city of Nicosia stands as a testament to the tenacity of Cyprus’s 800,000+ residents who were deeply and materially affected by the country’s banking crisis and asset seizures of 2012-13. With vast numbers of them looking for alternatives to ensure it would never happen again, Neo and Bee created a physical exchange service (Neo) and a payment network (Bee) that operates with Bitcoin. While offering various services that may resemble those of banks, the company’s stated primary goal, disseminated widely throughout the island nation in the weeks and months leading up to its debut, is “to provide education and easy access to Bitcoin, as well as a seamless and transparent integration with the daily lives of customers and merchants.” All of us at yBitcoin offer them a hearty welcome and their own “seamless transition” into the worldwide Bitcoin community.
27
Back Cover
FROM THE PUBLISHER
W
SPRING
Welcome to the “nothing short of amazing” world of Bitcoin! We proudly pass along our second issue of yBitcoin, a guide designed to introduce Bitcoin's basics, its promise, and the trailblazing people and businesses that are paving its way! If you read our inaugural Winter 2013 issue, you’ll discover here a mix of "something old, something new." If this is your first look at yBitcoin, we hope you'll be inspired to learn from the foundational guides contributed by some of the best, brightest and most prominent Bitcoin entrepreneurs. Their articles are intended to answer questions that may very well have been on your mind in these past months of increasing Bitcoin exposure: What is it? How does it work? Is it important? Our mixture of timely and timeless material in yBitcoin fits with our mission of reaching new-to-Bitcoin readers with every issue while also serving as a tool for Bitcoin insiders to spread the word.
Since our debut, Bitcoin awareness has grown exponentially, thanks to its increasing use by merchants and customers around the world and an ever-growing presence in popular media. Bitcoin has also gained positive momentum and credibility at the highest levels, including U.S. Senate committee hearings. Meanwhile, the widely reported turbulence at the Mt. Gox exchange perfectly mirrored predictions that Bitcoin would endure growing pains as management vulnerabilities are exposed and overcome by the collective brainpower and accountability of the larger Bitcoin community. Over the sometimes breathtaking roller coaster of these past months, it is more clear than ever that the answer to the question of whether Bitcoin is important is a resounding yes! The print edition of this magazine may have reached you on a one-time basis as we employ targeted mailing lists to get yBitcoin in front of an audience most likely to be interested in the topic. If you would like to receive subsequent issues, please sign up at ybitcoin.net, and we will send you a complimentary copy of our next edition as soon as it rolls off the press. Meanwhile, I invite you to take in the intellectual and philosophical pleasures of learning about a fascinating and innovative new currency system that has the potential to shake our world as we know it. And when you’re done with this issue, consider passing it along to a friend as you would any newsworthy article, stock tip or pearl of wisdom!
All my best,
Calli S. Bailey, Publisher
2014
F o un d e r / E di t o r -in-Chief David F. Bailey Publisher Calli S. Bailey Senior Designer Jennifer M. Taylor Senior Consulting Editor Andrew Hidas We b / D e s i g n e r Scott Seeley Cir c u l a t i o n Christopher Smith Adver tising Associate Zac Corbett Contributing Wr i t e r s Andreas Antonopolous Tuur Demeester Tony Gallippi Alex Lawn Trace Mayer David Perry Alan Silbert Erik Voorhees Bitcoin Magazine CoinDesk Downloadable Digital Edition:
yBitcoin.net
yBitcoin is published quarterly by Bailey Publications, 1115 Eagletree Ln., Huntsville, AL 35801. Reproduction without the express written consent of the publisher is prohibited. yBitcoin is not responsible for unsolicited manuscripts, photography or art. yBitcoin does not endorse any advertiser or business listed in its directories, and is not responsible for errors and omissions in advertising or editorial content. The information contained herein should not be construed as an endorsement of any company or individual, nor reflect in any way upon the products/services they provide. yBitcoin does not knowingly accept false or misleading advertising or editorial content, nor does the publication or its staff assume responsibility if such advertising or editorial content appears in the publication. yBitcoin makes no warranties or representations and assumes no liability for any claims regarding services, products or claims made by advertisers. yBitcoin is not a broker, seller or buyer of Bitcoin, nor shall it be considered to be promoting or encouraging the purchase of or investment in Bitcoin. ©2014, all rights reserved.
calli@ybitcoin.net Advertising Sales Office 256.539.6100
www.ybitcoin.net
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What Is Bitcoin? Welcome To Cryptocurrency by ERIK VOORHEES
itcoin has taken the world by storm. Yet when most people hear about it, whether for the first or the tenth time, they have one simple question: “What is it?” Like an automobile, Bitcoin is very technically advanced, and it can be extremely complicated, depending on how much you want to know about it. But also like an automobile, you don’t actually need to know much about Bitcoin’s technical details in order to use it—and in order for it to change the way you look at the world. Here’s what you need to know. Generally speaking, Bitcoin is two things: 1) A payment network (“Bitcoin”), 2) The currency unit used on that network (“bitcoins”). Thus, as both a payment network and the specific currency used on that network, you use “Bitcoin” to receive and send “bitcoins” to and from other people. To clarify this, consider a comparison to items with which you’re already familiar: PayPal and U.S. dollars. PayPal is a payment network, but not a currency. On the flip side, the U.S. dollar is a currency, but not a
“The real magic of Bitcoin, the reason it’s so newsworthy, comes from the consequences of its existence.”
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“Bitcoin is two things: (1) A payment network (“Bitcoin”), (2) The currency unit used on that network (“bitcoins”).” payment network. You use the PayPal payment network to make transactions in U.S. dollar currency with people. Now, note that the PayPal payment network is operated and centrally controlled by one company (PayPal Inc.), and the U.S. dollar is created and centrally controlled by one organization (the U.S. federal government). Now: Here’s where things get important, and revolutionary—and a little weird. With Bitcoin, the payment network is decentralized. It is not controlled by any company or organization. Think of it like filesharing—a network of computers that talk to each other, but nobody controls the network itself (there is no central server). The currency unit, called bitcoins, is also not created or controlled by any central party. Bitcoins are created by the network itself over time, in a somewhat random process that distributes the new coins to those computers that are supporting and operating the network. The number of coins created in this way is limited by a clever mathematical system. As of this writing, there are roughly 12 million bitcoins in existence, and this will continually increase over time to a maximum of 21 million bitcoins many years in the future.
Unless you care about how Bitcoin accomplishes this, the above is really all you need to answer the question, “What is Bitcoin?” Answer: It’s a payment network, and a currency used on that network, which are controlled by no central party. The number of bitcoins in existence is limited by mathematics.
“Bitcoin means that for the first time in human history, every person has financial sovereignty. Private property can now truly be controlled by the owner, and nobody else.” Perhaps the more important question, of course, is, “Why should you care?” While computer engineers and mathematicians might find Bitcoin’s technical details fascinating, most people don’t really care about that. And while it’s true that Bitcoin permits financial transactions that have essentially zero cost, and which occur instantly anywhere in the world, these consumer benefits are not really what’s important, either. The real magic of Bitcoin, the reason it’s so newsworthy, comes from the consequences of its existence.
The fact that Bitcoin is decentralized, with no controlling entity, has fundamental implications. Because there is no central control, the power of the currency and its payment network belong to the people who use it. And this power is tremendous indeed. Bitcoin enables any two people, anywhere on earth, to transact with each other freely. They cannot be censored. There are no rules for their exchange except those they set between themselves. With Bitcoin, there is no third party watching over the participants of economic activity, approving their conduct and charging a fee for doing so. With Bitcoin, one does not need permission to direct one’s own financial life. This means people can contribute to controversial causes they believe are important, with no government agency or financial company able to cut off the payment flow. It means an entrepreneurial child can start an Internet business before he or she is 18. It means a rural African farmer can receive payment
for crops from a neighboring city, even with no bank account. It means a citizen of a tyrannical nation can hide his financial assets from seizure.
“Bitcoin enables any two people, anywhere on earth, to transact with each other freely.” Bitcoin means that for the first time in history, every person has financial sovereignty. Private property can now truly be controlled by the owner, and nobody else. The rules of finance, and our economic relationships, now become set and regulated by markets instead of by politicians. By the individual, not the collective. The value of one’s savings now cannot be reduced through monetary debasement (i.e. inflation). Trade between individuals is now the business of only those individuals. Certainly, some of these implications are controversial. Indeed, they will have profound consequences on human society,
just as do all great technological achievements. A good way to think of it is that Bitcoin represents the separation of money and state—the ability to “practice one’s own economic behavior” without the permission of anyone else. It removes the power over money from governments and banks, putting it in the hands of anyone who learns how to use it. It brings privacy in an age of surveillance, and honesty in an age of manipulation. So what is Bitcoin? It is an experiment. It is a project that, if successful, will change the economic relationship between humans on a fundamental level. Its implications have just barely been explored. Like any experiment, it can fail, but the genie is now out of the bottle. While this genie goes about its business, many things you take for granted will likely change, so it may be wise for you to educate yourself on the technological, mathematical, and economic phenomenon that is Bitcoin.
Erik Voorhees
Erik Voorhees is a serial Bitcoin entrepreneur and longtime advocate of “the separation of money and state.” He believes Bitcoin to be one of the most important technological tools ever created by humanity. Current CEO of Panama-based Coinapult, and former head of marketing for BitInstant, he has been at the center of the Bitcoin movement since April, 2011. He has been a featured guest on BBC Radio, The Peter Schiff Show and The Tom Woods Show, discussing the economic and social implications of Bitcoin.
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Why Bitcoin Has Value Notes on the “Network Effect” by DAVID PERRY
W
In truth there is more complexity involved—some things, like We all have what feels like an intrinsic understanding of value, your fish, would make very poor money indeed. Fish don’t stay though it is actually learned as we come to know our world. A gold good for very long, they’re not particularly divisible, and depending bar has value, an empty soda can, not so much. When we on the exchange rate, you might have to carry a truly absurd encounter new things it’s usually fairly easy to assess what kind of amount of them to make your day’s purchases. value they might hold, but Bitcoin is a different beast. Bitcoin is On the other hand, silver coins have their inherent problems harder to define and understand, and for many beginning too, at extremely large or extremely small scales. This is what is Bitcoiners the question of value is one of the most puzzling. truly valuable about Bitcoin: It’s better money. So why does Bitcoin have value? To begin, we really need to understand why anything has The Evolution to Bitcoin value. Fans of post-apocalyptic fiction will often point out that in It’s been a long time since those first “hard” moneys were the end, the only things of real value are those that sustain and developed, and today we transact primarily with digital representations defend life. Perhaps they’re right on one level, but with the rise of paper currency. We imagine bank vaults filled with stacks of cash, of civilized societies things got a bit more but that’s almost never the case these days— “Bitcoin is instead a complex, because the things that sustain most money exists merely as numbers in a and defend those societies also gain a simple, elegant and database. There’s nothing wrong with this certain degree of value. It is in this context modern replacement for type of system, either; it works fantastically that all moneys, Bitcoin included, gain their well in an age where physical presence during the entire concept value. Since our societies rely heavily on a transaction is not a given. The problem is of money.” trade and commerce, anything that facilithat the system is aging and far too often tates the exchange of goods and services has some degree of value. plagued by incompetence or greed. Every IT guy knows that from time to time you have to take a From Barter to Money drastic step: throw the old system in the trash and build a new one Imagine, for example, a pre-money marketplace where the from scratch. Old systems, such as our current monetary system, barter system is king. Perhaps you’re a fisherman coming to marhave been patched so many times they are no longer functioning ket with the day’s catch and you’re looking to go home with some as efficiently as they should. eggs. Unfortunately for you, the chicken farmer has no use for fish We previously patched our problems with gold and silver by at the moment, so you need to arrange a complex series of introducing paper banknotes. We patched further problems by exchanges to end up with something the egg seller actually wants. removing the precious metal backing those banknotes, then You’ll probably lose a percentage of your fish’s value with each patched them again and again to allow wire transfers, credit cards, trade, and you also must know the exchange rate of everything debit cards, direct deposit and online billpay. All the cornerstones with respect to everything else. What a mess. of modern life are just patches on this ancient system. This is where money saves the day. By agreeing on one intermeBut what would you do if you had the chance to start over? diate commodity, say, silver coins, two is the maximum number of What if you could make purely digital money based on modern exchanges anyone has to make. And there’s only one exchange rate technologies to solve modern needs? What if we didn’t need those for every other commodity that matters: its cost in silver coins.
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“Imagine being able to invest in the concept of email back in 1965 when some clever hacker at MIT found a way to use their primitive multi-user computer system to pass messages.” dusty old systems or the people making absurd profits maintaining them? This is Bitcoin.
Replacement, Not Repair Bitcoin isn’t another patch, another layer of abstraction added on top of an aging and over-complex system. Bitcoin isn’t another bank or payment processor coming up with new ways to move old dollars. Bitcoin is instead a simple, elegant and modern replacement for the entire concept of money. It has value for exactly the same reason as the paper money in your wallet: It simplifies the exchange of goods and services, not in the antique setting of a barter system bazaar, but in the current setting of modern Internet-enabled life. “But that’s only why it’s useful,” I hear some of you saying. “Why does it actually have value?” The two-word answer is one most economists are familiar with: Network effect. The network effect is a lovely piece of jargon that refers to the quite commonsense statement that networked products and services tend to have more value when more people use them. The most common example is the telephone: During its early days when few people had access to telephones their utility, and therefore their value, were minimal. Today practically everyone has a phone, so their utility and value is so high as to be unquestionable. In this way the value of Bitcoin is directly tied to the number of its users and the frequency of their use. Of course Bitcoin’s value stemming from the network effect is not without its own unique difficulties. When the network is still relatively small, each new group’s entry or egress can create massive price fluctuations, resulting in huge profits for early adopters.
Unfortunately, this makes Bitcoin look, on the surface, too good to be true—a bit like a Ponzi or pyramid scheme. Ponzis and pyramids are distinct and different forms of fraud, but they share one thing in common: The first ones in make a lot of money while the last ones in foot the bill. Both feature initial “investors” being paid out directly from new investors’ money. The return is always too good to be true and the gains (for those who actually get gains) are exponential. Because Bitcoin’s value has risen so dramatically since its 2011 debut, it seems to fit this sort of a profile at first glance, but then so does every new technology. It’s just not normally the case that we get to invest in this sort of technology and profit as it’s adopted. Imagine being able to invest in the concept of email back in 1965 when some clever hacker at MIT found a way to use primitive multi-user computer systems to pass messages. It might have seemed like a silly waste then, but owning even a tiny percentage of the rights to email today would make one wealthy beyond imagining. Technologies follow a known adoption curve, which tends to include a period of exponential rise. Bitcoin is no exception. Ponzis and pyramids both create value for their oldest investors by stealing from the new. There’s no economics involved—just theft. Bitcoin creates value for the old investors and the new by splitting a finite currency supply more ways. That’s not trickery or theft, just good-old-fashioned supply and demand at work— a basic and ancient economic principle applied to the world’s newest currency system.
David Perry
David Perry is the chief architect for BitcoinStore and author of the popular Bitcoin blog, “Coding In My Sleep.” When he's not breaking (or making) Bitcoin news, he can often be found moderating the Bitcoin StackExchange Q&A site, attending Bitcoin meetups and conventions, or tending to his Bitcoin mining operation.
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1 Year:!+1,610%
3 Year: +52,900%
2 Year:!+10,500%
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Feb 14
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Bitcoin: Perhaps the Most Promising Investment Opportunity of Our Age
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technology is called “disruptive” if it creates a new market that first disturbs and then displaces an earlier technology. Bitcoin is potentially such a technology and much more. The fact that it can disrupt the largest and most interconnected marketplace in the world—money, banking, and finance— makes it perhaps the most promising investment opportunity of our age. Unlike our current increasingly unstable and unpredictable financial system, Bitcoin has 21st century technologies at its very core. The digital currency and clearing network is open source, mobile, peer-to-peer, cryptographically protected, privacy oriented, and native to the Internet. The fusion of these technologies allows for a level of security and efficiency unprecedented in the world of finance. These are some of the areas in which Bitcoin-oriented technology can directly compete: • • • • • • •
$2 trillion annual market for electronic payments, $1 trillion annual e-commerce market, $514 billion annual remittance market, $2.3 trillion hedge fund market, $7 trillion gold market, $4.5 trillion cash market, $16.7 trillion offshore deposit market.
Since inception of Bitcoin in 2009, its market cap has grown by a minimum of 10 times every year. It now stands at over $10 billion, with an annual turnover of +$50 billion. 12
yBitcoin.net
by TUUR DEMEESTER
Indeed, Bitcoin has been noted in glowing terms by industry moguls such as: • Bill Gates, (“a technological tour de force”), • Paypal CEO David Marcus (“We are considering using Bitcoin as a funding instrument”), • SWIFT CEO Gottfried Leibbrandt (“Don’t see why we could not send transactions in Bitcoin as a currency”), • GoldMoney chairman James Turk (“Bitcoin is money and a store of value”), • Gmail creator Paul Buchheit (“Bitcoin may be the TCP/IP of money”—implying that Bitcoin may revolutionize money the way the Internet revolutionized information), • $55 billion Fortress Investment Co-CIO Michael Novogratz (“Put a little money in Bitcoin, come back in a few years and it’s going to be worth a lot”). Apart from disrupting existing marketplaces, this “honey badger of money” also has the potential to develop entirely new markets. (Honey badgers have gained notoriety on the Internet in recent years as “the most fearless of all animals.”) Given the decentralized nature of the Bitcoin network, it can help the 2.5 billion unbanked people worldwide transact and bank internationally through their cell phones and smartphones. And because of its extremely low costs and absence of bureaucracy, Bitcoin can also help get the undeveloped market for microloans and micropayments off the ground. Another area of future growth lies in the fact that, in the words of IBM executive architect Richard Brown, “Bitcoin is a very sophisticated, globally distributed asset ledger.” What Brown and others hint at is that Bitcoin will in the future be able to serve not only as a currency and payment platform, but also as an “Internet of money.” This entails a decentralized and global platform on
which companies and individuals can issue, buy, and sell stocks, commodities, and other financial products, thereby removing a lot of the current bureaucracy and barriers to entry. IBM’s Richard Brown is so enthused by this prospect that he sees it as “a whole future of innovation.” So, how much of this potential is already realized? Well, since inception of Bitcoin in 2009, its market cap has grown by a minimum of 10 times every year. It now stands at over $10 billion, with an annual turnover of +$50 billion. According to Coinmetrics.com, this makes the Bitcoin currency stock more valuable than that of 106 national currencies, including Panama, Macau, Ghana, and Malta. The standard open source version of the Bitcoin software (Bitcoin QT) has been downloaded 5.3 million times to date, and a combined 2,000,000 users now have accounts with the online wallet services of coinbase.com and blockchain.info. Payment processors Bitpay and CoinBase recently reported a combined 20,000 registered merchants accepting the digital currency. Finally, Bitcoin companies active in Bitcoin mining, payment processing, gambling, and many other areas, have grown to a combined value of over $1.5 billion. Furthermore, the Bitcoin price has been rising at an exponential rate of +1,000% annually. This can be explained mostly by the fact that it is a scarce commodity (maximum supply is 21 million) with a rapidly growing user base. Here are a few possible scenarios for the future value of one bitcoin:
Scenario
Potential value of one bitcoin
Hedge funds allocate 1% to Bitcoin2 Argentines sell USD cash for Bitcoin3 Gold holders divest 1% into Bitcoin4 Bitcoin replaces remittance market5 Becomes global E-Commerce currency6 25% of black market transactions in Bitcoin7 Bitcoin replaces reserve currency8 Bitcoin replaces offshore deposits9
$ $ $ $ $ $ $ $
1,230 2,480 3,500 6,860 11,500 44,000 500,000 800,000
The scenarios projected above are, of course, not cast in stone. Bitcoin faces several risks going forward. These include: • Compromised security of the major exchanges, • The emergence of a much better digital currency that steals its market lead, • An undetected bug in the system, • A sustained attack by an organization with substantial computational resources, • A coordinated clampdown on Bitcoin by a multi-national entity such as the G20.
“Bitcoin does not appear to be a fad or bubble, nor merely a one-off hedge against gold.” How serious of a risk do these challenges pose? Let us examine them: A better currency is possible, but experience shows that disruptive protocols—such as SMTP for email and TCP/IP for Internet—have proven to be very resilient once adopted by a critical mass of the population. An organized attack on the network is possible but expensive, and there are many potential defense mechanisms. As with any software application, the discovery of bugs may destabilize the system, but the open source nature of Bitcoin allows for many eyeballs to help track problems, and many brains to help figure out a solution. That leaves government clampdown as the most likely risk to Bitcoin. However, with many regulators implicitly or explicitly already accepting Bitcoin, and the robust, decentralized nature of its network, such a move would appear to be unlikely. The network effect is what constitutes the biggest driver for Bitcoin as a medium for exchange: the more people use it, the more useful it becomes, and the more valuable the currency will become. This makes the outcome of the Bitcoin story likely to be binary: either it will experience a spectacular downfall, or the value of bitcoins will rise dramatically over the coming years as an increasing share of the global population adopts the currency. In any case, it seems exceedingly clear that the technology of the cryptocurrencies is here to stay. Bitcoin does not appear to be a fad or bubble, nor merely a one-off hedge against gold. With a risk-reward proposition this attractive, holding a small percentage of bitcoins in one’s portfolio as a speculation on increased adoption may be one of the wisest investment decisions of our age.
1) Sources: http://tinyurl.com/remittance2012 and for volume estimates in BTC economy: http://blockchain.info/charts (the latter also for estimates in footnotes 5, 6, and 7) 2) Source: http://tinyurl.com/HFresearch2013 3) Source: http://tinyurl.com/argentine-USDcash 4) Source: http://tinyurl.com/GMabovegroundgoldstock 5) Source: http://tinyurl.com/worldbank2012remittances 6) Source: http://tinyurl.com/ecommerceglobal 7) Sources: http://tinyurl.com/VOXEUshadowecon and http://tinyurl.com/CIAworldGDP 8) Source: http://mises.org/content/nofed/chart.aspx 9) Source: http://tinyurl.com/HKMAoffshore
Tuur Demeester
Tuur Demeester is editor and owner of AdamantResearch.com, which publishes research on investing and entrepreneurship in the new economy. He has a background in Austrian economics, the school that specializes in the study of boom-and-bust cycles in the economy. He first discovered Bitcoin on a research trip in Argentina, and started recommending it as an investment at $5 in January 2012.
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So were you perhaps beginning to feel pretty good about finally understanding the world of Bitcoin as it started to make the evening news and show up in morning briefings on your favorite cable outlet? Well hold on there, because like all dramatic innovations in human history, Bitcoin has paved the way for a host of followups in the “ecosystem” it has spawned, and there would appear to be no stopping now. One of the latest innovations-uponinnovation is BitShares, whose slogan, “Reimagine Everything,” stands as a call-to-arms to widen the vision of the technology behind Bitcoin. BitShares uses the same blockchain-based model but applies it to shares of companies, potentially broadening the technology’s reach far beyond currency. The BitShares concept originated with Daniel Larimer, a Virginia-based software engineer and entrepreneur with an abiding passion for fostering radically decentralized businesses—including his own. “We’re spread all over the world,” notes BitShares Marketing Director Brian Page, who tracked Larimer down at the Las Vegas Bitcoin Conference last year. Everywhere Page turned to make deeper inquiries about what may be the next big thing related to Bitcoin, he heard the same refrain: “Oh, you have to see what Dan Larimer is working on.”
Page wasn’t looking for a job prior to that conversation, but he emerged with one after he and Larimer got to discussing not only the fine points of Bitcoin, but where the new decentralized world was heading in its wake. For Larimer, his own path was obvious. With BitShares, he was already moving beyond Bitcoin-as-mere-currency, creating his equally decentralized entity with the task of building the software that will make the world’s first fully decentralized autonomous businesses possible. Page elaborates: “We aim to do for business what Bitcoin is doing for money— make it digital, decentralized, open source, and free market.” To that end, BitShares offers an open source platform from where entrepreneurs can encode their business plans in software limited only by their imaginations—and the willingness of others to share their vision and invest in their companies. BitShares thus represents a new use of Bitcoin technology, where instead of using “coins” to function as currency, it can be used to own digital “shares.” “Anyone can use the BitShares software to build a decentralized autonomous company (DAC),” Page says.“Within that, there are many kinds of shares and many kinds of companies.The commonality is that they’re digital and exist only as software.These are not legal entities with boards of directors, stock, offices, and employees. Like Bitcoin,
DACs exist entirely as software running on individual computers all over the Internet, allowing them to take on a life of their own, like Bitcoin has. With expenses reduced, transaction fees earned by the network can go to shareholders instead. “We looked at Bitcoin and thought, ‘Hey, there are a hundred other ways to apply the same technology.’ The banking industry, domain names, gaming, insurance, the music industry, ticket sales, even the way we count votes—these and many other businesses are run archaically, in ways that let profits go right out the door and require centralization,” Page says.“All of them would benefit hugely with a BitShares approach that limits fraud, fills seats,promotes transparency, and unleashes free market forces and entrepreneurs.” BitShares, Page likes to suggest, will be “the ultimate app store for entrepreneurs who want to enter this new world. We’re creating the tools they’ll need to make this possible by combining the profit motive with blockchain technology in a way that hasn’t been done before. “Think back for a minute to the early 1990s when the first websites were being created,” Page offers. “People at the time thought, ‘Oh, that’s a beautiful website, just brilliant, that will change everything,’ but the true brilliance was not just the website, it was the emergence of the Internet itself. Look what it led to. Who could have envisioned Google or Facebook back then? And those companies just keep coming. So, if you think of the Internet as what made possible the decentralization of information, this new wave of innovation will enable the decentralization of so much more. It’s why we keep asking, ‘Why not reimagine everything?’”
Sponsored Profile
A Guide to
uying Bitcoins Contributed by CoinDesk
Albuquerque, NM
B
itcoin involves amazing technology, but in order to take part in its massively expanding economy you need to own some. There are three primary ways to acquire bitcoins: buying them, earning them in exchange for goods or services, or mining them. For most of us, buying bitcoins is the most practical and convenient way to take the plunge, but as you’ll discover, it isn’t (yet) as simple as walking into your neighborhood ice cream parlor for a cone. You can buy bitcoins in a variety of ways. Here are a few places to start.
Traditional Bitcoin Exchanges Traditional exchanges such as Coinbase or Bitstamp are probably the most common sources for bitcoin purchase. You start by visiting the company’s website and setting up an account. Then you need to deposit fiat currency such as U.S. dollars into your account. (“Fiat” refers to any currency that is considered by a government to be legal tender.) How you get your local currency into your Bitcoin account is different for each exchange, but it generally requires you either to wire money to the exchange or let them perform an ACH withdrawal directly from your bank account. In most cases, the money settles in less than a week. Once the exchange credits your account, you can buy bitcoins, not from the exchange, but from other traders on the exchange. The exchange just manages the process, using what is called an order book.
“Bitcoins can now be bought through regulated exchanges, ATMs or directly from individuals selling them—either online or in person.” If you’re buying, you can choose to place an instant order at the going market rate, or, if you expect a lower rate, at your designated price. As soon as the exchange matches your order with a seller, the exchange executes it, and the fiat currency in your account is converted to bitcoins. This process is exactly how traditional fiat currencies such as the yen and dollar are traded. After your purchase, if you want to spend bitcoins on goods, you’ll need to withdraw them from your account at the exchange and send them to a Bitcoin address so that they wind up in your wallet. For easiest access, it’s probably best to transfer your bitcoins from the exchange’s online server to your own computer, or even store them in a safe deposit box at your local bank. The biggest strength of exchanges is that they are designed for trading, so you can speculate on bitcoins. The downside is you are dealing with an intermediary, and also have to deal with issues such as Know Your Client (KYC) and Anti-Money Laundering (AML) rules. These rules, implemented to stop terrorists and other criminals from laundering money, can be challenging for users—kind of like the shoe removal and
ID rigmarole we go through at airports. As in that circumstance, patience is a virtue.
OTC Exchanges Another option is to pursue over-thecounter (OTC) trades, in which you buy bitcoins directly from another party in fiat currency, without relying on an exchange. In these trades, you contact the other party directly via an OTC website, and in some cases may need to negotiate the specifics of the deal. The funds you use can be in the form of a PayPal transaction, cash, or even gold or silver, depending on the features offered by the site.
“There are three primary ways to acquire bitcoins: buying them, earning them in exchange for goods and services, or mining them.” Once agreements are reached, the parties selling the bitcoins deposit them in an escrow account operated by the site. All parties can see when the bitcoins have arrived. When they do, the sellers release the bitcoins from the escrow account for the buyers. The process makes it impossible for sellers to retrieve the bitcoins or buyers to seek a refund—once the transaction is complete, there are no “redos.” OTC sites offer a successful way to trade bitcoins quickly, but you’ll often find them trading at a premium. It is worth checking the
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“One of the great aspects of Bitcoin is that it is entirely decentralized. This means that if you happen to be near someone with a Bitcoin address, you can simply send them the money by making a direct transaction, generally over your mobile phone.” regulations in your own country regarding KYC/AML rules, to see if the authorities officially permit such trades. It makes sense to use a dedicated account for such trades, separate from any other personal or business accounts you may use, so that you can keep track of exactly what you have bought. This may help for potential tax purposes later.
Direct Payment Sites Sites such as Coinbase offer people the chance to buy bitcoins without exposing them to order books. These sites call themselves Bitcoin “wallets” with the ability to buy bitcoins on your behalf. They are essentially an exchange with a simple online wallet. However, you will still need to follow KYC rules, and for the time being, they are open only to U.S. customers. Other companies, such as ZipZap, allow you to make Bitcoin purchases through local convenience stores, including over 28,000 locations in the UK, but this service is not available in all areas yet, and sellers often charge a higher premium. Various other sites offer the chance to buy bitcoins with a credit or debit card. In order to control fraud, these sites typically impose strict limits on the number of bitcoins you can buy, and the transaction fees can be steep. They are a fine and convenient way, however, for buyers to dip their toes into the Bitcoin waters at a very low entry cost. One such Canadian company, Quick BT, offers Bitcoin via debit card, but only to Canadian and Australian residents for now, and only in maximum $100 increments. The company hopes to offer credit card
purchases in the future, along with sales in the U.S. and elsewhere, but regulatory hurdles for the industry must be cleared first.
In-Person Purchases One great feature of Bitcoin is that it is entirely decentralized. This means that if you happen to know someone with a Bitcoin address, you can simply send them the money by making a direct transaction, generally over your mobile phone. But how do people meet each other? Thanks to social networking and sites such as Meetup.com, there are now groups organizing all over the world with the sole purpose of trading bitcoins, either for fiat currency, or for other goods. A growing list can be found at bitcoin.meetup.com/all/. Some OTC exchanges such as LocalBitcoins also feature local searches, enabling you to find people willing to sell you bitcoins in cash. If taking this route, be careful about when and where you meet strangers for such transactions, and check that the escrow payment has arrived first. This is often the quickest way to purchase bitcoins. Finally, Bitcoin ATMs are being installed across the globe. These allow you the convenience and speed of purchasing bitcoins without the need to do business with a stranger. Because of these advantages, Bitcoin ATMs often charge a premium.
generally involve a cumbersome registration process, which often entails printing out and signing forms to send to the exchange. Expect to provide copies of governmentissued photo ID as well.
Wire Transfers Most exchanges accept wire transfers, although they take a few business days to clear, and involve a transaction fee (often a percentage of the transaction, above a minimum amount). If you live in the Eurozone, regulations may permit free wire transfers. Check with your exchange on this matter.
Credit & Debit Cards/PayPal Many exchanges forbid payment mechanisms that allows chargebacks, such as credit cards and PayPal accounts. Accepting payments via these channels opens them to fraud, and where permitted will usually incur higher transaction fees. This often results in limiting the amount of bitcoin you can buy.
Conclusion All the processes and challenges mentioned here are changing rapidly as Bitcoin gains increasing acceptance in the marketplace. With Bitcoin entrepreneurship in full swing, expect easier, more convenient processes to emerge with the ingenuity we have come to expect in modern economies.
The Payment Process Paying for bitcoins can involve serious paperwork. For regulatory reasons, reputable exchanges want to know who you are—those KYC and AML rules again. Consequently, paying sites that adhere to regulations will
As with all sites, check the reputation of the business before doing business with them.
A leader in news, prices and information on Bitcoin and other digital currencies, CoinDesk covers news and analysis on the trends, price movements, technologies, companies and people in the Bitcoin and digital currency world. CoinDesk strives to cover news accurately, fairly, objectively and responsibly. Obtaining original comment, corroborating information from other sources, and showcasing original opinion are fundamental to this.
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Buy/Sell Directory*
BITONIC BITCOIN.DE
Netherlands
Germany
https://bitonic.nl contact@bitonic.nl
BTC, EUR
https://bitcoin.de/en
BTC, EUR
BTCCHINA
BITSTAMP
Shanghai, China
Slovenia
https://bitstamp.net info@bitstamp.net BTC, EUR, GBP, USD, CHF
BTCe Russia BTC, EUR, USD, LTC
https://btc-e.com
EXPRESSCOIN
BTC, USD
https://campbx.com
ITBIT
Freeland, WA, USA
Singapore
http://expresscoin.com support@expresscoin.com
https://www.itbit.com info@itbit.com
BTC, USD
BTC, SGD, USD, EUR
BTC, CNY
COINMKT
Alpharetta, GA USA
CAMPBX
https://vip.btcchina.com business@btcchina.com
Santa Monica, CA USA
COINBASE San Francisco, CA USA BTC, USD
https://coinbase.com
USD-BTC, LTC, PPC, NMC, XPM, FTC, WDC, MEC, QRK
https://coinmkt.com
KRAKEN San Francisco, CA USA
https://kraken.com support@kraken.com BTC, USD, EUR, XRP, LTC
Helsinki, Finland https://localbitcoins.com support@localbitcoins.com ALL CURRENCIES ACCEPTED
VAULT OF SATOSHI QUICKBT Toronto, Ontario, Canada
https://quickbt.com help@quickbt.com 888-QUICK-55 BTC, CAD
SAFELLO Stockholm, Sweden
Ontario, Canada
https://safello.com info@safello.com
https://vaultofsatoshi.com hello@vaultofsatoshi.com 888-293-5014
BTC, EUR, SEK
BTC, CAD, USD, LTC
*Every effort has been made to ensure accuracy of information presented here – see disclaimer page 7
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Canadian Virtual Exchange https://cavirtex.com support.cavirtex.com 888-812-2525 BTC, CAD, LTC
Create an order Make payment Collect bitcoin
oin tes
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How to Ensure Bitcoin Security by ANDREAS M. ANTONOPOULOS
“...Bitcoin has capabilities that cash, gold and bank accounts do not.”
itcoin allows anyone to be his or her own bank. If that sounds to you like a potential scenario for chaos, it’s only because you haven’t yet heard of the great lengths to which Bitcoin users can go to ensure the security of their “one-person banks.” By following a handful of basic security guidelines, they can achieve a level of security for their money that is actually unavailable in the banking world as we know it. The truth is that banks are barely able to keep accounts secure. Although banks promise to have your deposited funds available for you, none of them could withstand a “run” in which all depositors simultaneously decide to withdraw their funds. In that respect, bank funds are just an abstract reference to value, because your money isn’t really there. It’s just a number in a ledger, but the actual money is out on loan to the bank’s borrowers. Bitcoin is not like that. Instead, it functions very much like digital cash or gold. You deposit it in your account, you maintain it, and when you want to use it
B
for a purchase, it is there for you— yours and yours alone. With Bitcoin, possession is 10/10ths of the law. This means it comes with its own security challenges. Having the keys to unlock a bitcoin is entirely equivalent to possessing a chunk of precious metal. Which means if you misplace it, have it stolen or accidentally send the wrong amount to someone, you would have as much recourse as if you dropped cash on the sidewalk and didn’t notice until you got home. However, Bitcoin has capabilities that cash, gold and bank accounts do not. A Bitcoin wallet, containing your keys, can be backed up like any file. It can be stored in multiple copies, even printed on paper for hard-copy backup. A backup of bitcoin keys is as good as possession of the original keys. You can't "backup" cash or precious metals. Banks can recover funds for you, but only at their discretion. And they can also confiscate funds, adding a risk that doesn’t exist in Bitcoin. Bitcoin is different enough from anything that has come before that we need to think about its security in a novel way, too.
What should an end-user do to secure their Bitcoin wallets? Here are five guidelines. 1. Balance the risk of loss and theft. While most users are rightly concerned about theft, loss is an even bigger risk. Data files get lost all the time, but if they contain bitcoins the loss is much more painful. In the effort to secure their Bitcoin wallets, users must be very careful not to go too far and end up losing the bitcoins instead. In the summer of 2010, a well-known Bitcoin awareness and education project lost almost 7,000 bitcoins. In an effort to prevent theft, the owners had implemented a complex series of encrypted backups. In the end they accidentally lost the encryption keys, making the backups worthless and losing a fortune. Like hiding money by burying it in the desert, if you hide it too well you might not be able to find it again. 2. Use two-factor authentication. Many first-time users will use a web-based wallet or online service as their Bitcoin bank. Unfortunately, this has led to a rash of thefts from Bitcoin users,
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almost all due to compromised desktop computers. Hackers will install trojans and keyloggers looking for access to well-known Bitcoin sites. As soon as users log on, their own computer will compromise the account and surreptitiously transfer all their money to another Bitcoin address. Once stolen, there is no recovery, as Bitcoin transactions are not reversible. The most effective defense against this attack is using what is known as a “two-factor authentication scheme” or using a smartphone application to generate one-time codes. (See “Google Authenticator” at http://code.google.com/p/googleauthenticator/.) 3. Spread the risk. Would you carry your entire net worth in cash in your wallet? Most people would consider that reckless, yet Bitcoin users often keep all their bitcoins in a single wallet. Instead, users should spread the risk among multiple and diverse Bitcoin wallets. The prudent user will keep only a small fraction—perhaps less than 5%—of their bitcoins in an online or mobile wallet as "pocket change." The rest should be split between a few different storage mechanisms, such as a desktop wallet and offline-storage as described below. 4. Use physical storage. Humans have used physical security controls for thousands of years. By comparison, our experience with digital security is less than 50 years old. Bitcoin keys are nothing more than long numbers. This means that they can be
On Your Computer
Off-Line
On The Web
On Your Phone
“...Bitcoin security is increasingly implemented with hardware tamper-proof wallets.” stored in a physical form, such as printed on paper or etched on a metal coin. Securing the keys then becomes as simple as physically securing the printed copy of the Bitcoin keys. A set of Bitcoin keys that is printed on paper is called a "paper wallet," and there are many free tools that can be used to create them. Users should consider keeping the vast majority of their bitcoins (95% or more) stored on paper wallets and locked in a safe. 5. Consider hardware wallets. In the longer term, Bitcoin security is increasingly implemented with hardware tamper-proof wallets. Unlike a smartphone or desktop computer, a purpose-built Bitcoin hardware wallet has only one purpose and function—holding bitcoins
securely. Without general purpose software to compromise and with limited interfaces, hardware wallets can deliver an almost foolproof level of security to non-expert users. Most industry observers expect to see hardware wallets become the predominant method of Bitcoin storage, or eventually embedded in smartphones as a secure hardware module. For an example of such a hardware wallet, see the Trezor at http://www.bitcointrezor.com/. In summary, Bitcoin is a completely new, unprecedented and complex technology. Over time we will develop better security tools and practices that are easier to use by non-experts. For now, Bitcoin users can employ many of the tips above to enjoy a secure a trouble-free Bitcoin experience.
Andreas M. Antonopoulos
Andreas M. Antonopoulos is an expert in security and distributed systems, an entrepreneur, and a coder. He has founded six companies and advised hundreds more in a career spanning two continents and two decades. He lives in San Francisco, where he is writing a technical Bitcoin book for developers. He can be contacted at: http://antonopoulos.com
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Growing The Market A Bitcoin Shopping Guide by ALAN M. SILBERT
I
If years ago someone was to guess what product would help kick off Bitcoin adoption, it’s a good chance that alpaca socks wouldn’t be among their first guesses. Fuzzy socks to launch a disruptive technology and global currency? Yet that’s exactly what occurred when alpaca socks were among the very first consumer items to be purchased with bitcoins. Similar feelings were no doubt engendered when early enthusiasts were directed to make their initial Bitcoin purchases using an ominous red phone at a grocery store, speaking to an operator to route U.S. dollars through an intermediary to a Bitcoin exchange. This was the future of currency? But just as the red phone led the way to many international exchanges, alpaca socks helped launch a burgeoning Bitcoin consumer ecosystem. With over 60,000 transactions per day and that number growing, it is evident that bitcoins are making headway in the world of consumer purchasing.
Consumer Market As of the beginning of February, there are over $8 billion worth of bitcoins in circulation that are ripe for spending. In the evolving Bitcoin market, consumers can now buy electronics, clothing, food, precious metals, Internet services, creative services, and even luxury cars and homes.
The Growing Market Spendbitcoins.com and the Bitcoin wiki show growing lists of merchants, and Bitcorati has developed a directory and rating system for Bitcoin businesses. BitcoinStore, BitcoinShop.us, and Bitcoinin are constantly broadening their inventory of electronics, clothing, gifts, and other items, as they vie to be the “Amazon of Bitcoin.”
David’s Antiques 322 Royal Street New Orleans, LA davidsnola.com
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Food take-out and delivery service Foodler accepts bitcoins from its 14,000 customers. SatoshiDICE and other sites offer gambling.
Gyft offers gift cards from over 200 different retailers. Overstock, Zynga, TigerDirect and the Sacramento King’s acceptance of Bitcoin shows that more mainstream businesses are starting to adopt it. Entire communities, such as Berlin’s Kreuzberg neighborhood, are embracing Bitcoin and accept it in many of their local businesses. Bars and restaurants and even luxury goods purveyors are now accepting Bitcoin worldwide. Continued growth in adoption is going to be the key to a flourishing Bitcoin consumer market.
“In the evolving Bitcoin market, consumers can now buy electronics, clothing, food, precious metals, Internet services, creative services, and even luxury cars and homes.” Lower Prices and International Barriers The frictionless, low-cost nature of Bitcoin allows for lower prices to be passed on to consumers. (The Bitcoin network is fee-free, albeit for a voluntary nominal fee that benefits the miners that support the Bitcoin network.) These economics mean that Bitcoin merchant processors offer lower fees than the VISAs and PayPals of the world, enabling merchants to deliver lower prices to consumers. Similarly, due to the borderless and peer-to-peer characteristics of Bitcoin, consumers can bypass costly middlemen altogether and go directly to the source. The Roast Station Project is but one example, as consumers can buy coffee beans directly from a grower in Bali, bypassing the barriers and costs of middlemen, and have the product shipped to them anywhere in the world. An American family renting a home in France can send bitcoins to the property owner without concern for intermediary or currency exchange fees, and without waiting for PayPal to release their funds. A foreign worker can send bitcoins back home to his or her family abroad, and avoid the 10%+ fees traditionally charged, thus providing the family with more bitcoins to spend in their local economy. Additionally, Bitcoin can reach many countries where traditional credit cards and PayPal aren’t accepted, giving more reach to consumers, especially those who are “unbankable” by traditional banking. East Africa is a perfect example of where this is taking hold.
More Safety Consumer security is another benefit of Bitcoin. Giving out a credit card number and associated information involves divulging an uncomfortable amount of personal detail while opening consumers up to future charges, possibly illegitimate, as long as the credit card is valid. In contrast, each Bitcoin transaction is a one-time, irreversible event that uses only your pseudonymous
Bitcoin address. Escrow services, such as the one offered on BitPremier, mitigate the risks of large-ticket transactions. Bitcoins can be held in escrow by a trusted third party until both parties to the transaction consider it final and binding.
Maintenance of Purchasing Power Inflation protection is another benefit to the Bitcoin consumer. The purchasing power of the U.S. dollar has been almost halved in the last 25 years due to inflation, with a $100 basket of goods and services in 1988 costing nearly $200 today. The limitation on the number of bitcoins in circulation provides protection to consumer purchasing power.
Dangers for the Consumer While Bitcoin may be almost perfect, it does have its challenges. As the ecosystem evolves and develops, it will naturally attract nefarious characters. Consumers should deal with trusted merchants, perform their due diligence, and use escrow services for large transactions. And while the irreversible nature of Bitcoin has its positives, it leaves little margin for error. Bitcoins should be treated like cash in that once you walk away from a transaction you and your cash have parted ways. Buying from a business that uses a trusted merchant processor like BitPay, Coinbase or BIPS is a good start toward secure shopping. So is shopping at e-commerce sites run by reputable names in the Bitcoin community, or using local brick-and-mortar merchants. As always, transactions that seem too good to be true should be viewed cautiously.
To the Future While the choices for the Bitcoin consumer are growing, the Bitcoin economy is still in its infancy. With some help from the Bitcoin community, and as the benefits of Bitcoin become more well known around the globe, the consumer market for Bitcoin should grow into a thriving global merchant economy.
Alan M. Silbert
Alan Silbert is founder and CEO of BitPremier, the first-of-its-kind Bitcoin luxury marketplace, and a vice president at GE Capital. He has more than 16 years’ experience in commercial finance. Previously, he was a vice president at Merrill Lynch Capital and held various positions at Heller Financial, Access National Bank, and HealthCare Financial Partners. He holds a B.S. degree in finance from Towson University, and currently resides in Maryland with his wife and two children.
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The Uncommon Florida...ST. GEORGE ISLAND PLANTATION
ON THE MARKET Bitcoin Preferred
NATURAL BEAUTY—Relaxed, yet sophisticated Island Home on choice 1-acre lot set amid spectacular twisted pines with sweeping panoramic ocean views!
Designed and built by renowned American architect Dahlen Ritchey for his winter residence, this south-facing, energy-efficient 4 BR, 3 BA home perfectly captures the day’s sunrise and sunset! Copper roof. Hardwoods and travertine. Separate guest quarters on ground level. The Plantation offers private entry with 24-hour staffed guard house; pool, fitness, tennis, clubhouse; walking/biking trails; boardwalks to beach; private air strip. The island borders the Gulf of Mexico and Appalachicola Bay, renowned for the best oysters in the world, fishing, and birdwatching! A Top-10 beach! Furnished. $990,000. (apx. 1500 BTC)
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1616HawthorneLane@gmail.com yBitcoin.net
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Should Your Business Accept Bitcoin? by TONY GALLIPPI
itcoin is a virtual currency that is growing in popularity each day, offering unique advantages to businesses. But does it make sense for your business to accept Bitcoin? Let’s explore some of the reasons why it may.
B Internet
The more sales your company makes online, the more sense it makes to accept bitcoins as payment. With Bitcoin, your customers have no risk of identity theft, and your business has no risk of payment fraud. Bitcoin is like cash, so the buyer does not need to provide any sensitive financial information to make a payment, and there is nothing for an identity thief to steal.
“There are no chargebacks with Bitcoin, so you can safely accept a payment from a customer you don’t know, without risk of payment fraud.”
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“Bitcoin is like cash, so the buyer does not need to provide any sensitive financial information to make a payment, and there is nothing for an identity thief to steal.” Each Bitcoin payment is a “push” transaction, in which the customer pushes the money to you. The payment is irreversible, so once you receive the money, it stays yours. There are no chargebacks with Bitcoin, so you can safely accept a payment from a customer you don’t know, without risk of payment fraud. The speed of Bitcoin payments is extremely fast. The peer-to-peer network can propagate a transaction around the world in about one second, which is faster than the round-trip time most credit card networks take to analyze a transaction for fraud detection.
makes to accept Bitcoin. With Bitcoin, your money is cryptographically secure, so there is nothing an employee or a thief would gain by stealing your computer or data.
International The more international customers your company has, the more sense it makes to accept Bitcoin. Because Bitcoin is borderless by design, you can accept a payment from someone in China just as easily as from someone sitting in the same room. If your business caters to international visitors, they can pay with Bitcoin from their mobile phones, no matter what country they are from.
Retail For retail stores, the more physical cash that your company handles, the more sense it
“With Bitcoin, your money is cryptographically secure…”
Commonly asked questions: What about Bitcoin’s volatility? Most merchant services allow you to set your prices in your local currency. There’s no need to keep adjusting your prices in Bitcoin every few minutes. The payment gateways can easily calculate the Bitcoin price at the point of checkout. How much does it cost? Since the Bitcoin network is open source, the transaction fees are very low. Merchant service providers and payment gateways offer a tremendous value for a fraction of the cost of accepting credit cards, PayPal, or other online payment methods. Are there any risks? There is essentially no risk in accepting bitcoins if you are partnered with a trusted merchant processor. Merchant processors will ensure you receive the USD value (or your local currency) of your invoice and are not exposed to the price fluctuations of Bitcoin. In fact, due to the lower cost of accepting Bitcoin payments and the free publicity it brings as a byproduct, your business has more to gain than to lose!
What do I do with the bitcoins if I can’t pay my vendors with them? Most merchant services allow you to receive a daily settlement in your local currency. If this service is important to you, check your merchant provider. How hard is it to integrate Bitcoin? Integrating Bitcoin payments into your business is a fairly simple process. If you have a small business or online store, you can start accepting bitcoins in just a couple hours. Even for billion-dollar enterprises the process is fairly simple. TigerDirect was able to integrate in as little as 4 days! How do I explain this to my accountant? This is one of the most common questions, and the answer usually lies with your local business laws. But typically, companies are allowed to keep and use foreign currency holdings, as long as they are reported correctly.
Tony Gallippi
Tony Gallippi serves as the co-founder and CEO of BitPay which was founded in 2011 and is a premier Bitcoin payment processor handling millions of dollars worth of transactions per month. He has 15 years of experience in sales and marketing working in the robotics industry, was a district sales manager for Aerotech, and a regional sales manager for Industrial Devices Corporation. He holds a bachelor’s in mechanical engineering from the Georgia Institute of Technology.
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Merchant Processor Directory*
BTC
Copenhagen, Denmark
https://bips.me
Atlanta, GA BTC
1-855-4-BITPAY https://bitpay.com info@bitpay.com
Hungary BTC
http://bitsofproof.com
San Francisco, CA USA
Toronto, Canada BTC, LTC
https://coinkite.com connect@coinkite.com
BTC
https://coinbase.com
Singapore
BTC, LTC
https://www.gocoin.com
*Every effort has been made to ensure accuracy of information presented here – see disclaimer page 7
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Merchant Adoption: Full Speed Ahead! by Trace Mayer, J.D.
A
Almost every introduction to computer networking courses taught that the “Byzantine Generals’ Problem” was impossible to solve. Overly simplified, the “problem” is how multiple generals are able to arrive at consensus of when to attack when they are able to communicate only through messengers, with the possibility that some of the generals are malicious or the messengers are compromised. Then Satoshi Nakamoto released Bitcoin. Thus was born the innovative solution to a previously impossible computing problem, one that created the world’s first practical implementation of triple-entry bookkeeping. One of the most basic applications resulting from this groundbreaking technology is “transactional currency” use. While confusing to some in the Bitcoin network, the largest decentralized distributed computing network in the world encompasses both the blood (currency) and veins (transmission system). An average of 60,000 daily transactions are processed by the network, accounting for approximately 600,000 bitcoins, which as of this writing, equals about $435 million. So, who is sending all this magic Internet money around, and why? Bitcoin users range from individuals to large publicly traded companies. Here is why increasing numbers of them are doing so: • Transactions are instantly verifiable and irreversibly settled within a day (usually an hour), • There can be no fraud by way of charge-backs, • Counter-party risk is nonexistent in contrast to a bank operating with fractional reserves, foreign currency settlement risk or credit card processing problems,
“Eventually Target, Amazon, Wal-Mart, et al. will all be forced to accept Bitcoin.” • Identity protection is built in to keep users safe from identity thieves, • Fees are extremely low or non-existent. A prominent example: On January 3, 2014, Zynga, a publicly traded company with a $3.7 billion market capitalization, began accepting bitcoins, using the largest Bitcoin merchant processor, BitPay, to complete the transactions. One can assume Zynga did so in order to receive payment from anyone anywhere in the world, thus expanding their market from a mere 50-60 countries where credit cards or Paypal currently function. It also let them do so for a tiny fraction of the cost they pay using other payment modes. The merchant processor does its part by processing Bitcoin transactions, converting them into the fiat currency of choice, and making a direct deposit to a merchant’s bank account the same day.
It appears that lawmakers and regulators are cognizant of the tremendous benefits to be gained from digital currencies like Bitcoin but are also aware that like any technology, it can be used for nefarious purposes. Another advantage: Everyone has heard of the massive data breach of customers’ personal information at Target stores. With Bitcoin transactions there is no personal customer information. There is even a
YouTube video of someone making a Zynga payment in two clicks. No more hassle using obsolete technology for which you have to input your name, address, zip code and all the other information an identity thief would need to go on a shopping spree under your name. Bitcoin has identity protection built in. Eventually Target, Amazon, Wal-Mart, etc. will all be forced to accept Bitcoin. Why? Because Overstock, another publicly traded company, along with major electronic retailer TigerDirect, began accepting bitcoins in January 2014. At Overstock, Bitcoin transactions accounted for 4.7% of gross revenues for the month, and the average order amount was about 30% higher than transactions using other payment methods. The most popular item ordered? Sheets! So, let’s crunch some numbers. Assuming the same gross revenue percentages for Bitcoin transactions, and assuming the merchant processor fee for processing would cost $3,000/month for $5 million or more of volume, and assuming average credit card processing costs are 2%, then annual savings for Target would be about $75 million, for Wal-Mart about $150 million, and Amazon $60 million. Does anyone really think they will cede this cost advantage and profitable market demographic to competitors without a fight? Which leads us to the next major point. Target, Amazon, et al. will want to know they are on solid legal ground when accepting Bitcoin’s innovative payment method.
Trace Mayer, J.D.
The author is an early Bitcoin thought leader, entrepreneur, investor with companies like BitPay and Armory, journalist, monetary scientist and ardent defender of the freedom of speech. He holds degrees in accounting and law, and has studied Austrian economics focusing on the work of Murray Rothbard and Ludwig von Mises. 34
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Lawmakers and regulators around the world, from Germany to Singapore to the UK and U.S., have all started to weigh in on dealing with this matter. The highest profile event was the Senate hearings in the United States late last year, which included testimony from major Bitcoin service providers, venture capitalists, investors and law enforcement on how regulation of this nascent industry should move forward. Edward Lowery of the U.S. Secret Service had this to say: “Digital currencies provide an efficient means for moving large sums of money globally for both legitimate and criminal purposes.” It appears that lawmakers and regulators are cognizant of the tremendous benefits to be gained from digital currencies like Bitcoin but are also aware that like any technology, it can be used for nefarious purposes. Jennifer Shasky Calvery, director of the Financial Crimes Enforcement Network at the United States Department of the Treasury, told the Senate: “The meetings are designed to hear feedback on the implications of recent regulator responsibilities imposed on this industry, and to receive industry’s input on where additional guidance would be helpful to facilitate compliance… We are very encouraged by the progress we have made thus far. We are dedicated to continuing to build on these accomplishments by remaining focused on future trends in the virtual currency industry and how they may inform potential changes to our regulatory framework for the future.” So: where does Bitcoin go in the remainder of 2014? Well, my cautious prediction is we will at least see more merchant acceptance. Companies need a Bitcoin strategy just as in the mid-1990s they needed an Internet strategy. Meanwhile, lawmakers and regulators seem to recognize the possibilities and, at least in word, appear willing to encourage this new flower to grow. Consequently, while the financial world at large continues to experience commotion, the Bitcoin industry appears to be in forward motion like never before! yBitcoin.net
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by ALEXANDER LAWN
B
Bitcoin mining is how the cryptographic information distributed within the Bitcoin network is secured, authorized, and approved. It is in essence a colloquial term to describe the processing of payments that have taken place once they occur. What makes this different than traditional electronic payment processing is that there is no need for an issuing bank, an acquiring bank, merchant accounts, or mandatory centralized clearing houses, such as Visa and MasterCard holding on to funds until they process transactions at the end of each day. Bitcoin mining is in fact reliant on individuals sharing computer hardware in a collective effort to decentralize and streamline this process. Each piece of Bitcoin mining hardware is a supercomputer that maintains a ledger of every transaction that has ever taken place. As a consequence there is no need for many layers of intermediaries, delayed payment confirmations, and a syndicate of corporations dictating associated transaction fees. With so many people dictating a percentage of the fees incurred, and an archaic system too bloated to refine without
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rebuilding itself from scratch, the resulting cost to the consumer is vastly greater than an instantaneous payment secured, authorized, and approved by Bitcoin mining.
“Bitcoin mining is in fact reliant on individuals sharing computer hardware in a collective effort to decentralize, and streamline this product.� In fact the customer can currently choose to not pay any fee, or voluntarily pay an amount to facilitate a more expedited payment confirmation. What do the miners gain from dedicating the use of the hardware and electricity they have purchased? They gain a block reward equal to a predetermined amount of Bitcoins as specified within the Bitcoin protocol. The current block reward is equal to 25 bitcoins, or 3,600 coins each day distributed amongst the entire network, and this reward halves every four years. This reduction in reward is believed to behave in an inversely proportional manner to that of
Bitcoin’s value as its adoption increases over time to a wider audience. The cryptographic Bitcoin protocol may sound like a mouthful, but essentially it's a security related function based upon a complex mathematical algorithm that needs to be solved, and the mining hardware completes that task autonomously. It authenticates the wealth transfer as sales take place, or money is sent from one wallet to another. For all intents and purposes it is a digital signature hidden behind code that authenticates the originator and the recipient of the transaction that has taken place. The mining hardware must solve an algorithm to create a block, and that occurrence is then verified by other miners. A block is solved about every ten minutes on average, with slight variance as an increasing or decreasing amount of computational power comes online. As a result, the complexity of the problem varies with the cumulative amount of computational power of the Bitcoin network. Simply put, the larger and more widely distributed the network, the more secure it
“The cryptographic Bitcoin protocol may sound like a mouthful, but essentially it's a security related function based upon a complex mathematical algorithm that needs to be solved, and the mining hardware completes that task autonomously.” becomes for the general public to utilize as a means of payment. Unlike traditional banking, it is incredibly open, as everybody knows, and eventually confirms, every transaction that has taken place. Each transaction that occurs is recorded within a block, and each block is represented in the blockchain: a digital ledger of every transaction that has ever happened between every wallet and every bitcoin. As this ledger grows over time, so does the demand on the computational hardware responsible to maintain and update the blockchain. The hardware itself has undergone various iterations, starting with using the humble brain of your computer, the CPU. The processor found solving the complex 3D imaging algorithms within a graphics card became the subsequent evolution for miners. Aside from being able to process Bitcoin's transactions faster and more efficiently, their
arrangement within desktop PCs meant more than one graphics card could be housed on a motherboard. This was already a feature of high end gaming and 3D design rigs. As such, Bitcoin’s popularity grew with those associated within such fraternities, as they could dedicate their machines to mine bitcoins, and thus cover the cost of their hardware. Alas, this wasn’t the most power-efficient option, as both CPUs and GPUs were very efficient at completing many tasks simultaneously, and consumed significant power to do so, whereas Bitcoin in essence just needed a processor that performed its cryptographic hash function ultra-efficiently. Enter the Field Programmable Gate Array (FPGA), which was capable of doing just that with vastly less power demands. There was one issue: due to the reprogrammable nature of the chip, it had a significantly high
cost-per-chip outlay for something that solved blocks on par, somewhat greater than a GPU. Its real virtue was the fact the reduced power consumption meant many more of the chips once turned into mining devices could be used alongside each other on a standard household power circuit. As Bitcoin’s adoption and value grew, the justification to produce more powerful, power-efficient and economical per-chip devices warranted the significant non-recurring engineering costs that entail developing the final and current iteration of Bitcoin mining semiconductors: the Application Specific Integrated Circuit, or ASIC. ASICs are super-efficient chips whose hashing power is multiple orders of magnitude greater than the GPUs and FPGAs that came before them. Succinctly, it’s a bespoke Bitcoin engine capable of securing the network far more effectively than before.
Alexander Lawn, MSc.
Based in both London and Stockholm, Alex Lawn holds a Master’s in Engineering Design from the UK’s prestigious engineering university, Loughborough. Having worked within private equity both based in London and Monaco for Bourne Capital, as well as advertising for London’s M&C Saatchi, he now handles communications and works within hardware development for KnCMiner AB, Stockholm, creators of the only 28nm Bitcoin ASIC in existence and subsequently the world’s most powerful Bitcoin miner.
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Genesis Bitcoin originally appeared, first as an academic paper and then as a program, in late 2008 and early 2009. Very little is known about its original creator, Satoshi Nakamoto, as his only presence on the internet consisted of a profile on the P2P foundation listing him as “36, Male, Japan,” and his posts on the Bitcoin forums and the Cryptography mailing list. He has since disappeared from the Internet entirely, and while some continue to speculate as to his physical identity, most are content to leave the legend as it is. The Bitcoin community itself grew only slowly in the first two years, picking up new members by word of mouth. Even among its early enthusiasts, many did not even imagine that it would eventually be used as a legitimate currency for making actual transactions, and quite a few users mined thousands of coins only to forget about them and, to their later regret, eventually lose them by reformatting their hard drives.
Oct. 31
Bitcoin’s seminal concept paper, “Bitcoin: A Peer-to-Peer Electronic Cash System,” was first published, describing the technical and economic foundations of the currency in detail.
2010
Dec. 12
Bitcoin founder Satoshi Nakamoto made his last forum post before disappearing, and Gavin Andresen quickly assumed a more central role in Bitcoin development.
2011
April 20
An article on Bitcoin by Forbes appeared online and in print, and was translated into many languages around the world. The online release on April 20 and print release on May 9 were both immediately followed by sudden rises in the Bitcoin price of almost 50%, bringing the price up from $1.20 on April 20 to nearly $6 on May 10.
June 8
The price, after peaking at an all-time high of $31.91 on June 8, dropped precipitously to $10 and bounced back up and down several times before stabilizing at $17.
Jan. 16
Bitcoin was featured on an episode of The Good Wife, creating a threefold blip in Bitcoin’s prominence as measured by Google Trends search volume and causing a rapid increase in the Bitcoin price in anticipation of the event, but unfortunately the attention did not last.
2012
Bubble and Crash, Episode 2 At the beginning of June, Bitcoin finally broke out of its nearly 4-month long period of extreme stability as prices shot up past $6. News attention was once again positive, as the media once again began praising Bitcoin and seemed to have all but forgotten that the currency had been a “failed” experiment. But the news is not purely positive for Bitcoin; at the same time as the currency once again begins to rise, a speculation-induced bubble begins to fester, leading to another price crash in August - albeit one considerably smaller than that in 2011. However, Bitcoin survives the crash, and the summer’s rise brings the currency up to a permanently higher plateau. Between August and October, the consequences of the crash become clear: the Bitcoin economy saw a number of its “old guard” of exchanges and experimental financial services collapse, and mainstream merchant-focused businesses silently began to take over.
May 26
The volume of international Bitcoin users continue to increase, and Bitcoin made a sudden appearance in China at BTCChina became for one day the world’s second largest exchange. The Bitcoin price began rising shortly afterwords.
Full Speed Ahead, Once Again
2013
Days after the beginning of the new year, the Bitcoin price began picking up once again. Bitcoin business also boomed; gambling sites like SatoshiDice were the first to post unprecedented returns, and merchant providers and mining companies followed soon after. Soon enough, the Bitcoin economy was right back to where it was in spring 2011 – except this time with ten times the force.
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Feb. 14
Reddit started accepting bitcoin for its premium Reddit Gold service, becoming the second major company to start accepting Bitcoin.
Feb. 28
The Bitcoin price broke through its all-time high of $31.91 from June 2011.
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2013
Mar. 5 Mar. 16
The domain registrar Namecheap became the third major company to accept Bitcoin. Residents of Cyprus, a small island nation east of Greece, woke up to find out that their bank accounts had been frozen, and 10% of their deposited funds would be seized to pay for a bailout for a failing bank. The Bitcoin price shot past $50 for the first time two days later, and would soon breach $100.
And Then The Crash The Bitcoin price hit an all-time high of $266, and promptly crashed back down to $50 before making a partial recovery. To many, this was the beginning of the end, and the price followed a familiar pattern as one price floor after another was broken. However, this time there was something unusual in the aftermath of the bubble: hope was not lost. At the Bitcoin conference in May, the community was as excited as ever, a feeling that continued to dominate even in the London conference at the beginning of July. The main challenge would prove to be government regulation, especially in the United States, but businesses stepped up to handle the challenge.
May 17
The Bitcoin 2013 Conference took place in San Jose, CA bringing together over 1,200 Bitcoin users from around the world to present their businesses and discuss the technical, legal and business issues involved in using Bitcoin.
July 2
Bitcoin London conference takes place, featuring a number of startups including Bitcoin wallets, Bitcoin exchanges and, particularly interesting, a feature phone-compatible wallet for use in Africa with the ability to buy bitcoins through the popular M-PESA system in Kenya. Winklevoss twins filed with the SEC asking for approval to create a Bitcoin investment trust. According to Bitcoin advocates, Bitcoin is now officially mainstream. According to detractors, Bitcoin has now officially sold itself out to Wall Street.
Aug. 14
The first Virtual Currencies Compliance Conference took place in New York, hosted by the National Money Transmitters’ Association and including such figures as the former head of FinCEN.
Aug. 19
Following pressure from German member of parliament Frank Schäffler, Germany’s financial regulatory agency BaFin has classified Bitcoin as a “unit of account, ” clarifying how it should be treated for regulatory and tax purposes.
Now a Household Name Internationally Bitcoin continues to expand around the world and leave a lasting impact. With the creation of Satoshi’s Forest, the first Bitcoin Foundation democratic election, various conferences, international expansion in China and beyond and all time high prices, Bitcoin proves to be a force to be reckoned with.
Sept. 26
The Bitcoin conference in Amsterdam took place, marking the first time since November 2011 that a substantial number of Bitcoin users met in mainland Europe.
Oct. 2
Silk Road shut down The Silk Road, the largest black market site on the Tor network, has been shut down by the United States’ Federal Bureau of Investigation, and its alleged owner, Ross William Ulbrecht, arrested in San Francisco and charged with narcotics trafficking conspiracy, computer hacking conspiracy and money laundering conspiracy. The Bitcoin price, hovering around $127 before the crash, briefly hit a low of $85 on Bitstamp amidst fears that Silk Road was responsible for a large part of the Bitcoin economy before almost immediately recovering to $110; one week later, the Bitcoin price is back exactly where it was before Silk Road went down.
Oct. 5
Cryptocurrency Conference in Atlanta. Several hundred individuals gathered in Atlanta, Georgia for the first annual Crypto-Currency Conference. Attendees spanned from various states in the US and even nations around the world. Keynote address by Jeffrey Tucker, Executive Editor of Laissez Faire Books.
Oct. 16
Baidue Jiasule Accepts BTC Baidu Jiasule (“Baidu Accelerated”), a Cloudflare-like service offering a website firewall, protection against distributed denial of service attacks and other similar features, has started accepting bitcoins as payment. The Bitcoin payment option is currently manual, with the main site telling its users to contact a phone number if they need to pay with Bitcoin, but this is nevertheless the first instance of a major Chinese site accepting payments in Bitcoin.
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continued
2013 Oct. 20
Bitcoin Breaks 1000 CNY, Rally Continues. The Bitcoin price has been shooting up quickly in the last few weeks. The price steadily picked up, and is now higher than it ever was with the exception of only three days in Bitcoin’s history, all during the media-fueled frenzy culminating in a spike in April this year. What has been fueling the price movements? To some, it is the rapid growth of the Chinese community, bolstered by a division of Chinese Google equivalent Baidu accepting Bitcoin for one of its services.
Nov. 8
Bitcoin Reaches All Time High Prices: Just overnight, the price of Bitcoin increased by 15+ USD. Starting out at around 200 USD per Bitcoin earlier in the week, Bitcoin reached all time highs. To date, the Bitcoin ecosystem has now surpassed 4 Billion USD.
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Nov. 18
First US Senate Hearing on Bitcoin: The Senate Homeland Security and Governmental Affairs Committee summoned witnesses from the Bitcoin community and the US Government for the first Bitcoin related hearing on Capitol Hill. The hearing was entitled, “Beyond Silk Road: Potential Risks, Threats, and Promises of Virtual Currencies.” The hearing started off with the first panel of representatives from the US Government including Jennifer Shasky Calvery (Director, Financial Crimes Enforcement Network U.S. Department of the Treasury), Mythili Raman (Acting Assistant Attorney General, Criminal Division, U.S. Department of Justice), and Edward W. Lowery III (Special Agent in Charge, Criminal Investigative Division, U.S. Secret Service, U.S. Department of Homeland Security).
Nov. 21
Peter Schiff Attemps to Take on Bitcoin: Peter Schiff, long time proponent of gold, publicly endorses the ideas behind Bitcoin but explains that Bitcoin is not the best vehicle to achieve those ends. Schiff held firm to his position that Bitcoin falls short of gold and believes gold has greater future potential for growth than Bitcoin. Taking on Schiff a few weeks later, Erik Voorhees, explained the many merits of Bitcoin and how Bitcoin is, in the end of the day, a stronger investment and movement than gold.
Nov. 23
Virgin Galactic can take you to Space with Bitcoin! Virgin Galactic, headed by Richard Branson, announced their decision to accept Bitcoin for payment for flights to space. Each flight to space is priced at 250,000 USD/person. Virgin Galactic is the first company related to space travel/tourism. Billionaire and businessman, Richard Branson, has been following Bitcoin for some time and finally took the step to work with BitPay to now accept a historic currency for historic trips to space.
Nov. 31
Bitcoin Black Friday Results: A number of Bitcoin companies have reported results from the Bitcoin Black Friday sale. BitPay, Bitcoin’s largest payment processor, reported a total of 6,926 transactions on that day, up by a factor of over sixty from the 95 transactions seen on Bitcoin Friday in 2012. A number of Bitcoin-accepting merchants, such as the natural skin care product vendor Wholly Hemp, saw a majority of their sales through Bitcoin, and the popular Bitcoin charity Sean’s Outpost raised over 20 BTC, all of which was matched by an unknown donor.
Dec. 4
The BitPay Boom! On the tails of Bitcoin Black Friday, BitPay Inc. announced a new record of processing 55,288 of bitcoin merchant transactions in November. BitPay continues to sign on new merchants daily and most recently released a new merchant pricing model and merchant directory. Taking the lead in the payment processing space in the Bitcoin community, BitPay also brought on Virgin Galactic as a merchant to go as far as facilitating the acceptance of Bitcoin for flights to outer space! BitPay onboarded over 3,000 merchants and also worked with Shopify to integrate BitPay into its checkout process to provide Bitcoin payment processing options to Shopify’s 75,000 merchants.
Dec. 5
People’s Bank of China Releases First Regulatory Report on Bitcoin: After months of regulatory uncertainty in the Chinese Bitcoin community, the People’s Bank of China has announced its first major report regarding the legal and regulatory status of Bitcoin. The document, which can be seen as a parallel of the similar report drafted by FINCEN in March this year, is the first to officially classify Bitcoin in the eyes of the Chinese government, and lays out the restrictions on what Bitcoin-related services various categories of businesses and institutions in China are allowed to provide.
Dec. 8
Closing Day for the First Latin American Bitcoin Conference! Drawing in attendees and speakers from around the world, the First Latin American Bitcoin Conference (LaBitConf ) in Buenos Aires, Argentina, was a complete success. Both days prompted international dialogue on the merits of Bitcoin beyond just a form of transaction but also as a movement towards greater financial freedom and individual liberty. Conference attendees enjoyed panels and keynote presentations as well as a final concert and feature of The Bitcoin Song written and performed by Tatiana Moroz.
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2013 Dec. 12
Bitcoin Affiliate Program Ramps up for 2014: 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.
Dec. 20
Overstock CEO, Patrick Byrne, Endorses Bitcoin: Overstock took the step to be the first major U.S retailer to endorse Bitcoin and make plans to accept this innovative currency on their website. Byrne is a fan of Bitcoin and has a background in the Austrian School of Economics. With Overstock’s plans to accept Bitcoin, individuals will be able to purchase anything from household goods to electronics, to clothing, to you name it with Bitcoin! Which online retailer is next?
Dec. 31
The NYC Bitcoin Center Launches: On New Year’s Eve, the NYC Bitcoin Center located right on Broad Street 100 feet from the New York Stock Exchange in New York City, launched with a bash and special appearance by US Representative, Bitcoin fan and Senatorial Candidate, Steve Stockman. The center will serve in the heart of the NY Financial District as an educational center and place of discussions, meetings and networking related to Bitcoin and digital currencies. With hundreds of tourists visiting NYC daily, the NYC Bitcoin Center hopes to draw in visitors daily and educate on the merits of all things Bitcoin.
Jan. 3
Bitcoin Celebrates 5 Years! 5 years ago, the first Bitcoin block was mined and now the price of each coin has exceeded $1,000 per coin. Thousands of companies are accepting the most convenient currency to date for payment and individuals around the world are utilizing Bitcoin as a form of transaction and a store of value. What fiat currency has increased in value, utility, and prominence as Bitcoin in such a short period of time?
Jan. 6
1 millionth wallet created on Blockchain.info: In November 2013 Blockchain.info announced they had reached a total of 500,000 hosted wallets. Just 2 months later they reached the lofty milestone of 1 million wallets. Their simple web and smartphone wallets have provided a quick way for people to start using the most popular digital currency in a tangible way. To celebrate this historic milestone, they began a contest to give away a trip to travel anywhere via Btctrip.com of no more than 10 BTC.
Jan. 23
Tiger Direct Accepts Bitcoin via BitPay: Today, TigerDirect announced its embrace of Bitcoin through BitPay, Inc. TigerDirect has met the needs of customers for over 25 years and is known for high quality, discount electronics. TigerDirect is a subsidiary of Systemax Inc. (NYSE: SYX), a Fortune 1000 company. There was no lack of excitement from the Tiger Direct Team as the front end of the website clearly displays their embrace of bitcoin with a backdrop of physical bitcoins.
Jan. 25
North American Bitcoin Conference Kickoff: On Friday through Sunday (Jan 25-27), many Bitcoiners gathered in Miami, Florida for the North American Bitcoin Conference. Following the successful organization of the European Bitcoin Conference in Amsterdam this Fall, conference organizer, Moe Levin, concentrated his efforts on a winter international Bitcoin conference in the heart of Miami Beach, FL. With attendees and speakers from around the world, once again, the global message of Bitcoin was clearly demonstrated in this premier conference and setting.
Jan. 28
The New York State Department of Financial Services conducted hearings on virtual currencies on January 28 and 29 gathering some of the more visible and influential members of the Bitcoin community as part of their fact-finding initiative that began with an initial inquiry back in late 2013.
Jan. 29
The United States Post Office Considers Becoming Bitcoin Exchange: Felix Salmon discussed (via Reuters) the white paper published by the Inspector General of the United States Post Office and agreed USPS needs to be involved in more financial services to help offset the costs of running a global postal service. The USPS already offers money orders and prepaid debit cards, and operating as a fiat/digital currency exchange would be an extension of their existing financial services. Given their official status as a legal Money Transmitter, providing Bitcoin exchange to and from the dollar as a government certified establishment could aid Bitcoin adoption.
2014
Bitcoin Magazine Contributing Authors:
Mihai Alisie
Vitalik Buterin
Editor-In-Chief
Head Writer
Ruben Brito
Elizabeth T. Ploshay
Lead Writer
Manager of Communications
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BITCOIN IS COMING TO TEXAS! Circuit of The Americas™
Technology and Conference Center Austin, Texas March 5 & 6, 2014
Austin, Texas
* Photo Disclaimer
March 5 & 6, 2014
Register Online Advance ticket pricing through March 4, 2014
Bitcoin is clearly the most exciting internet protocol today. The Texas Bitcoin Conference will allow attendees to explore this new technology from a host of angles. Leading industry experts will help answer the questions a range of people have about Bitcoin and what it means to them personally, to their businesses, and to the future.
No matter your knowledge level or involvement with Bitcoin, you will feel welcome and come away with valuable information putting you ahead of the curve.
WHAT IS AUSTIN WITHOUT MUSIC?
Speaker Sessions
The first bitcoin ONLY concert with a “Pay What You Want” bitcoin ticket. All ticket sales will benefit bitcoin accepting charities.
Networking Opportunities
Vendor Exhibits
*We are not affiliated with the SXSW Music/Film/Interactive Festival
Day Before SXSW* Million Dollar Hackathon Bitcoin ONLY Concert
Million Dollar Bitcoin 2.0 Hackathon Bitcoin ONLY Concert
“As the saying goes, ‘Everything is bigger in Texas.’ The Texas Bitcoin Conference is going to be a big deal in the world of Bitcoin and I'm excited about the spot-light falling on Austin—the home of CoinTerra.” Ravi Iyengar CEO, CoinTerra “Bitcoin isn’t just a currency and payment system; it is a globally distributed asset register... enabled through a stunning breakthrough in computer science: distributed consensus.” Richard Brown, IBM Executive Architect “Startup hot spot Austin, Texas will attract a high number of Bitcoin entrepreneurs and the Seedcoin partners are looking forward to meeting them at the Texas Bitcoin Conference in March! See you in Texas!” Eddy Travia, Co-founder and Chief Startup Officer @ Seedco.in, Bitcoin startup virtual incubator
*Above photo is a modification of the original work named Night View of Austin Skyline and Lady Bird Lake as seen from Lou Neff Point which was created by LoneStarMike and can be found at: http://en.wikipedia.org/wiki/File:AustinSkylineLouNeffPoint-2010-03-29-b.JPG#file. For purposes of this publication, the original work has been cropped, enhanced and darkened and a logo has been added to the image. Any modification to the original work is not intended to distort, mutilate, modify or take other derogatory action in relation to the original work which would be prejudicial to LoneStarMike’s honor or reputation.
TexasBitcoinConference.com
A N NA m u n o z photographer
ARCHITECTURAL PEOPLE EVENTS ON LOCATION STUDIO 512.699.2923 Anna@anna-photography.com Austin, Texas
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the following following ““Get to Know” The people featured in the Get To Know” section are all rigorous thinkers and planners who have helped lead their companies into the thick of the Bitcoin revolution. But behind each of their formidable intellects there also perks a restless imagination, a yearning to take hold of their world and steer it in previously uncharted directions. That spirit of entrepreneurship runs deep in the Bitcoin world, helping to define a new generation of leaders who seek to create a way of commerce and a currency system worthy of these dynamic times. We invite you to meet some of these individuals in the following pages.
–Albert Einstein
SERIAL ENTREPRENEUR
President & Founder Texas Bitcoin Association
ike many leaders in the Bitcoin world, Paul Snow has multiple degrees after his name, a brain seemingly as large as the mainframe computers that were sending humankind to the moon in his boyhood, and the kind of restless curiosity and entrepreneurial spirit that has seen him launch four companies, the most recent one fully embracing the emergent world of Bitcoin and making it his own. “In my heart I’m still a software engineer, but with a more creative bent,” says Snow, the founder of the Texas Bitcoin Association and director of its upcoming Bitcoin Conference, debuting March 5-6 in the state’s technology and music hub of Austin. Snow did his undergraduate work at Louisiana Tech and earned a master’s in computer science with a minor in electrical engineering at Texas A&M before becoming a self-professed “Ph.D. dropout” when the world of digital printing caught his fancy. He dove into it with the same zest he applied years later when Bitcoin came to his attention via an article in the online magazine Ars Technica. “I’m happy to say I got into Bitcoin at 77 cents in 2011 for my first purchase, with my only regret being I didn’t buy nearly enough,” he laughs. “After I watched it bubble and then pop, I told myself, ‘I really should understand this.’”
What he has come to understand since, he says, is Bitcoin’s vast potential as an alternative currency. “You no longer have to play a manipulated game in which banks and merchants have ultimate control of your money. Bitcoin means one ledger, one way of keeping perfectly accurate score, total transparency. And there’s no way to counterfeit it, or double-spend, or close the teller window and announce there will be no more transactions.” Also of great appeal, he says, is Bitcoin’s capacity to serve the sizable portion of the world’s population that, for lack of development, remains unbanked. “Unfortunately, no one can say, ‘Please put a dollar in your phone now.’ With Bitcoin, there is a tremendous expansion of opportunity for everyone to participate in the economic system, in a secure way.” Snow’s resume begins with his first job out of college at Texas Instruments, when digital watches were the brand new rage. Many years later, he designed and implemented the "Rules Engine" used by AMS, Deloitte LLP, and Maximus to process applications in the human services space. That engine determines eligibility and enrollment in assistance plans in many states today. “Technology keeps confounding traditional economics approaches because it drives prices down hugely. No one can adequately foresee
SPONSORED PROFILES
the advances that keep coming. The same computing power that used to cost millions and took people to the moon is now little more than you can find in a calculator that is so cheap one might just give them away as a favor,” he muses. Not insignificantly, despite the prodigious efforts required to launch companies and write massive amounts of code for critical enterprises, Snow regards the Texas Bitcoin Conference as his most ambitious venture to date. “We’ve got a tremendous amount going on, much of it designed to enhance Bitcoin adoption,” he says. “There will be lots of Bitcoin engineers talking tech, but also two days of tutorials for laypeople on the basics of Bitcoin.” And to top it all off: “We’re promoting the first ‘Bitconcert’ ever, with Carolyn Malachi, a killer hip hop singer who also happens to be a Bitcoin nerd. The kicker is that the only way to pay your way in is with Bitcoin, and we’ll tack on a free tutorial on how to buy some. I like the idea that we’ll be making history.”
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Founder & CEO BitDazzle
itDazzle CEO Hieu Bui will tell you he’s really a reformed coder who found his calling as an entrepreneur after college summers spent building websites for consulting clients. Graduation saw him join with multiple partners to found WebAssist, an experience Bui credits with awakening his entrepreneurial spirit. Last October, Bui put that spirit to work again with the launch of the BitDazzle marketplace. BitDazzle is a collaboration between Bui’s other company, Cashie Commerce, and leading Bitcoin wallet Coinbase. BitDazzle makes a wide range of mainstream items—ranging from clothing, handmade soaps, household gadgets, jewelry and beauty products to art and gifts—available for purchase using Bitcoin. BitDazzle also boasts a handful of non-profit partners to which consumers can donate using Bitcoin.
Adam B. Levine
SPONSORED PROFILES
Editor-in-Chief Let’s Talk Bitcoin!
“I like to explain complicated topics in understandable terms.” That’s the promise made by Adam B. Levine, editor-in-chief of Let’s Talk Bitcoin!. Founded in April, LTB is a twice weekly audio show about the ideas, people and projects building Bitcoin and the new digital economy. The program is available for free at www.letstalkbitcoin.com Initially trained as an audio engineer before becoming a salesman, Adam spent the years following the global financial crisis teaching himself what money truly is in our debt-based financial systems. He founded Let’s Talk Bitcoin! in the days following the spring, 2013 bitcoin buying frenzy, and except in extreme circumstances, he does not comment on the price. “Bitcoin is amazing for reasons that are just as true at $1 as they are at $10,000. But it does help if they’re closer to that second number.” 50
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Bui’s San Diego outpost more than 450 miles south of Silicon Valley provides a unique perspective on securing investment in his company. Meanwhile, his entrepreneurial experience gives him unique insights into the needs of the small businesspersons whose homespun goods he helps make available with the user-friendly BitDazle platform. “Our goal is to bring mainstream sellers together with mainstream buyers to facilitate transactions using the most promising currency option the world has seen in decades,” says Bui. “Making products available for purchase with Bitcoin means lower fees and an expanded shopper universe for sellers.” Bui’s penchant for practicing and promoting the entrepreneurial spirit finds its fullest expression in BitDazzle, which blends his own venture with thousands of small business partners around the world who sell their wares and who profit from the exposure to a cutting edge audience of Bitcoin enthusiasts. “What’s so cool about Bitcoin is that it’s tailor-made for e-commerce,” he says. “Bitcoin is where Paypal was 10 years ago, and the sky is the limit.”
Much of the appeal for Adam comes from the inherent fairness of the Bitcoin system. “It’s about the rules” he says. “With networks operated by humans there tend to be distortions because those humans act in their own best interest. Bitcoin doesn’t care who you are or what you’re doing. If you want to use the network, you’ve got to follow the rules. Nothing arbitrary, nothing petty or personal. In our world, that is as revolutionary as it gets.” Asked why he works full time on producing a show about Bitcoin, Adam replies, “When I was learning about Bitcoin, the only way you could have a real understanding was to spend hours or days on unfriendly forums trying to sort the reliable from the scams. What I’ve built with Lets Talk Bitcoin! is a platform for smart people with good ideas to share them with others who are just as excited about the future of this technology as they are. I’m more interested in philosophy than finance” he said, “but it happens that with Bitcoin they’re basically the same thing.” Adam can be reached at adam@letstalkbitcoin.com or http://www.letstalkbitcoin.com
Get to Know
Jon Matonis Executive Director / Board Member Bitcoin Foundation
J
on Matonis is an e-Money researcher and crypto economist who is passionate about expanding the circulation of nonpolitical digital currencies worldwide. He has over 20 years of experience in financial technology and global monetary policy. Matonis currently serves as the executive director and founding board member for the Bitcoin Foundation. He was previously CEO of Hushmail and chief forex trader at VISA. He also held senior posts at Sumitomo Bank and Verisign. Over the years, he has advised startups in Bitcoin, gaming, mobile and prepaid. A highly sought speaker and author, Matonis is a tech contributor to Forbes Magazine and editor of The Monetary Future economics blog. He also serves on the editorial boards of CoinDesk and Bitcoin Magazine. He is an alum of George Washington University in Washington, D.C. and recipient of the 2001 Person of the Year award for Digital Gold Currency Magazine. He answers two frequently asked questions about Bitcoin below.
What prompted your leap into Bitcoin? My evolution into Bitcoin was not so much a leap as a slow and gradual evolution to nonpolitical digital currencies. I am a student of central banking and monetary systems and I conducted research into how governments around the world have historically appropriated the monetary unit in order to serve their own personal political agendas. By the mid-’90s, it became clear that the future of value transfer was going to utilize the Internet and strong cryptography. I have edited an economics blog, The Monetary Future, on this topic for five years now. At its essence, all money is an illusion due to its subjective value for exchange, and there is no such thing as true “intrinsic” value. Governments and central banks already realize this. However, they abhor it when the monetary illusion supported by the populace is not their monetary illusion. When Bitcoin was released into the wild on January 3, 2009, the problem of preventing double spending without a centralized online mint was solved for digital currencies. This was a landmark achievement in both distributed consensus and cryptographic money, and the world is only beginning to see the enormous power and dignity that this restores to the individual. As a watershed event in history, the launch of Bitcoin will be seen as the twilight of the national currency age.
How do you encourage new-to-Bitcoin people to get engaged in the Bitcoin space? I point out that government-issued money is largely inferior to cryptocurrencies like Bitcoin, which comes with a fixed and predictable supply limit. Bitcoin is not just important because it's the unit that you transact in, but it's also important because it's the unit you can maintain your assets in. For example, when you have complete control over the private keys securing your bitcoins, you immediately have peace of mind knowing that your funds are secure regardless of banking status, geographic location, or political instability. How much is that worth? New users will first need a wallet which can be a mobile wallet, client software wallet, or web-based wallet. Obtaining and using a Bitcoin wallet is as easy as using PayPal or Skype. I would recommend new users to download and use Blockchain's MyWallet or Bitcoin Wallet for Android. There are also several alternatives available at Bitcoin.org. For more experienced users, I would recommend MultiBit, Armory, or Electrum. Additionally, the Bitcoin-Qt reference implementation maintains a full version of the blockchain on your computer, and it eliminates the need for any third party.
“As a watershed event in history, the launch of Bitcoin will be seen as the twilight of the national currency age.”
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Get to Know SPONSORED PROFILES
OPPORTUNITY SEIZED Iyengar had been occupied for nearly two decades as a titan of the tech industry, collaborating with (and competing against) the best engineering minds of the day during stints at Intel, Qualcomm, Nvidia, and most recently Samsung. He played a key role in development of the Galaxy S4, and even more notably, in the next generation Samsung mobile devices that are soon to reach market.
“...every week matters more than the last.”
Ravi
CoinTerra IYENGAR CEO/Founder
I
“It was an opportunity I didn’t want to miss,” says Ravi Iyengar of CoinTerra, a Bitcoin mining hardware company that he founded in April of this year. Iyengar had barely heard of Bitcoin at the time, but once it got on his radar, events moved quickly as he envisioned its possibilities and his engineering mind got to work on creating one of its key products.
Once struck by the Bitcoin bug, it took him just weeks to make the fateful decision to leave Samsung and seek funding and talent in the race to play the dominant role in Bitcoin hardware development. “It was easy to see the potential in CoinTerra and Bitcoin, and having developed many relationships with top engineers over the years, it was easy to have them see it too, so we built a great team here very quickly. But I will say this: I have been involved in many arms races in my career—with Intel when we were going up against AMD, with Nvidia against ATI, then Samsung against Apple. But nothing has been as intense as Bitcoin. It’s a faster pace, with a more intense schedule, and every week matters more than the last.”
And then he adds: “It’s also highly interesting, exciting and fun. And a rare opportunity for hardware to play a significant role in shaping a new financial system.” Among his many goals, he says, is to “take Bitcoin out to the larger world, to get more of the technical community learning about it in a more serious way. Then consumers. All the elements are in place now for CoinTerra to become the Intel of Bitcoin, and to take it to the next level. I’m willing to miss a lot of sleep until that happens.” Iyengar earned his undergraduate engineering degree from the National Institute of Technology in his native India, then came to the U.S. for his graduate degree in computer engineering from Wright State University in Ohio. He lives with his wife in Austin, while a sister is in Charlotte, North Carolina and parents and a brother in India. Ever the devoted engineer, he says of his CEO duties: “It’s a different role, but I still offer input and participate readily in the engineering conversations that go on here. Every day is different—except for the intensity and excitement. That’s all day, every day.”
“All the elements are in place now for CoinTerra to become the Intel of Bitcoin, and to take it to the next level. I’m willing to miss a lot of sleep until that happens.”
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Founder, BitShares
A Passion for Freedom—Via Decentralization
Not
all that deep and hidden in his entrepreneurial heart of hearts, Daniel Larimer is a philosopher and a dreamer, identities he readily attests to in discussing an approach to life, study and work that has placed him in the forefront of the Bitcoin world, where he is known within its inner circles as “Father of the DAC.” (He originated the idea of the “decentralized autonomous company.”) As founder and CEO of BitShares, an utterly innovative “crypto-equity” platform that he founded in 2013 (see page 14), Larimer’s passion is bound not so much by building successful companies, though that is all well and good, but by having those companies do nothing less than help change the world. He aims to do so under the guiding vision of a radically decentralized economy that reflects his own company’s mission to pursue free markets that ensure “life, liberty and property for all.” Larimer is a Colorado native who spent his formative years in Florida and Virginia, the latter serving as his home base since graduating in computer science from Virginia Tech in 2003. Having learned computer programming from his father when still in elementary school, he turned an almost in-born techy/ entrepreneurial bent into a business venture fresh out of college, when he joined a handful of buddies to launch a virtual reality company. “We did well and made money every year, but we closed it down after five years and went on to other things,” he says. Some of those involved him writing code for unmanned ground and air vehicles, a field he later left when its military implications left him a touch uneasy.
All the while, he was pursuing nothing less than what he unabashedly calls “the pursuit of truth about everything— I’ve always wanted to know what’s going on in the world and how things work.” Encounters with the Ron Paul presidential campaigns stimulated an intellectual odyssey into the depths of libertarianism, a passion that informs his unique fusion of economics, innovation, politics and the common good.
“I had an idea and put out a bounty on the Internet, for which I’d pay $1,000 to anyone who could convince me not to put my life savings into it.” “I believe whole-heartedly in voluntary associations and moving beyond a contract society where I’m going to get you to do X, Y or Z or I’ll get the government to point a gun at you,” he says. “Contracts always come down to government force. All that just drives costs and misery up. I want to do business on a handshake and make reputation primary, because if your reputation is damaged it’s the worst thing that can happen, and your business suffers. It’s never about coercion, but about the Golden Rule with a slight twist: ‘Don’t do unto others as you don’t want them to do unto you.’” He points out that Bitcoin operates on basically the same premise, where, he says, “No one delivers anything by fiat.” True to the Internet age, he discovered Bitcoin when pondering the intellectual knots attendant to decentralization of the financial sector. So he Googled “decentralized currency,” and up popped the name
“Satoshi Nakamoto,” the pseudonym for the developer of Bitcoin, whom he soon began regularly communicating with before developing his own twist on Nakamoto’s blockchain technology in the form of BitShares. “I was trying to figure out how to create a decentralized bank,” he says, “so I had an idea and put out a bounty on the Internet, for which I’d pay $1,000 to anyone who could convince me not to put my life savings into it. No one really could, but I paid it anyway, because there had been a lot of good questions raised. Then a few days later, I solved why my idea wouldn’t work! I was really sad, but then on June 2, 2013—I remember the day—it came to me. I discovered the key that led to one of the BitShares businesses we’re building called BitSharesX—a decentralized exchange that combines the benefits of Bitcoin with the price stability of the dollar. That has continued to lead to more exciting uses of our technology. “Will I get where I want all this to go in my lifetime? I don’t know, but this is the first step.”
SPONSORED PROFILES yBitcoin.net
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Get to Know
VENTURE
C A P I TA L I S T
Co-Founder, SilkRoad Equity Cryptocurrency Partners – BitAngels
“Building and investing in the ‘roads, bridges and tunnels’ of Bitcoin will help foster adoption” Twenty years into a dream career involved largely with identifying promising businesses and providing just the right financial nudge to get them rolling down the entrepreneurial highway, Matthew Roszak has noticed a curious phenomenon over the last year as his involvement in the Bitcoin world deepens. “I’ve gotten to where I check Bitcoin news even before I get to my email when I wake up in the morning,” he muses. “I think that says something.” Roszak, who began his career with Keystone Capital Partners and Advent International, is co-founder of SilkRoad Equity, a venture capital firm that for most of its nearly 11-year existence has started and funded a wide variety of businesses in the technology, media and entertainment, gaming and real estate sectors. He has found that generalist orientation changing, however, since first encountering Bitcoin in 2012, and then taking a more serious dip by personally investing into it amidst much study a year later. His funding choices have followed, with a half-dozen investments in the Bitcoin “ecosystem” now closed (GoCoin, ExpressCoin and FreshPay among them) and an equal number expected to fund over the next few months.
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“Bitcoin is one of the most significant investment opportunities in the technology sector over the past two decades,” he says. “It has the potential to change how the entire financial system works.” Roszak has thus expanded his direct investing circle in the Bitcoin space as a founding partner with Cryptocurrency Partners and BitAngels, headed by industry luminaries Brock Pierce and David Johnston, respectively. Roszak is a lifelong Chicago resident, where he graduated in economics from small, liberal artsy Lake Forest College. “I grew up wanting to build companies, to be an entrepreneur,” he says. He followed that ambition in his typically forthright manner by founding the school’s Entrepreneurs Club, where he managed to coax the likes of Amazon’s Jeff Bezos and Crate & Barrel founder Gordon Segal to drop by and address his group. With the majority of his firm’s funding and attention now devoted to cryptocurrencies, Roszak currently sees adoption, volatility and regulation as the key areas to address. “Adoption is still a challenge, with lots of friction, so we need to find ways to enhance the onboarding experience and
make it much easier to purchase and use Bitcoin,” he says. “Building and investing in the ‘roads, bridges and tunnels’ of Bitcoin will help foster adoption—think secure wallets, convenient ATMs and more robust exchanges. That velocity will ultimately help with both the price volatility and some of the regulation it needs in order to build added trust from Main Street and Wall Street. People think investors fear regulation, but that’s not true. What we really fear is uncertainty. The key is that the amount of regulation doesn’t suppress adoption and innovation, and is a thoughtful and calibrated process.” Long married to his high school sweetheart with whom he shares children ages 13 and 11, Roszak cites relationships as one of his supreme values, in both his personal and professional life. His longtime friend and business partner is tech mogul Flip Filipowski. “Relationships matter. To be able to do business with the people you want to do business with—that’s the ultimate luxury for an entrepreneur.”
@MatthewRoszak
ringing Bitcoin to Main Street. That’s the mission of Atlanta’s Aaron Williams: to make Bitcoin’s presence commonplace and convenient in the marketplace. With his new venture, Atlanta Bitcoin, Williams is dropping Bitcoin into everyday lives using the same process that people are accustomed to and trust—a secure, easy-to-use, and fast ATM or Bitcoin dispenser. Atlanta Bitcoin’s machine allows people to insert cash and then have the equivalent amount of bitcoins added to their Bitcoin wallet. Williams’ vision for Atlanta Bitcoin actually grew from his own experience when he became intrigued by media reports on Bitcoin early this year and then attempted to buy some for himself. “It was difficult, and I’m a tech guy,” he says. “A little light then went off, that with my background, I could probably help make bitcoin purchases a much less intensive process.” Williams sees wider mainstream acceptance ahead as Bitcoin becomes more readily available
and part of the everyday consumer experience. “Bitcoin is in a very interesting phase now,” he says. “It’s just starting to bubble up to the mainstream, but that brings its own challenges. It really appeals to the problem solver in me.” Williams’ vision for Bitcoin’s adoption in the marketplace draws on a decadeplus of experience in the electronic payment processing industry. This puts him in a unique position in the Bitcoin world. He knows the payment industry’s rules, requirements, consumer expectations, and—perhaps most importantly—how to avoid the traps. “There are definitely right ways and wrong ways to develop payment systems and point-ofsale processes, but the bottom line is you have to make it as natural as walking up to your bank teller or ATM to make a deposit or withdrawal, and then go to the restaurant next door for dinner—which you’ll pay for with bitcoins
©Lisa Polucci Photography
Founder, Atlanta Bitcoin
instead of your credit card,” he says. “It’s all about relieving friction. That will allow people to use Bitcoin as comfortably as they do all their current forms of payment. They’ll enjoy a similar process and experience, with the same expectations being met.” Bitcoin’s integration into the current payment process is just one aspect of Williams’ focus. “Bitcoin is a fertile business landscape with significant opportunities,” he says. “I’ve always been drawn to collaborating with others on challenging projects. There are other points of friction to solve.”
Jeffrey Tucker
J
Founder/CEO Liberty.me
effrey Tucker is founder and CEO of Liberty.me, distinguished fellow of the Foundation for Economic Education, executive editor of Laissez Faire Books, and research fellow of the Acton Institute. He is the founder of the CryptoCurrency Conference, serves as economic consultant to the popular podcast, Let’s Talk Bitcoin!, and writes a twice-monthly column for The Freeman and Crisis Magazine. He is author of the books Bourbon for Breakfast, It’s a Jetson’s World, and A Beautiful Anarchy, along with thousands of articles, introductions, and prefaces. Following his 15 years as editor and builder of the website Mises.org, he now works on building Liberty.me as a social network and publishing platform for libertarians, and curates and writes editorial introductions to the product offerings for the Laissez Faire Club.
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GLOSSARY Address: Similar to an email address and generated at no cost, this string of 27-34 characters represents the destination for a Bitcoin payment. ASIC: Application Specific Integrated Circuit - ASICs are an integrated circuit customized for a specific use, in the BTC space they are now used for mining bitcoins. Bitcoin: A payment network (“Bitcoin”), the currency unit used on that network (“bitcoins”). As digital/virtual currency, it uses peer-to-peer technology to facilitate instant payments. Bitcoin is an alternative currency known as a crypto-currency, which uses cryptography for security, making it difficult to counterfeit. Bitcoin issuance and transactions are carried out collectively by the network, with no central authority. The total number of bitcoins that will be issued is capped at 21 million to ensure they are not devalued by limitless supply. Users store their bitcoins in a digital wallet, while transactions are verified by a digital signature.
Cryptography: The branch of mathematics that creates mathematical proofs to provide high levels of security. Online commerce and banking already use cryptography. In Bitcoin, cryptography is used to make it impossible for someone to spend funds from another user’s wallet or to corrupt the blockchain. It can also be used to encrypt a wallet, so that it cannot be used without a password. Deflation: Reduction of prices in an economy over time. It happens when the supply of a good or service increases faster than the supply of money, or when the supply of money is finite. This leads to more goods or services per unit of currency, meaning that less currency is needed to purchase them. This carries some downsides. When people expect prices to fall, it causes them to stop spending in the hope that their money will go further later. Difficulty: Every 2,016 blocks, Bitcoin adjusts the difficulty of verifying blocks based on the time it took to verify the previous 2,016 blocks. The difficulty is adjusted so that given the average estimated computing power of the whole Bitcoin network, only one block will be verified on average every ten minutes for the next 2,016 blocks.
Block: Data is permanently recorded in the Bitcoin network through files called blocks. A block is a record of some or all of the most recent Bitcoin transactions that have not yet been recorded in any prior blocks. Blocks are links in a chain of transaction verifications. Outstanding transactions get bundled into a block and are verified roughly every ten minutes on average. Each subsequent block strengthens the verification of previous blocks. Each block contains one or more transactions.
Double Spending: When a malicious user tries to send their bitcoins to two different recipients at the same time. Bitcoin mining and the blockchain are there to create a consensus on the network about which of the two transactions will be confirmed and considered valid.
Blockchain: A public record of Bitcoin transactions in chronological order. The blockchain is shared between all Bitcoin users. It is used to verify the permanence of Bitcoin transactions and to prevent double spending.
Escrow: Holding funds in a third-party account when two parties are engaged in a transaction. Advisable when making a transaction via a Bitcoin account with an unknown party, or when transacting high value items.
BTC: Most common unit representation of Bitcoin currency, similar to USD with dollars.
Exchange: A central resource for exchanging different forms of money and other assets. Bitcoin exchanges are typically used to exchange the crypto-currency for other, typically fiat, currencies.
Cold Storage: Keeping bitcoins safely offline through a USB or other drive, paper wallets, or a physical coin. 56
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Fiat Currency: Currency that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves. Historically, most currencies were based on physical commodities such as gold or silver, but fiat money is based solely on faith. Halving: Refers to reducing reward every 210,000 blocks, approximately every four years. Due to reward halving, the total supply of bitcoins is limited. Hash Function: A computer algorithm which takes an arbitrary amount of input data and deterministically produces fixed length output, known as the data's "hash." It can be used to easily verify that data has not been altered. If you change any single bit of the original data and run the hash algorithm, the hash will completely change. Because the hash is seemingly random, it is prohibitively difficult to try to produce a specific hash by changing the data which is being hashed. Hash Rate: Measuring unit of the processing power of the Bitcoin network. The Bitcoin network must make intensive mathematical operations for security purposes. Inflation: When the value of money drops over time, causing prices for goods to increase. The result is a drop in purchasing power. KYC: Know Your Client rules require financial institutions to vet the people they are doing business with, ensuring that they are acting in good faith and adhering to all applicable regulations. Mining: Process of using computer hardware to do mathematical calculations for the Bitcoin network to confirm transactions and increase security. As a reward for their services, Bitcoin miners can collect transaction fees for the transactions they confirm, along with newly created bitcoins. Mining is a specialized and competitive market where the rewards are divided up according to how much calculation is done.
A Guide To Bitcoin Terms Paper Wallet: Method of storing bitcoins offline on a physical piece of paper that holds both the private key and the public address.
Transaction: A specific section of data that is broadcast to the network and then collected into Blocks.
Private Key: A secret piece of data that proves your right to spend bitcoins from a specific wallet through a cryptographic signature. You can think of this as your PIN number. Your private key(s) are stored in your computer if you use a software wallet; they are stored on some remote servers if you use a web wallet. Private keys must never be revealed as they allow you to spend bitcoins from their respective Bitcoin wallet.
Transaction Fee: Possible with any transaction of bitcoins. Processed and received by the Bitcoin miner. Transaction fees are voluntary but can help speed confirmation times.
Public Key: An alphanumeric string which is publicly known, and which is hashed with another, privately held string to sign a digital communication. You can think of this as your bank routing number. In the case of Bitcoin, the public key is a Bitcoin address.
Wallet: Loosely the equivalent of a physical wallet on the Bitcoin network. The wallet actually contains your private key(s) which allow you to spend the bitcoins allocated to it in the blockchain. Each Bitcoin wallet can show you the total balance of all bitcoins it controls and lets you pay a specific amount to a specific person, just like a real wallet.
51% Attack: When more than half the computing power on a cryptocurrency network is controlled by a single miner or group of miners. Controlling 51% of the computational power theoretically makes them the authority on the network, allowing them to: • Issue a transaction that conflicts with someone else’s. • Stop someone else’s transaction from being confirmed. • Spend the same coins multiple times. • Prevent other miners from mining valid blocks. While a 51% Attack poses a theoretical threat to Bitcoin, structural safeguards are in place to make an occurrence highly unlikely. Chief among them is the open source nature of the network, allowing others to quickly recognize an attack and take defensive measures.
QR Code: A two-dimensional graphical square containing a monochromatic pattern representing a sequence of data. QR codes are designed to be scanned by cameras, including those found in mobile phones, and are frequently used to encode Bitcoin addresses. Reward: When a block is discovered, the discoverer is awarded a certain number of bitcoins agreed upon by everyone in the network. Currently this bounty is 25 bitcoins; this value will halve every 210,000 blocks. Satoshi: Smallest unit of Bitcoin currency (1/100,000,000 BTC or 0.00000001 BTC). This unit has been named in collective homage to the founder of Bitcoin. Satoshi Nakamoto: Anonymous creator and founder of the crypto-currency, Bitcoin. Signature: A cryptographic signature is a mathematical mechanism allowing proof of ownership. In the case of Bitcoin, a Bitcoin wallet and its private key(s) are linked mathematically. When your Bitcoin software signs a transaction with the appropriate private key, the whole network can see that the signature matches the bitcoins being spent. yBitcoin.net
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THE LAST WORD
FROM FOUNDER/EDITOR-IN-CHIEF
M
My first encounter with Bitcoin came through an innocuous text sent to me by an old banking colleague. “Have you heard of this before?” he asked incredulously, linking to a now outdated 2012 story on the growing crypto-currency phenomenon. I had not. After reading the article I immediately produced 100 reasons why it would be impossible for this digital money to deliver on its promises: The technical challenge was too great, the competing interests too powerful, the financial and political consequences too profound. But I was intrigued. And I kept reading. A couple minutes of casual reading quickly turned into hours, hours morphed into nights, and one by one every reason I thought Bitcoin couldn’t succeed was knocked off the list. Eventually, after much skepticism and research, I came to a definitive conclusion: “This will work.” From that moment on, I have been captivated. I’ve spent almost every waking moment since that six-word text message studying, planning, and dreaming about the future of digital currency, and the ways it will one day impact every single one of our lives. The vast, real-world advantages and efficiencies of crypto-currency ensure that one day it will be as ubiquitous as the Internet, affecting the ways we do commerce, interact with our communities, run our governments, and allocate resources across entire economies. Bitcoin doesn’t just lower barriers to entry; it destroys those barriers, and it is over their remnants that the road to a 21st century commercial renaissance will be paved. It will be one where entire new business models are built upon microtransactions, and mom-and-pop businesses gain access to the same financial tools as Fortune 500 companies. This isn’t to say Bitcoin won’t face challenges. To this day the Bitcoin protocol is an experiment in building a decentralized financial world—and all experiments contain elements of trial and error. That is how we learn. As the industry evolves we will see more stunning successes and dramatic failures within the Bitcoin ecosystem. We have already seen these to a degree, but with each error the entire experiment improves. In truth, Bitcoin is like an immune system—every illness it survives strengthens the whole, and broadcasts to its community of learners what mistakes to avoid and what successes to build upon in the future. As I’ve traveled around the world attending conferences and meeting the individuals who are actively building this technology, I’ve walked away with one certainty. Bitcoin is not just a commodity, or a currency, or a technology. It is instead a movement, one that will not stop until it succeeds in replacing our calcified, convoluted financial system with one that is fresh, elegant, equitable, and ideally suited for our time. If you’ve flipped through these pages and find yourself still reading now, it must mean you have some questions percolating. My hope is that this magazine plays the same role in starting your intellectual journey as the innocent text I received from my colleague. I encourage you to be skeptical, ask hard questions, seek sincere answers, and when satisfied, join our community— and help us change the world.
David F. Bailey david@ybitcoin.net