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Introducing the Future of Money, Powered by Blockchain Technology


Blockchain Beyond Finance: Entrepreneurs Clamouring to Build the Next Killer Apps


Shanghai Investors Move to Dominate the Blockchain Boom

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Warranty / Repairs / Tech Support


Removable Fold-Out Brochure/Poster Illustrating the Bitcoin-Blockchain 2016 Ecosystem


Why Bitcoin Has Value


What Is Bitcoin?



Bitcoin: Why It Now Belongs in Every Portfolio



A Guide to Buying Bitcoins


Merchant Adoption: Full Speed Ahead!

The Dollars and Sense of Bitcoin




Growing The Market – A Bitcoin Shopping Guide

Justin Newton – Netki

Bitcoin’s Innovation at Enterprise Scale

Bitcoin for the Developed World



Maximizing Bitcoin Security


Bitcoin Security – A Best Practices Primer


What is Bitcoin Mining?


Bringing the Heat – How One Farmer Used Bitcoin to Grow His Crops and Increase His Profits


Marco Streng – Genesis Mining


ON THE COVER Cover art by Josh Dykgraaf, global artist based in Amsterdam, Netherlands, specializing in 3D and photo/illustrations.

Problem: International Payroll Delays and Fees — Solution: Bitcoin


How to Launch Organizational Training & Development for Bitcoin-Related Initiatives


Bitcoin: The Regulators Are Here


History & Events


Blockchains vs. the Real World


2016: The Year of Blockchain Integration


How to Build Tamper-Proof Titles with Blockchain Technology Fenbushi Capital and Wanxiang Blockchain Labs

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DASH: Not in a Rush


Matthew Roszak – Co-Founder, Bloq


How Gem is Building the Future of Data Integrity


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Volume 3

Bitcoin and the Blockchain: Get on Board Advancements in the use of Bitcoin and blockchain technology are robust–the momentum thrilling. While we’ve always known Bitcoin was a game-changer, it is now clear that the distributed ledger technology invented to record Bitcoin transactions will know no limits in its ability to impact every industry on the planet.

Issue 1

Founder/Editor-in-Chief David F. Bailey Publisher Calli S. Bailey Managing Editor Ellen Sullivan

The mission of yBitcoin magazine is to share with you our front-seat perspective on the cutting edge of Bitcoin and blockchains in the real world. Our focus is to introduce you to the innovators behind the technology and preview some of the applications and opportunities that may apply to you and your business. Toward that end, we are pleased to include with this issue a removable 16-page brochure that opens into a poster showcasing the vibrant state of the Bitcoin/blockchain ecosystem. (Posters are also available from our online store at

Senior Contributor Andrew Hidas

A special THANK YOU to the company sponsors who supported this project, including the CEOs showcased on the cover who allowed us to graphically funk up their portraits in the spirit of SXSW®, where this poster series debuted. Thanks also to BitPay, who pioneered the infograph that inspired the poster, and to our committed artists and designers for burning the midnight oil.

Circulation/Logistics Vanessa Krohn

Bringing inspired people together is a critical step in innovation, and I am pleased to announce BTC Media’s inaugural conference series–Distributed. Our first event will be held mid-June in St. Louis on “Supply Chain and Capital Markets,” and feature panels of experts on the legal, technical and financial aspects of blockchain use case solutions. Until Bitcoin hit the world stage in 2013, the way our 30-year publishing company used financial services changed little if at all. Until recently we were still snail mailing checks, and taking credit card payments that dinged us up to 3.9 percent. We now reap Bitcoin’s innovation: we work with a global network of freelancers whom we seamlessly pay in digital currency—with no payment delays and no extra fees. We invoice our global base of customers in Bitcoin. The invoices can be paid within seconds. Our payment processor guarantees the amount in dollars regardless of the valuation of bitcoin. And those guaranteed, risk-proof payments are automatically deposited into our bank account with no transaction fees or costly currency conversions. It is a game-changer! The print edition of this magazine may have reached you on a one-time basis through one of our strategically targeted distributions. If you'd like to receive subsequent issues, please sign up at, and we will send you a complimentary copy of our second-quarter edition as soon as it rolls off the press. Thank you for reading—I know you will benefit from exploring the profitable new world of Bitcoin and the blockchain.

Design Jennifer M. Taylor Operations John Riggins

Contributing Writers Andreas Antonopolous Jonathan Chester Tuur Demeester Anthony Di Iorio Tony Gallippi Peter Kirby Alex Lawn Sterling Ledet Trace Mayer – Bitcoin Law Team Stephen Pair David Perry Kirk Phillips Alan Silbert Emily Vaughn Erik Voorhees Sales Curtis Fenimore Cindy Taylor Product Development Tyler Evans Downloadable Digital Edition: Advertising Sales Office 256.539.6100

Warm regards,

Calli S. Bailey, Publisher


yBitcoin is published quarterly by BTC Media, LLC, P.O. Box 1411, Fayetteville, TN 37334. 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 advertisements, sponsored content 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 advertisements, sponsored content or editorial content, nor does the publication or its staff assume responsibility if such advertisements, sponsored content 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. ©2016, all rights reserved. *All sponsored content is paid advertorial and marked sponsored in the footer.

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What is The Most Secure Way to Store Large Amounts of Bitcoins?

What is Bitcoin?

Bitcoin is both a digital currency and a payment system. It is used to send funds around the world in seconds, at almost no cost.

What Makes Bitcoin Valuable?

Bitcoin has value because of all the good things you can do with it. Whether you need to quickly transfer money internationally, shop online without a bank account, accept payment from a compromised land with no risk of fraud, or have a store of value you can easily convert into local currency, Bitcoin is your answer. This base level of demand gives Bitcoin a monetary value that can be used in the exchange of goods and services.

Is Bitcoin a Good Investment?

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

How Do I Buy Bitcoins?

Bitcoins can be bought, mined or exchanged for goods and services. Buying bitcoins is the simplest way to acquire them. You can buy bitcoins in person, direct from another Bitcoin holder, purchase them online through an exchange or buy them through a growing number of Bitcoin ATMs.

How Do I Store My Bitcoins?

Bitcoins are stored in a digital wallet. Wallets can exist on your smartphone, a computer, on the Internet or printed out on a piece of paper and locked away in a safe deposit box. 10

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

Is Bitcoin Safe to Use?

Similar to online banking information, logins and passwords to Bitcoin services must be kept 100 percent private. Best practices include using a password manager to store unique, long passwords for each site and enabling two-factor authentication using a smartphone whenever possible.

How Are Bitcoins Created?

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

Where Can I Spend My Bitcoins?

More than 100,000 merchants accept Bitcoin—and more are doing so every day. You can use your smartphone to spend bitcoins at a local brick and mortar store, or you can spend them online direct from your digital wallet.

Do Any Well-known Merchants Accept Bitcoin?

Many multi-billion dollar companies are accepting Bitcoin, including, TigerDirect, Dish Network, Dell Computer, Expedia, Microsoft, Newegg, Anheuser-Busch, Virgin Galactic, the Sacramento Kings NBA basketball team, OkCupid, WordPress and even the rapper 50 Cent!

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What Is Blockchain?

A blockchain is a record, or ledger, of digital events — one that’s “distributed,” or shared among many different parties. It can only be updated by consensus of a majority of the participants in the system. And, once entered, information can never be erased. The Bitcoin blockchain contains a certain and verifiable record of every Bitcoin transaction ever made.

Why is Wall Street So Excited?

Wall Street is interested in the many capital markets applications of the blockchain—a shared ledger of records or transactions. For example, a blockchain could be used to share equity trading information among many different parties or to track settlement of various financial instruments.

Why Do Merchants Want to Accept Bitcoins?

Bitcoin offers numerous advantages for businesses. Merchants are able to save the fees that are generally charged by credit card companies, never have to deal with chargebacks, and can accept payment without requiring personal information from their customers. And with payment processors, merchants don’t have to worry about Bitcoin’s volatility.

How Can I Implement Bitcoin in My Business?

Beyond accepting Bitcoin as a form of payment, there are a multitude of different ways to engage and use digital currency and blockchain technology in your business— from paying overseas employees to cutting-edge accounting and reporting practices. Most important, however, is to build a long-term strategy for your organization and team, which means in-depth research and active education.

Who runs Bitcoin?

No one! This is one of its greatest advantages! Bitcoin is open source software that anyone can use and build on. Thousands of pioneers are actively building out the applications and services used every day by millions of users. Daily, established entrepreneurs from respected fields are entering the ecosystem and improving the protocols.

Can Blockchains Be Used Outside of Finance?

A blockchain can be used to store any type of data. For example, medical records could be stored on a blockchain, which would provide an immutable set of data that could be shared between different doctors or hospitals. Data encrypted on a blockchain could also be used to track everything from authentic luxury goods to insurance policyholders to votes in public elections.

How is Bitcoin Changing International Business?

With the advent of the Internet, companies today, both big and small, are building teams distributed across the globe. Powering ordinary payroll processes with digital currency allows even the smallest of companies to pay international staff cheaply and quickly. For example, an international newspaper could pay thousands of freelance writers from around the world every month without having to worry about fees, minimum transfers, foreign currencies or week-long delays.

What is Bitcoin’s Legal Status?

Bitcoin has been treated as a currency and a commodity by the United States government, meaning most Bitcoin companies fall under existing laws and regulations. In the U.S., it is legal for individuals to buy, transact and sell bitcoins for personal use as long as capital gains taxes are paid to the IRS.

Are There Other Types of Cryptocurrency?

There are currently more than 1,000 different cryptocurrencies, but Bitcoin is magnitudes larger than its closest peer. Bitcoin pioneered the space and is without doubt the most trusted currency. 11

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WHAT IS BITCOIN? Welcome to Cryptocurrency by ERIK VOORHEES

When most people hear about Bitcoin, whether for the first or the tenth time, they ask one simple question: “What is it?” Like an automobile, Bitcoin is technically advanced, and it can appear complicated, depending on how much you want to know about it. But also like an automobile, it doesn’t require you to be a technical expert in order to use it—and for it to change the way you interact with 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” from and to other people. To clarify, take a look at the relationship between PayPal and U.S. dollars. PayPal is a payment network, but not a currency. In contrast, the U.S. dollar is a currency, but not a payment network. You use the PayPal payment network to make transactions in U.S. dollar currency. 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).


“The real magic of Bitcoin, the reason it’s so newsworthy, comes from the consequences of its existence.” 12

“Bitcoin is two things: (1) A payment network (“Bitcoin”), (2) The currency unit used on that network (“bitcoins”).” Here’s where things get important, revolutionary—and a little weird. The Bitcoin payment network, unlike anything else before it, is decentralized. It is not controlled by any company or organization. That fact alone is its core “value-add.” Bitcoin's decentralization is why it's unique and revolutionary. The Bitcoin network is like file-sharing: it’s a network of computers that talk to each other, but nobody controls the network itself (there is no central server). The bitcoin currency unit itself is similarly not created or controlled by any central party. Bitcoins are created by the network itself over time, in a 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 according to a clear mathematical schedule. As of this writing, there are roughly 14 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?” It’s a payment network, and a currency used on that network, which are controlled by no central party. People control their own bitcoins. The number of bitcoins in existence is limited by the rules of the protocol.

Perhaps the more important question is, “Why should I care?” While computer engineers and mathematicians might find Bitcoin’s technical details fascinating, most people don’t really have the time for those complexities—just as most people don’t spend time worrying about exactly how the Internet works. We trust that it does, we enjoy its benefits, and we know enough about it to use it.

“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.” And while it’s true that Bitcoin permits financial transactions that have essentially zero cost, that can 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

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control, the power of the currency and its payment network belong entirely 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. The only rules of their exchange are those they set between themselves. With Bitcoin, there is no third party presiding over the economic activity of the users. With Bitcoin, you don’t need anyone’s permission when you make a financial decision. This means people can contribute to 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. It means the wealthiest and the

poorest of the world now have the same authority over their money – beholden neither to banks nor bureaucrats. It democratizes finance just as the Internet democratized speech.

“Bitcoin enables any two people, anywhere on earth, to transact with each other freely.” With Bitcoin, economic relationships are set and regulated by markets instead of 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 a profound impact on human society, just as all great technological achievements do.

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 offers privacy in an age of surveillance, and honesty in an age of manipulation. So what is Bitcoin? It is a payment technology, sure. But more than that, it is a social and economic experiment. It is a project that, if successful, will change the relationships 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. The changes will be beneficial, especially if you know something about them in advance. Remember the dawning of the Internet. And educate yourself now on the phenomenon that is Bitcoin.

Erik Voorhees

Erik Voorhees, CEO of, is recognized as one of the world’s leading Bitcoin entrepreneurs. Voorhees passionately advocates for Bitcoin, which he considers among the most important inventions in history. As a featured guest on Bloomberg, Fox Business, CNBC, BBC Radio, The Peter Schiff Show and at numerous Bitcoin and industry conferences, he has asserted that “there is no such thing as a ‘free market’ when the institution of money itself is centrally planned and controlled.” His writings address “the human struggle for the separation of money and state,” with Bitcoin as the instrument by which the future will happen. 13

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

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



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We previously patched our problems with gold and silver by introducing paper banknotes. We patched further problems by removing the precious metal backing those banknotes, then patched them again and again to allow wire transfers, credit cards, debit cards, direct deposit and online billpay. All the cornerstones of modern life are just patches on this ancient system. But what would you do if you had the chance to start over? What if you could make purely digital money based on modern technologies to solve modern needs? What if we didn’t need those 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.

“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.” 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 2009 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. 15

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A 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.

From the inception of Bitcoin in 2009 until January 2011, its market cap grew to $1.5m. From there, it rocketed to $145m in January 2013, to reach $6.5 billion in early 2016 These are some of the areas in which Bitcoin-based technologies 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. Bitcoin’s potential is not going unnoticed. After it had been praised by tech moguls such as Bill Gates (“a technological tour de force”) and Gmail founder Paul Buchheit (“Bitcoin may be the TCP/IP of money”), the money started speaking. We saw investments in Bitcoin by top venture capital brass such as Marc Andreessen, Reid Hoffman,


Fred Wilson and PayPal co-founder Peter Thiel; by billionaires such as Jeffrey Skoll (eBay co-founder) and Li Ka-shing (by all reports the richest person in Asia); by iconic executives such as Vikram Pandit (Citigroup), Blythe Masters (JPMorgan Chase) and Tom Glocer (Reuters); and most recently by large cap companies such as Google, Qualcomm, NYSE, Nasdaq, USAA (American bank and insurer) and NTT Docomo ($75b Japanese phone operator). Finally, several academic and government heavyweights have also affiliated themselves with Bitcoin companies: Larry Summers (ex-Treasury Secretary, World Bank Chief Economist), James Newsome (CFTC and NYMEX), and Arthur Levitt (SEC). The core value proposition of this network is the fact that, in the words of IBM executive architect Richard Brown, “Bitcoin is a very sophisticated, globally distributed asset ledger.” What Brown and others hint at is that Bitcoin will in the future be able to serve not only as a decentralized currency and payment platform, but also as the backbone for an “Internet of property.” This entails a decentralized global platform, smartphone-accessible, on which companies and individuals can issue, buy and sell stocks, bonds, commodities and a myriad of other financial assets. The effect will be to remove much of the current bureaucracy and barriers to entry, presenting a huge opportunity for the world’s 2.5 billion unbanked people. Which raises the question: why Bitcoin, and not some other cryptocurrency? The answer may lie in the network effect: of all the cryptocurrencies, Bitcoin is the one with the highest adoption rate and the strongest security. The combined computing power of the Bitcoin mining industry serves as a protective firewall around the payment network. To give an idea of its size, as 21 Inc. CEO Balaji Srinivasan has pointed out, “All of Google today would represent less than one percent of mining.” In short: no other cryptocurrency is as secure as Bitcoin. This attribute in itself attracts more capital, which in turn makes the network even more secure and performant.

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Because of its robustness, the Bitcoin network is now the reference protocol for the new paradigm in finance. And just like TCP/IP became the mainstay for the Internet of information, the Bitcoin network will likely become the value anchor for the Internet of money and finance. Speed may be provided by off-chain or sidechain transactions, but for the high-value transactions of tomorrow, Bitcoin could very well become the security-providing reference currency. So, how much of all this potential is already realized? Well, from the inception of Bitcoin in 2009 until January 2011, its market cap grew to $1.5m. From there, it rocketed to $145m in January 2013, spiking to over $10 billion in January 2014, and recently it settled at $6.5 billion in early 2016. Despite a steady decline in price in the 12 months following the fall 2013 rally, year-on-year adoption trends markedly point upward: as of Q4 2015, there are 12.7 million bitcoin wallets (+100%), and the hashrate of the network is 743 pth/s (+237%). Enticed by its great potential, investments in the Bitcoin ecosystem are taking off rapidly. In 2013, little over 40 VC deals were made that raised a total of $96 million. That number nearly quadrupled over 2014, with $335 million invested. For 2015, despite a softening VC climate, Bitcoin and blockchain startups raised a total of $490 million, an increase of 46%. The value of bitcoins in circulation has been rising steadily. This can be explained mostly by the fact that it is a scarce commodity (maximum supply is 21 million) with rapidly growing utility. Here are a few possible scenarios for the future value of one bitcoin:

POTENTIAL VALUE OF BITCOIN $ 1,230 $ 2,480 $ 3,500 $ 6,860 $ 11,500 $ 44,000 $ 500,000 $ 800,000

Hedge Funds allocate 1% to Bitcoin1 Argentines sell USD cash for Bitcoin2 Gold holders divest 1% into Bitcoin3 Bitcoin replaces remittance market4 Becomes global E-Commerce currency5 25% of black market transactions in Bitcoin6 Bitcoin replaces reserve currency7 Bitcoin replaces offshore deposits8

The scenarios projected above are, of course, not cast in stone. Bitcoin faces several risks going forward. These include: • The emergence of a much better digital currency that steals its market lead. • An undetected bug in the system. • A hard fork (what happens when some nodes in the network start running a Bitcoin software upgrade that is incompatible with previous versions) causing the Bitcoin payment network to split in two. • A sustained attack by an organization with substantial financial resources, such as a government.

“Bitcoin does not appear to be a fad or bubble, nor merely a one-off hedge against gold.” How serious 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. 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. A hard fork creates competition between two versions of Bitcoin, and after a period of fear and doubt, eventually the value will flow to the version deemed most useful by its users—not a long term threat in other words. An organized attack on the network is possible but expensive, and there are many potential defense mechanisms: miners can refuse suspicious transactions or raise fees, vulnerabilities in the code can be fixed, and so forth. From the perspective of the government, approaching the robust, decentralized Bitcoin network with an outright ban is nigh impossible. Therefore taxation, regulation and acceptance seems the more likely outcome. 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.

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Tuur Demeester

Tuur Demeester is founder of cryptocurrency focused economic research firm Adamant Research and editor-in-chief of The Adamant Newsletter. He first discovered Bitcoin on a research trip in Argentina, and started recommending it as an investment at $5 in January 2012. 17

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Ready to buy your first bitcoin? Fortunately, it’s much easier today than it was even a year ago, and thanks to innovative companies entering the market, it’s getting easier all the time. There are multiple ways to get started: you can mine them yourself, trade goods for them, or apply for a loan in bitcoin. Some employers—especially those in the Bitcoin space—will even pay a portion of your salary in bitcoins. However, the simplest way to break into the world of Bitcoin is simply to purchase them. There are a variety of ways to do so, and this guide will walk through some of the most popular options. Buy Directly Online The simplest way to buy bitcoins online is by using a consumer site like Coinbase, companies will walk you through the process of setting up a wallet and linking your credit card or bank account to complete your purchase. However, the companies must verify your identity to comply with U.S. “Know Your Customer” (KYC) regulations. The availability of these services varies worldwide due to regulatory restrictions, although Coinbase and Circle maintain a presence in multiple countries. In order to control fraud, these sites typically impose limits on the number of bitcoins you can buy, and they charge transaction fees. The bitcoins you purchase through these companies are held in an online wallet linked to your account. From there, you can send bitcoins to another user, make an online purchase of items that sell in bitcoins, or transfer them to a different wallet. Many of these companies offer insurance for your bitcoins stored with their wallets, and they implement security features like two-factor authentication and multi-signature wallets to keep your account safe. If this is your first journey into the world of Bitcoin, consider these companies for a relatively quick and convenient way to get started.


Use a Traditional Bitcoin Exchange Traditional exchanges such as Bitstamp or Bitfinex are the most common sources for traders or large investors. These sites allow you to create an account and fund it with a deposit of fiat currency such as U.S. dollars. (“Fiat” refers to a currency that is issued or considered legal tender by a government e.g., euros, pounds or dollars.) You can deposit your local currency into an exchange trading account using either a wire transfer or an ACH withdrawal directly from your bank account. The deposit options vary by exchange, and this process can take several days depending on the method you use. Once you’ve moved money to your exchange account, you can buy and sell bitcoins with other traders using the exchange. The exchange doesn’t actually sell you bitcoins directly, instead it matches you with someone else who’s willing to trade at that price using an order book. Yes, that means it works essentially like a stock exchange that matches buyers with sellers at an agreed-upon price. The order book is a list of all the prices and amounts of bitcoins that other traders are willing to buy or sell. For example, if you want to buy bitcoins, you can either place an offer at the current market price (“market order”) or you can set the price you are willing to pay and wait to see if anyone else will sell at that price. Once someone decides to sell at your asking price, the exchange executes the trade, transfers the fiat currency to the seller, and credits your account with bitcoin. Since exchanges are designed for professional trading, they offer advanced features like limit orders and margin trading. However, you must be careful to choose a reputable exchange since they maintain control of any bitcoin or currency held in your exchange account. Many exchanges are also required to comply with KYC and other anti-money laundering rules. These rules can require additional identity verification from users before they’re allowed to transact.

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Modern technology and savvy entrepreneurs have made buying bitcoin easier and much more convenient than opening a bank account. If you own a cell phone, there are hundreds of ways you can start buying and spending bitcoin today.

Find an Over-The-Counter Seller Another way to buy bitcoins is through an over-the-counter (OTC) trade, which is a direct transaction with another party instead of using an exchange. There are a number of website and apps that facilitate these transactions by helping you find other people interested in trading. You can often contact these people and negotiate a transaction directly, paying with PayPal, cash, gift cards or even gold depending on what the seller is willing to accept. There are also brokers who will connect you directly with a seller if you’re looking to buy a large amount of bitcoins at once. These brokers, such as Binary Financial, itBit and SecondMarket, specialize in transactions over $100,000. In addition to matching you with other sellers, some of these brokers offer financial products that function similarly to buying bitcoins directly. For example, you can purchase shares of the Bitcoin Investment Trust, which trades with the ticker symbol GBTC on the OTCQX public exchange. These shares can be purchased with a brokerage account and held in some IRA and retirement accounts. The shares represent the underlying Bitcoin asset which is purchased and held on your behalf by the Bitcoin Investment Trust.

Buy In-Person There are a growing number of locations worldwide where you can purchase bitcoins directly from a convenience store or ATM. A Bitcoin ATM will let you exchange local currency for bitcoins directly—often the fastest and most convenient option. A map of all Bitcoin ATM locations can be found online at In addition to using an ATM, you can also trade directly with other people. For example, you can use the Facebook app Get Bits ( to find friends on Facebook who are willing to sell you bitcoins. This allows you to contact friends directly and negotiate a transaction without a middleman. One of the most popular ways to find other people to trade with is the site, which allows you to search for people in your city who are willing to sell you bitcoins for cash. However, if you choose to meet someone for a transaction in person, be sure to take basic safety precautions like meeting in a public place. Companies such as ZipZap in the UK and Ripio in Argentina allow you to purchase bitcoins through local convenience stores. This process is as simple as buying a gift card or telephone minutes; you receive a card that allows you to redeem it for bitcoins online. These services usually include substantial transaction fees, but are a convenient way to get started.

Conclusion While this guide covers some of the most popular ways to buy bitcoins, it is not exhaustive: new options and marketplaces are springing up rapidly as the Bitcoin economy grows. Startups worldwide are building easier and more convenient ways to transfer value with bitcoins and increase investment opportunities, including the ability to buy bitcoins with your 401k or retirement account. In addition, exchanges and services are expanding worldwide as the global regulatory environment adapts to this relatively new player on the world financial scene. 19

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by Trace Mayer, J.D.

Almost every Introduction to Computer Networking course once taught that the “Byzantine Generals’ Problem” was impossible to solve. In simplified terms, the “problem” is how multiple generals are able to arrive at consensus on 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. Assuming the same gross revenue percentages for Bitcoin transactions, a $3,000 per month merchant processor fee on $5 million or more of volume with 2 percent average credit card processing costs, handled via Bitcoin, would result in annual savings for Target of about $75 million, Walmart of about $150 million and Amazon of $60 million with no downside risks. When any business can now implement Bitcoin and save proportionately, why cede cost advantages and profitable market demographics to competitors without a fight? Bitcoin users now range from individuals to large publicly traded companies. Here is why increasing numbers of people and businesses are adopting its advantages:

• Transactions are instantly verifiable and irreversibly settled within a day (usually an hour). • There can be no fraud by way of chargebacks. • Counter-party risk is nonexistent in contrast to a bank operating with fractional reserves, foreign currency settlement risk or credit card processing problems. • Identity protection is built in to keep users safe from identity thieves. • Fees are extremely low or non-existent. A prominent example: On July 18, 2014 Michael Dell tweeted, “Received PowerEdge order @ for more than 85 #bitcoin (~$50K USD).” One can assume Dell did so in order to announce his ability to receive payment from anyone anywhere in the world, thus expanding his market from a mere 50-60 countries where credit cards or PayPal currently function. If Dell used a feeless Bitcoin processor, this would result in a savings of about $1,000 when compared to credit cards. 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. Another advantage: Everyone has heard of the massive data breach of customers’ personal information at Target stores.

Bitcoin users now range from individuals to large publicly traded companies. With Bitcoin transactions there is no personal customer information. There is even a YouTube video of someone making a Zynga Bitcoin 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. In December 2014, Microsoft began accepting Bitcoin so it is reasonable to suppose that eventually Target, Amazon, Walmart, etc. will all be forced to accept Bitcoin. Why? Because publicly traded Overstock along with major electronic retailers TigerDirect and Newegg began accepting Bitcoin in 2014. At Overstock, Bitcoin transactions accounted for 4.7 percent of gross revenues for the month, and the average order amount was about 30 percent higher than transactions using other payment methods. The most popular item ordered? Sheets! Which leads us to the next major point. Target, Amazon et al. will want to know they are on solid legal ground when being innovative and accepting Bitcoin. Lawmakers Trace Mayer, J.D.

The author hosts the podcast Bitcoin Knowledge (; is an early Bitcoin thought leader, entrepreneur and investor with companies such as Armory, BitPay, Kraken and Netagio; and has worked as a journalist, monetary scientist and ardent defender of the freedom of speech. He holds accounting and law degrees, and has studied Austrian economics.


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Companies need a Bitcoin strategy just as in the mid-1990s they needed an Internet strategy.

the U.K. and U.S., have all started to weigh in. On April 1, 2015, the Proceeds of Crime Act took effect in the Isle of Man which specifically legalizes Bitcoin use by financial institutions. The highest profile cryptocurrency lawmaking event was the United States Senate hearings in November 2013, 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 said: “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 such as 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 2016? 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 and bloom. Consequently, while the financial world at large continues to experience commotion, the Bitcoin industry appears to be in forward motion like never before! 21

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Dollars & Sense of Bitcoin



itcoin is a digital currency and a global payment network that is growing in popularity every day, offering unique advantages to businesses in a wide range of industries. But does it make sense for your business to accept Bitcoin? Let’s explore why it may.

Credit Cards: Designed for an Offline World Credit cards were never designed for the Internet. These lovely pieces of plastic with a magnetic stripe were popularized in the 1950s. Actually the magnetic stripe was added in the 1970s, but that’s still a long time ago, when commerce operated very differently from the way it does today. These cards still work well 60 years later when you are paying in person, but they don’t work well when you are trying to pay or accept payments online. Customers expect a seamless payment experience – they don't want to fill out credit card information forms for every purchase. Merchants are still being hit by multiple-percentage-point processing fees for the cost of securely settling customer payments through the multiple antiquated layers of the card network. The costs of the security failures of this system have the most impact on online businesses. Online payment fraud continues to hit record highs year after year, and it shows no signs of slowing down. “Friendly fraud” is also increasing as consumers learn how to abuse the chargeback system. When an online merchant ships merchandise to a shopper, that merchant assumes a risk for up to 90 days whether that payment is final or not. If the payment is disputed by the cardholder at any point during that time, the merchant is usually forced to reverse the payment and pay a penalty fee. Merchants bear the cost of this fraud, and ultimately this cost is passed back to honest consumers in the form of higher prices. As businesses use the Internet to meet demand from consumers around the world, this weakness is sapping time and money from the online economy – one that should have a payment method of its own.

Bitcoin works like cash for the Internet. It’s sent from person to person in a push transaction, not drawn from accounts by third parties. 22

Bitcoin: The Solution For Online Payments Bitcoin was invented in 2009 using everything we know about the Internet and online security. It’s a payment system designed for Internet purchases from the ground up. While credit card companies spend tremendous resources trying to make the online payment card experience better, they'll never match the simplicity and security of Bitcoin. Bitcoin works like cash for the Internet. It’s sent from person to person in a push transaction, not drawn from accounts by third parties. It uses cryptography to provide proof-of-ownership – bypassing the traditional multi-party routing and authorization processes that transmit sensitive customer information. With this native solution for payment security, Bitcoin functions without a chargeback mechanism like the one today's card system is built on. Customers and merchants alike are protected from fraud and its costs. If your business accepts a large number of payments over the Internet, accepting Bitcoin might make sense for you. Here are three areas of online payments where accepting Bitcoin can have the most impact.

Micropayments: Payments Under $10.00 Payments under $10 are becoming popular among Bitcoin adopters, especially for businesses selling entertainment, games and fast food. The gross margins on these micropayments, when managed traditionally, are getting squeezed due to the ever-increasing cost of acceptance by credit card. Because Bitcoin payments can be sent without the traditional minimum interchange fees of card transactions, they are highly efficient and cost-effective for amounts under $10.

Macropayments: Payments Between $1,000 & $10,000 Credit cards also make payments between $1,000 and $10,000 more difficult. At this scale, interchange fees of up to 3 percent on card transactions can quickly add up to larger amounts. These macropayments are also at a higher risk of fraud. When criminals obtain stolen credit card information, they try to buy the most expensive things they can find before the cards get deactivated. Merchants selling items in this price range are at the forefront of the battle against payment fraud, and Bitcoin provides a much-needed solution.

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International A/R Billing Businesses that need to receive payments from international clients are often hit with elevated interchange rates, which vary country-by-country, and can easily be over 10 percent per transaction. In many of the world's fastest-growing economies, businesses may not have access to card networks at all. Wire transfers can be received from more countries, but they are inefficient solutions. Bank wires rely on a large network of corresponding relationships, leading to unpredictable costs and transfer times to simply get money from point A to point B. Payees end up with little or no information as to the delays and fees incurred along the way. Bitcoin changes that. There is tremendous potential for companies to offer Bitcoin as a payment option for their international receivables. It’s faster, lower risk and costs less than any other payment method. If your business has international clients, then accepting Bitcoin might be worthwhile for you.

There is tremendous potential for companies to offer Bitcoin as a payment option for their international receivables. It’s faster, lower risk and costs less than any other payment method.

SWEET SPOT FOR CARDS BITCOIN ZONE Micropayments<$10 Cross-border payments ioT payments




Domestic consumer spend $10-$1,000 Recurring payments Customer loyalty



BITCOIN ZONE Macropayments>$1,000 Cross-border payments Multi-user payments



$100,000 $1,000,000

Bitcoin works especially well for payments under $10 and over $1,000.

Getting Started With

Bitcoin Payments


ntegrating Bitcoin payments into your business is a fairly simple process. If you have a small business or online store, you can start accepting Bitcoin in just a couple of hours. Billion-dollar enterprises take a little longer, but even TigerDirect, the huge tech retailer, was able to integrate Bitcoin payments in as little as four days. Most Bitcoin payment gateways allow you to set your prices in your local currency. More important, they can settle incoming Bitcoin funds in your local currency and local bank account. This way, the rise or fall in the price of Bitcoin doesn’t affect the price of your product or service.

A partnership with a payment processor can essentially eliminate any risk with Bitcoin. In fact, due to the lower cost of accepting Bitcoin payments and the publicity it can bring as a byproduct, your business has more to gain than to lose. Even as Bitcoin matures in its growth as a technology, the opportunities for merchant adoption remain wide open. It is expanding the possibilities for online commerce well beyond the limits of traditional payments. Is your business ready?

Tony Gallippi

Tony Gallippi is the co-founder and Executive Chairman of BitPay, a global leader in Bitcoin payments. The company was founded in 2011 and handles millions of dollars worth of Bitcoin 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 worked as regional sales manager for Industrial Devices Corporation. He holds a bachelor’s degree in mechanical engineering from the Georgia Institute of Technology. 23

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If years ago someone were to guess what products would kick off Bitcoin adoption, alpaca socks might not make the top of the list. Fuzzy socks to launch a disruptive technology and global currency? Yet thatâ&#x20AC;&#x2122;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 150,000 transactions per day and that number growing, it is evident that bitcoins are making headway in the world of consumer purchasing.



In the evolving Bitcoin market, consumers can now buy electronics, clothing, food, precious metals, Internet services, creative services and even luxury cars and homes. Consumer Market As of the beginning of 2016, there were around $6.0 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.

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 who 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. 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

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With over 150,000 transactions per day and that number growing, it is evident that bitcoins are making headway in the world of consumer purchasing. 8-9+ percent 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 1990 costing nearly $180 today. The limitation on the number of bitcoins ultimately placed into circulation provides protection to consumer purchasing power.

The Growing Market • PayPal, Stripe and Braintree are starting to integrate Bitcoin into their payment networks. • and the Bitcoin wiki show growing lists of merchants. • and bitify are constantly broadening their inventory of electronics, clothing, gifts and other items, as they vie to be the “Amazon of Bitcoin.” • Food take-out and delivery service Foodler accepts Bitcoins for its 14,000 restaurants. • Microsoft is the largest merchant to accept Bitcoin to date. • Bitcoin ATMs are appearing in several countries worldwide. • Gyft offers gift cards from more than 200 different retailers. • Dell, Overstock, Expedia, DISH Network, 1-800-Flowers, Newegg and Wikipedia’s acceptance of Bitcoin shows that more mainstream businesses are starting to adopt it.

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 or Coinbase 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.

• 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.

Alan M. Silbert

Alan Silbert is founder and CEO of BitPremier, the leading Bitcoin luxury marketplace, and a senior vice president at Capital One. He has more than 18 years experience in commercial finance. Previously, he was a vice president at GE Capital and held various positions at Merrill Lynch Capital, Heller Financial 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. 25

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e’ve all heard about the exciting potential Bitcoin holds for developing countries. As infrastructure improves, we’re going to see a lot more tech advancements in these countries, and Bitcoin will be an instrumental part in that development. Bitcoin provides the ability to transfer value across borders, an alternative for regions suffering currency crises and unstable governments, and disrupts remittance markets. These innovations will take some time, however, so for this article I want to focus on how people in developed countries can get the most benefit from Bitcoin today.

Bitcoin is easier to use than ever before and getting easier each day. With a little extra effort, you can use a service like to get massive discounts on Amazon products. For consumers who don’t have to worry as much about currency instability and live a comfortable life, convenience is key. Convenience is paramount to the average consumer and the value of new services must meet or exceed these standards people have become accustomed to. While Bitcoin has historically been for the more tech savvy crowd, new services have popped up in recent years that have provided more incentive for those outside the tech world to get involved. Bitcoin is easier to use than ever before and getting easier each day. With a little extra effort, you can use a service like to get massive discounts on Amazon products. 26

My time is limited so anything I can find to make ordering what I need more convenient is a must. This is true even for people not running a company. Amazon is my go-to for great deals and fast delivery but by using, I can also save up to 20 percent on Amazon purchases. The process is simple: create a wish list, add your address, paste the wishlist URL into the search bar in Purse, name your discount depending on how soon you need your order, and then fund your account with Bitcoin.1 At my company Airbitz, we’ve focused on making the easiest-to-use mobile app for Bitcoin while not compromising on security because we realize that this technology can be for everyone.2 Our focus, while also global, is on making Bitcoin more practical to use. You can see this practicality in some of the features of our app such as the ability to buy and sell bitcoins with a bank account and seamlessly buying discounted gift cards for retailers like Target and Starbucks. Right now, you can get 20 percent off Starbucks gift cards, which really adds up if coffee is a staple of your lifestyle. Discounts are up to 8 percent for Target and more retailers that people use every day are planned in the coming weeks. Shaving 20 percent off your coffee budget really adds up over time and you can use these savings for numerous other purposes. We accomplished this by integrating one of my favorite services, Fold App, into our platform to make the process even more frictionless. Two other gift card services that provide an immediate value to consumers are Gyft

Links to services:

and eGifter.3,4 Both allow you to buy gift cards with Bitcoin and reward Bitcoin users with 3 percent back in points (occasionally up to 5-6 percent) that can be used for future purchases. eGifter allows you to buy the amount you need while Gyft has predetermined amounts for cards and both allow you to buy their branded gift cards that can be used for buying other gift cards. These are great options for when there’s a price bump and since the gift cards never go bad, you can hold onto them as long as needed or send them to your friends more conveniently than other methods. Both sites boast huge retailers like CVS, Whole Foods and Best Buy—there’s a business for everyone. Gift card apps and our own integrations make the process of saving money many times easier than existing methods of trying to track down deals through multiple websites or cutting them out of snail-mailed fliers. By accessing and storing these cards on their phones, a big loop is closed and consumers can get on with their busy lives. We live in the future so it’s time certain markets reflect that. When you add up how much consumers can save by incorporating Bitcoin into their lives, you’ll see massive savings that are too good to pass up. For the convenience-based developed world, using Bitcoin is an easy currency to incorporate into your daily routine. The numbers don’t lie and the ease of getting started with this digital currency has increased so much in recent years that there’s no excuse to not take advantage of what the future of money has to offer.

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ike probably most Bitcoin insiders, Justin Newton grew up with a seemingly natural penchant for the math and science that undergirds so much of the computer world. He tinkered with computers as a child, with one oft-told family tale about a technician coming to the house to install a system and Justin pointing out, with all his ten-year-old authority, how one line of code in particular simply wasn’t going to work. “Yeah yeah, this is adult talk here,” he remembers his father, an electrical engineer with GM at the time, saying. Only thing was, the kid was right; that code wasn’t launching anything without serious adjustment. “I’m not one to be shooed away easily,” Newton muses, many years removed now from his childhood tinkering but no less confident in his discernment abilities, which are now directed to helping the Bitcoin world find its way through the challenges still facing it. The challenge for him currently is to help simplify the arcane language and protocols that dominate conversations and procedures in the blockchain space. His goal is for regular people to be able to use bitcoins with confidence and the all-important security that will be required if mass adoption is ever to take place. He and his business partner and wife Dawn Newton, looking to repeat their successes at NetZero, are putting that and associated goals into practice with Netki, a digital wallet naming service that, among other attributes and more still to come, does away with the impossibly imposing wallet addresses requiring 30-40 characters of mixed letters


and numerals, upper and lower case, in favor of a simple customized address such as: Sure, you can forgive yourself for thinking, “Now why didn’t I think of that?” The fact that Newton did—and then had the technological chops to make it work—stands as just one more testament to his pioneering role in helping to make the obscure, obtuse and strictly academically oriented Internet into the most transformative mass technology since the printing press. And he’s done it all along with the grace and humor revealed in his company’s website, with its simple navigation, clean language and design, and photo blurbs of the “Team” that includes the group’s three dogs and their important titles: “Chief Building Security Officer,” “Chief Morale Officer,” and “Chief Warning Officer.” “I always gravitated to computers but went to college at Northwestern with the idea of becoming a physicist,” he says. “I wasn’t yet convinced computers would be transformative, and I was looking to make an impact. But a mentor there, Phil Draughon, who contributed to key Internet monitoring standards, caused me to reconsider. He showed me that just as the printing press democratized information, the same thing would happen with the Internet. It’s just too difficult for tyranny to develop in the face of the free flow of information. I realized then I could be more impactful with the Internet than anything I’d be doing in the physics lab.” So off from Northwestern he went after three years, since academia could not possibly adjust its knowledge base and course offerings as fast as things were changing in the industry

itself. Newton distinguished himself almost immediately by proving his mettle in both the wonky engineering side and the public policy side of the Internet. As an engineer, he helped to build the “backbone of the Internet” in crucial positions with AboveNet, Digital Gateway Systems, Erol’s Internet and NetZero. On the policy side, at age 23 he co-founded what became the largest trade association for independent (non-telco) ISPs, the Internet Service Providers Consortium, where he served as a board member and public policy director. He parlayed that role into carrying the torch for critical early legislation that included the ten-year moratorium on taxing the Internet (including taxes on both ISP services and online sales). The first part of the act is still in existence today. Newton is now bringing those same multiple perspectives and skill sets to the Bitcoin world, which he sees as a transformative technology in finance wholly on par with the Internet’s disruption of information. “Bitcoin felt right away to me like the early days of the Internet,” he says. “Literally everything we do in the future will be affected by what the blockchain brings to our lives. What’s impossible to know is exactly how it will manifest. The things we’re doing now in technology would have seemed like science fiction not long ago. The key for everyone is to build flexibility into our systems, so we can support the trends no matter which direction they go.”

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When most people think of innovation, they think of Oculus Rift's virtual reality devices or Google’s self-driving cars. With a technology like Bitcoin, it’s easy to see why consumer applications also get the most attention from new adopters. At least on the surface, advances that closely touch daily life have the most to offer people who are discovering a technology for the first time. What this causes most new observers to miss is that many of Bitcoin's significant innovations will happen—and are happening— within firms that aren't featured in TechCrunch or based in Silicon Valley. While these uses of Bitcoin technology may not be public, they're also the ones that can transform how the world’s most important companies work.

A Payment Network Built for Growth Since its creation in 2009, Bitcoin has had more success as a payment method than any other digital currency. Today more than 100,000 merchants worldwide accept Bitcoin. As with any new technology, adoption has begun at the edges. Now many large-scale enterprises are embracing Bitcoin payments—and for good reason. The Internet has made obsolete what used to be acceptable for companies using traditional payment networks: high fraud rates, interchange fees and country-to-country settlement limitations. Now these companies have a currency and a payment network that meet the realities of online commerce. With Bitcoin, it’s possible to receive payments in any size and amount for low settlement costs, all with the global scale that enterprises need.

Globalized Business Payouts Globalization has made international hiring and remote work common features of enterprise workforces. It has also extended supply chains and business relationships around the world. On the other hand, there has been little globalization of traditional payment networks, which are still limited to the developed world. Even within the reach of these networks, international transfers are often expensive and unreliable due to the cost of maintaining and securing a multi-step settlement process.

With Bitcoin’s peer-to-peer network, money can be moved directly to payees via the Internet. It's not limited by borders, and its costs remain flat whether a company is paying a supplier in Thailand or a developer in Argentina. This is the fastest fund settlement network in history, and enterprises can already begin to use it to effectively cut wait times, red tape and costs in payouts.

Asset Management on the Blockchain The same problem that plagues the payments industry affects how companies manage their assets. Many financial institutions and other businesses still rely on analog processes to maintain digital ledgers and databases across borders and across branches. The costs of the human oversight, human error and fraud in these systems add up. Now even traditional players in finance and banking are coming to appreciate Bitcoin's underlying technology—a distributed digital ledger called the blockchain—as the solution. Using the same worldwide network of computers that verifies Bitcoin transactions, this ledger can allow firms to make and record transfers of any digital asset, title or token across systems in a matter of minutes. Spanish banking group Santander has already estimated that blockchain technology could save banks up to $20 billion per year. Whether through direct adoption or a more modern financial infrastructure, the blockchain is set to have the same impact for the broader business world.

Bitcoin as an Enterprise Platform In the past decade, cloud-based solutions have allowed small companies to grow their operations faster than ever before. Until now, financial technology has lagged behind. Businesses have had to use systems made for a pre-digital world, from bank transfers to credit cards. Now Bitcoin promises to beat the cloud in providing scalable financial tools for any company with access to the Internet. The enterprises that are adopting Bitcoin’s payment and asset management technology are beginning to find solutions to the toughest problems with doing business in an online world. That’s something more newcomers to Bitcoin should note. While this innovation may be happening at enterprise scale, it’s certain to affect the way we all live and work.

Stephen Pair

Stephen Pair is the co-founder and CEO of BitPay, the global leader in Bitcoin payments. He has over 20 years of experience building software systems in the financial and telecommunications industries.


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Bitcoin 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 different. Instead, it functions very much like digital cash or gold. Once sent to your Bitcoin address, it is entirely within your control; you maintain it, and when you want to use it for a purchase, it is there for you—yours and yours alone. With Bitcoin, possession gives 100 percent control. With this great power comes great responsibility. 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.

Bitcoin is different enough from anything that has come before that we need to think about its security in a novel way, too. 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 “back up” 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 end users 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.

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.

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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, 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; See “Authy” at

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 percent— of his 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 Multi-Signature Wallets Multisignature, or multi-sig, is a powerful feature that was added to the Bitcoin core protocol in 2012. Like a bank safe deposit box, where two keys are simultaneously used to unlock a single box, Bitcoin’s multisig feature allows users to secure their bitcoins using multiple keys. Unlike a bank safe deposit box, which offers limited configurations (typically two of two keys), Bitcoin can currently support up to fifteen total keys with any configuration of required signers. Currently the most popular multisignature configuration is 2-of-3, where you hold two keys and a wallet provider or some third party holds the third. The most popular configuration for businesses is 3-of-6, where three executives in a company each hold one key, two keys are stored at different off-site cold storage locations, and the last is held by a third party for recovery purposes only.

5. Use Physical Storage or Hardware Wallets Bitcoin keys are nothing more than long numbers. This means that they can be 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. Another way to store bitcoins securely is in “hardware wallets”: devices designed to securely store bitcoins. These hardware wallets allow non-expert users to attain an almost foolproof level of security. Unlike a smartphone or desktop computer, a purpose-built Bitcoin hardware wallet has only one purpose and function—to hold bitcoins securely. The devices don’t run general purpose software and have simple interfaces that work to limit opportunities for compromise. (See,, In summary, Bitcoin is a completely new, unprecedented and complex technology. The industry has grown considerably over the past seven years, demonstrating an incredible rate and breadth of innovation. 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 and trouble-free Bitcoin experience.

Andreas M. Antonopoulos

Andreas M. Antonopoulos is the author of “Mastering Bitcoin” (published by O’Reilly Media), considered by many the definitive technical guide to Bitcoin. He 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 more than two decades. He can be contacted on twitter as @aantonop or at 33

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Bitcoin Exploration The Bitcoin ecosystem has many different types of platforms such as exchanges, payment service providers, reporting platforms and an array of other supporting services. Every time you create a new account your online profile expands, increasing the risk of breach with one or all of your accounts. Private keys and passphrases should be managed as securely as possible, and the same for login credentials. The following tales are filled with valuable lessons for stepping up your game with digital identity management regardless of whether you're an individual, microbusiness or a Fortune 1000 company. Gone Phishing Paul Boyer, creator of the “Mad Money Machine” podcast on the “Let's Talk Bitcoin” network, learned a tough lesson recently. Paul happily received donations totaling 3.3875 bitcoins, about $2,000, from loyal listeners until he discovered a zero balance in his wallet at the end of June 2014. He collected donations using a payment service provider normally paying out bitcoins in U.S. dollars on a daily basis, but he never submitted a bitcoin payout address, so the coins just accumulated, awaiting the attention of hackers. That was his first mistake. It turned out that a creative BitPay look-alike phishing scheme had cleverly disguised an email with a “View Invoice” link requesting the refund of a customer payment. Unfortunately, Paul took the bait by clicking the link and unknowingly handed his password to the hacker who changed the payout address and received 3.3875 bitcoins the following day. One last mistake: Paul hadn’t activated a security feature for his account known as “2-factor authentication,” which would have prevented hackers from cashing in his bitcoins, even if they had hacked into his computer. Fortunately, 2-factor authentication is becoming more widely used on Bitcoin platforms. After a standard username and password login, a 2-factor box pops up asking for a code generated by a smartphone app such as Authy or Google Authenticator. If hackers obtained your login credentials, they couldn’t log in without your smartphone and the code. The lesson here is to activate every 2-factor authentication available upon setting up a new account— and beware of downloading overhyped free software.


Seven Steps to Digital Security


Best practices for digital identity management are encompassed in the following seven steps. Let's put some golden security nuggets to use before we end up as another cautionary tale. Best practices for digital identity management are encompassed in the following seven steps.

Step 1: CHOOSE PLATFORM Select a password management system such a LastPass or Secret Server, create an account, activate two-factor authentication and start adding website and login credentials. Browser-based password managers should not be used, so just do a Google search for reviews on the best password managers. Businesses should create an enterprise level account with an admin console for managing users. You are 100 percent responsible for managing your bitcoins, so reducing the risk of compromising your entire online profile starts by managing one account at a time.

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Identity Ransom Longtime Bitcoin evangelist Roger Ver was attending a conference when friends started messaging their suspicions of a Facebook imposter. Someone hacked into his old Hotmail account using it like a master key to retrieve logins for other accounts. The hacker demanded a 37.6-bitcoin identity ransom worth $20,000 at the time. Roger offered up a 37.6 bitcoin table-turning reward via Facebook and Twitter for info leading to the hacker's arrest. The viral bounty was too much for the hacker to bear, so he or she quickly bowed down, handed over login credentials and disappeared. No bitcoins were stolen, but this tale shows how a single email account can be an attack vector or weak point for exposing an entire online digital identity. When the same email is used for all accounts it effectively weaves everything together with a single thread. In addition, the more well-known and the more perceived wealth someone has, the greater the risk for getting attacked.

When the same email is used for all accounts it effectively weaves everything together with a single thread. A Tale of Social Engineering Bitcoins Reserve CEO Sam Lee and his company were victims of a creative social engineering attack starting with the U.S. Marshals’ public email leak of the Silk Road Bitcoin auction list. Hackers were licking their chops over a juicy list of high rollers handed to them with a white glove. Sam then got an email from a hacker asking for a media interview while proceeding to open a Google docs link supposedly containing interview questions. The link unleashed malware that sucked out all the usernames and passwords from his Chrome browser, leading to control of all the company’s email addresses. The hacker then sent an email from Lee's account to the CTO requesting a client withdrawal of 100 bitcoins—worth about $65,000. In this case the “client” was actually the hacker and the bitcoins evaporated. Browser-based password managers are convenient but non-secure ways to store passwords. The hackers took over Lee's entire digital identity but still couldn't penetrate the company’s securely stored bitcoins. However, it’s hard to defend against a hacker falsely posing as a trusted party, one of the slickest tools in a hacker’s toolbox. “This is a weakness in our internal processes and procedures; it has nothing to do with weaknesses in Bitcoin because frankly Bitcoin so far has none,” says Lee. Keys to the Kingdom Androklis Polymenis, a.k.a klee, is an early Bitcoin adopter and NXT stakeholder who recently discovered his $1 million stash of bitcoins and NXT, another cryptocurrency, had vanished. The breakdown likely came from a hacker who found klee's unencrypted plain text password file sitting in Dropbox, where klee had left it exposed. He responded by putting out a 500-bitcoin bounty, worth nearly $300,000, for return of the stolen crypto and identification of the hacker, who eventually returned 462 of 1,170 bitcoins while keeping the rest as the bounty in exchange for klee calling off the hunt. In the meantime, the NXT community cont. was able to rally together and retrieve some of the stolen NXT tokens.

Step 2: ADD SITES Once the password manager is set up, you can easily add sites by logging into an account as you normally would. Most systems will prompt you to save the site with a simple click. You can also add sites manually with the URL, site nickname, username and password. If you previously saved all your usernames and passwords in a spreadsheet, adjust the columns to the import format and upload. Easy tutorials are usually available for mastering the setup.

Step 3: TEST SITES Always go back and test-click the site after saving it whether you save sites one by one or import a list. Sometimes little nuances like the login URL or username need to be adjusted. When you create new accounts the URL automatically picked up by the system is often not the login URL, so testing and correcting helps to avoid frustration.

Step 4: DELETE THE OLD LIST After you've successfully transitioned from a password list it's time to delete the file. If you set up a password manager and keep your old file then you have not reduced any risk. If you’re among those who have a difficult time parting with the old for fear of losing access to something or wanting to keep it just in case, you can get over the hump by copying your old password list and pasting it into a secure note available in most password managers.

Step 5: CREATE A UNIQUE EMAIL Email is the golden thread that weaves your entire digital identity together, and unfortunately, most folks use the same email and the same or similar passwords for all their accounts, including social media, financial accounts and everything in-between. The critical distinction is understanding how email is used for both communication and account creation. Securing your online identity means that these two roles must be separated by using two different email addresses. In other words, the email you use for communication should be different from the one you use for new account setup. Create a new second email account without using your own name or a word that could be associated with you. For example, set up an email like (any word) or use the random password generator to create an email “prefix” such as rather than JohnSmith@ Then swap the email on each site with the new email the next time you log in. It will be easier to change accounts one by one instead of turning it into a major all-at-once project. 35

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Although about two-thirds of the cryptocurrency wasn't recovered, it could easily have been a total loss. The keys to the kingdom were practically sitting on a park bench waiting to be picked up. It's a painful lesson highlighting the importance of safeguarding bitcoins and other cryptocurrencies. Armory founder Alan Reiner, a self-proclaimed ultra-paranoid crypto-nerd says, “Holding your own bitcoins is like harnessing fire,” and then adds: “Sometimes the biggest threat to users is themselves.” Dancing Barcode Clef ’s a 2-factor mobile app that eliminates database storage of usernames and passwords by generating a unique digital signature every few seconds using RSA public key cryptography with essentially nothing for hackers to steal. Users are blown away by the ease of use when they hold a mobile phone up to a computer screen while the app syncs with a dancing barcode called the wave. Clef increases registration conversion by 30 percent while eliminating forgotten passwords. In addition, only 15 percent of users set up traditional 2-factor, leaving the other 85 percent exposed to a greater hacking risk. Clef solves the website login problem; however, Bitcoin private keys, passphrases etc. still have to be secured. Websites set up Clef and conversely, end users set up password managers, so Clef can only be used when implemented by the website itself.

Step 6: CHANGE PASSWORDS Hackers can simply use brute force to break an easy-to-remember password. Change all of your passwords to a minimum 16-character, hard-to-break random password using the random generator provided within the password management software. Password resets should be done in conjunction with the new email resets described above. If you can't remember the password then it's harder to break. If you use a password manager you no longer have to remember passwords because the system keeps them encrypted.

Step 7: SECURE BITCOIN WALLETS Bitcoin-related sites may require special attention beyond standard login credentials. Sometimes a passphrase, a group of random words, is required to access your bitcoins. If you lose the passphrase you lose your bitcoins, period, so it must be handled very carefully. Some sites don't have standard login credentials and only require a passphrase. In either case, the passphrase should be saved in the encrypted password field in the password manager. Also consider writing down your passphrases and keeping them in a safe. There are many other advanced techniques that are beyond the scope of this article, but these strategies are meant to significantly reduce risk for people who would otherwise keep login credentials in a text file, spreadsheet, on scrap paper or in draft emails.

Conclusion Every hack starts with a breakdown by one or more responsible individuals working as part of a large company or just managing their personal affairs. Every size organization should follow the golden thread rule of emails, which states that companies should issue one email for communications and at least one email for account login credentials per employee. This separation exponentially reduces the surface area for attacks with the highest return on security than any other measure. The cost of an additional email is close to zero while the benefit of being out of the public domain—as would happen with a single-use email address—is priceless. There are many great password managers. LastPass has multiple 2-factor authentication options, with a free version available for individual users and an enterprise-paid version for businesses, with access controls scalable from a microbusiness of one to hundreds of users. Eventually these types of defense measures used to better secure session-based authentication will be replaced by message-based authentication thanks to the gift of Bitcoin's blockchain. For example, is transforming identity management by offering banks a KYC network on blockchain to reduce the amount of KYC due diligence checks, while giving bank customers co-ownership of their verified identities, which can be adapted for accessing websites. In the old model, companies stored all their customer usernames and passwords in a centralized database. This one giant attack vector required significant resources in the futility of constant defense. The new model eliminates the database silo and the millions of dollars used to maintain it. In the meantime, start securing your digital identity and your bitcoins with these seven easy steps and go on more vacations with all the time you save. The average person has 25 logins per day, so one minute of fumbling per login multiplied by 250 working days equals 2.6 wasted weeks per year logging into websites. Enjoy peace of mind on your newfound vacation instead!

Kirk Phillips

Kirk Phillips is an entrepreneur, certified public accountant (CPA) and a certified fraud examiner (CFE) who is passionate about technology and the possibilities for Bitcoin to disrupt, decentralize and bring transparency into the business world. Author of the forthcoming book, The Ultimate Bitcoin Business Guide, an inspirational reference for entrepreneurs and SMBs, he weaves risk management into business process outsourcing, crypto-business consulting and education. He can be reached at 36

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What Is Bitcoin Mining? by ALEXANDER LAWN


Bitcoin mining is the process by which the transaction information distributed within the Bitcoin network is validated and stored on the blockchain. It is a term used to describe the processing and confirmation of payments on the Bitcoin network. What makes the validation process for Bitcoin different from traditional electronic payment networks 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 onto funds until they process transactions at the end of each day. Bitcoin mining is a process that anyone can participate in by running a computer program. In addition to running on traditional computers, some companies have designed specialized Bitcoin mining hardware that can process transactions and build blocks much more quickly and efficiently than regular computers. The process of validating transactions and committing them to the blockchain involves solving a series of specialized math problems.

In exchange for validating the transactions and solving these problems, Bitcoin miners are rewarded for all of the transactions they process. Each Bitcoin miner is competing with all the other miners on the network to be the first one to correctly assemble the outstanding transactions into a block by solving those specialized math problems. In exchange for validating the transactions and solving these problems, Bitcoin miners are rewarded for all of the transactions they process. They receive fees attached to all of the transactions that they successfully validate and include in a block. In addition to transaction fees, miners also receive an additional award for each block they mine. This block reward is also the process by which new bitcoins are created, as specified by the Bitcoin protocol. Currently, that reward is 25 new bitcoins (worth over $10,000 at time of publication) for each block mined,

which occurs roughly every 10 minutes. However, that reward will drop in half to 12.5 bitcoins later this summer, in an event called the halving, which is expected to occur in May or June. Because the reward for mining blocks is so high, the competition to win that reward is also high. At any moment, hundreds of thousands of supercomputers all around the world are competing to mine the next block and win that reward. In fact, the total power of all the computers mining Bitcoin is over 1000 times more powerful than the worldâ&#x20AC;&#x2122;s top 500 supercomputers combined. And the competition doesnâ&#x20AC;&#x2122;t stopâ&#x20AC;&#x201D;the Bitcoin network has gotten stronger and stronger over the past several years, growing by as much as 10 percent per month. The strength of the Bitcoin network is very important for security because in order to attack the network, an attacker would need to have over half of the total computational power of the network. The more miners that are mining Bitcoin, the more difficult and expensive it becomes to perform this attack. In order to have an edge in this global 39

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competition, the hardware used for Bitcoin mining has undergone various iterations, starting with using the humble brain of your computer, the CPU. The CPU can perform many different types of calculations including Bitcoin mining, but is designed to be general purpose. Early miners soon discovered that the calculations could be run faster and more efficiently using a graphics card (GPU), which is the computer chip that handles complex 3D imaging algorithms. Aside from being able to process Bitcoin's transactions faster and more efficiently, the graphics card setup in many desktop PCs meant more than one graphics card could be used per computer. This was already a feature of high-end gaming and 3D design computers. As such, Bitcoin’s popularity grew among those associated within such fraternities, as they could dedicate their machines to mine bitcoins, and thus cover the cost of their hardware. But this still 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 demand for power. There was one issue: due to the reprogrammable nature of the chip, it had a significantly high cost for a chip that solved blocks at the same rate as a GPU. Its real virtue was the fact that the reduced power consumption meant many more of

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 custom Bitcoin engine capable of securing the network far more effectively than before. 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 engineering investments in order to develop 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 custom Bitcoin engine capable of securing the network far more effectively than before.

Because of the high energy costs for running a powerful Bitcoin miner, many operators have elected to build data centers known as mining farms in locations with cheap electricity, such as near a hydroelectric dam in Washington State or even in foreign countries like Iceland and Venezuela.

The year 2013 was very much a land grab for Bitcoin ASIC technology as the first ASICs became available and many different companies raced to create the most power chips using cutting edge semiconductor manufacturing processes. In the years since, several Bitcoin mining chip manufacturers have focused on optimizing for efficiency, rather than total power, since mining is a very energy-intensive process. Because of the high energy costs for running a powerful Bitcoin miner, many operators have elected to build data centers known as mining farms in locations with cheap electricity, such as near a hydroelectric dam in Washington State or even in foreign countries like Iceland and Venezuela. Another advancement in mining technology was the creation of the mining pool, which is a way for individual miners to work together to solve blocks even faster. As a result of mining in a pool with others, the group solves many more blocks than each miner would on his own. However, the miners must split the rewards with the entire group. Today, the majority of mining on the Bitcoin network is done by large pools, several of which are based in China. So far, 2016 has seen strong growth in the Bitcoin mining network, although many are uncertain how the mining reward halving will affect the network.

Alexander Lawn, MSc.

Hailing from London, Alex Lawn is a well-known character on the cryptocurrency scene. He is responsible for not only the fundraising and building of some of the most successful branding in Bitcoin, specifically in hardware, but for bringing journalists working in the world’s financial and tech press up to speed on the subject of cryptocurrencies. Lawn works within disruptive finance alongside the principals of Bourne Capital.


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How One Farmer Used Bitcoin to Grow His Crops and Increase His Profits You’ve heard of Bitcoin miners, but Chris Ryan might be the first Bitcoin farmer. Ryan, co-founder of Chris and Kristina’s Market Garden in Rhode Island, found a way to nurture both seedlings and currency. In the growing process, providing the right amount of heat is necessary to maximize the seed germination process. Many growers use space heaters or, depending on the size of the operation, much larger industrial heating units. And with that, the farmer has one input— electricity—and one output—heat. Chris spotted an opportunity to subsidize the cost of his growing by using a Bitmain Antminer C1. By using the miner to create heat, Chris suddenly had two outputs, bitcoins and heat, for the cost of only one input. “We have electric heat at home, and I picked up the miner last year to heat the apartment,” explained Chris. “The miner was still kicking around in the spring, so I figured I’d put it on the rack for the seedlings, rather than using the space heater.” What Chris found was that the miner provided a sufficient amount of heat for his seedlings to germinate. However, it was the secondary output—bitcoins—that made it even more worthwhile. “I would have been spending the money on the heat anyway. I would say that the amount of money I was spending on electricity was being paid back by the bitcoins the Antminer was generating,” he said. “When I first started, our cost for electricity

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was approximately 16 cents per kW. I was getting about .015 BTC per day.” But what he was also getting was 2,729 BTUs of heat based on the wattage of the C1. The potential is there for other farmers (or any industrial heat user) to increase their heat generation while also increasing their Bitcoin rewards. While Chris was only running a solitary heating unit, it would have been easy for him to scale up his heat—and bitcoin—production. The current model Bitmain offers is the Antminer S5, which sells for $378. Each machine requires only 590 watts of power and hashes at 1,155 GH/s. Based on that wattage, the S5 could generate 2,013 BTUs of heat. While it produces slightly less heat than Chris’ C1, it results in an increase in hashing power; therefore, more bitcoins can be generated for much less electricity. Jacob Smith, the Overseas Marketing Manager for Bitmain, offered a theoretical implementation of using S5s for power generation. He suggested that a farmer might look to acquire an electric unit heater that costs $729 and gives off 17,000 BTUs based on the 5kW of required electricity. To simplify the calculation, he suggested that each kW costs ten cents per hour.

His proposed implementation would use ten S5s, which would require 5.9 kW and mine bitcoins at a total rate of 11,550 GH/s. The farmer would generate 20,131 BTUs of heat and approximately 3.4356 bitcoins per month, based on the current network difficulty. Based on the cost of both devices, by the end of the year, the farmer would have completely subsidized the cost of his electricity and walked away with an additional $2,379 in profit. Even if the machines did not generate enough bitcoin to cover the cost of electricity, they could still be useful. “If you were paying ten cents per kW to run the machines but only making five cents per kW of miners running, you’re still spending 50 percent less on heating than you would just running a standard heater,” Smith explained. “But assuming ten cents a kilowatt, the power cost is $2.40 per day and the revenue per kilowatt per day at current network difficulty and exchange rate is $5.43.” As Chris explained, he would have been spending the money anyway on the heat. “If you have electric heat, I don’t see why you wouldn’t use a bitcoin miner,” he said. And along the way, his heat paid for itself.

It’s a very fast-moving field, very exciting. Many companies have already come and gone, but we’re just getting bigger, launching new mining technologies and really pushing the innovation envelope.


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MARCO STRENG Built to Last: Genesis Mining CEO

trange as it may seem to many people who have still barely heard of Bitcoin, the cryptocurrency has been busy maturing in the fashion of all new technologies. That means a steady shakeout of early players and the consolidation of companies whose assets and brands have stood the test of the sector’s early, tumultuous months and years. That’s where Genesis Mining Co-Founder and CEO Marco Streng finds himself, four years after he dropped the pursuit of an academic/scientific career in his native Germany to heed the siren call of Bitcoin, which he had stumbled upon while conducting networking research online. Like many people in the Bitcoin world, Streng has an outsized math-and-physics oriented intellect that helped him both gravitate to and quickly grasp the complexity, symmetry and opportunity that Bitcoin’s blockchain technology offers the world. He dove directly into mining on his home computers, first for Bitcoin and then Litecoin. The venture proved to be both lucrative and a dazzling intellectual challenge. He was all of 21 years old. “Bitcoin was just too attractive to resist,” Streng says. “It’s a very fast-moving field, very exciting. Many companies have already come and gone, but we’re just getting bigger, launching new mining technologies and really pushing the innovation envelope.” Streng launched Genesis late in 2013 with partners Dr. Marco Krohn and Jakov Dolic. The trio has built the company into the largest cloud-based Bitcoin miner in the world. It built and operates mining facilities in Eastern Europe, China and Iceland. (The latter’s renowned cold weather is particularly conducive to providing cheap cooling for hot-running mining computers.) Recently, Genesis launched a cloud mining protocol named X11, based on a fundamentally new algorithm that makes it more efficient and lucrative for miners, who can mine all other “alt currencies” and then cash them into Bitcoin for optimal returns. “Our service is not technically difficult either, which makes it a major innovation given how technical cryptocurrency mining has been in the past,” Streng says.

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“I love what I do, and when you love what you do, you can’t get enough of it.”

Another innovation with which Genesis hopes to reduce mystery, further transparency and shake up the Bitcoin world in a fun way: a live streaming website of life inside that shows a Genesis mine in full operative mode. While it won’t make viewers forget their favorite Academy Award winners, the site does help demystify the whole notion of “mining” as it might be popularly (mis)understood. Streng marvels at his luck in finding a way of life so in sync with his passions and interests. “It’s quite funny that when we’re dealing with businesses not involved at all with Bitcoin, all our contacts turn off their mobile phones at 6 p.m. and never do business on weekends,” he muses. “In the Bitcoin world, we work almost all the time, every day, because every day counts! It’s not a problem at all, though. I love what I do, and when you love what you do, you can’t get enough of it.” Still, he concedes, there is such a thing as life outside Bitcoin, though it is spare. What there is of it he spends with his girlfriend, who happily is as flexible as he is regarding the demands of work. “I’m always telling her we’ll be going on holiday soon, and though we do manage to get away sometimes, it’s not as often as we’d like. Things move so fast that planning much ahead is just not possible. Meanwhile, we get a few hours in the evening or an occasional day off. But almost never two in a row.” 43

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International Payroll Delays and Fees



If your business is required to make even a small number of international payments to contractors or employees, you are all too aware of the delays and fees involved. One of the greatest benefits Bitcoin brings to the table for businesses like yours is the elimination of these issues. Using Bitcoin for international payments, your payroll process becomes streamlined to a degree that will make you wonder how you ever did it any other way. The delays, bank transfer fees and miscellaneous charges you’ve experienced using traditional payment transmission methods will disappear forever. Uber, the Internet rideshare company, offers a prime example of how Bitcoin can simplify the payroll process. Uber has two choices to pay their contractors. They can either incorporate and build banking relationships in every country, working with non-userfriendly interfaces and old, low quality APIs, or they can go through several slow and costly integrations of multiple platforms. Either way, the contractors are left with no choice but to accept high FOREX costs and slow, unreliable transfer times. According to the World Bank, the average of cost of sending funds across borders is 8 percent, and the average time for transfer completion is three to five days, with workers shouldering the bulk of these costs.


But why does it take so long for wages to be transferred and exactly how much is lost to intermediaries? Here’s a step-by-step breakdown of a simplified international contractor transaction: 1. Client initiates the international bank transfer from their bank account and pays a $45 flat fee. 2. Their bank forwards the funds next business day to a large correspondent bank with the resources to maintain international correspondent banking relationships. 3. The large correspondent bank removes $25 from the total amount. 4. The large correspondent bank sends back $7.50 to the client’s bank for initiating the transfer. 5. The large correspondent bank forwards the funds next business day to their large multinational correspondent bank with a presence in Brazil and the capital to facilitate a foreign exchange. 6. The large multinational correspondent bank exchanges the USD to BRL and takes 7.5 percent in the spread between the interbank rate and the retail exchange rate. 7. The large multinational correspondent bank forwards the funds next business day to the contractor’s local bank account. 8. The contractor receives the international bank transfer into their bank account three business days later and pays a $15 fee.

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These costs and delays are a result of the current financial system’s reliance on sending funds through a system called the correspondent banking infrastructure. Banks do not actually have direct relationships with the banks receiving the funds on the other side. Instead, funds flow through a series of correspondent banks, where one bank somewhere in the middle will make the conversion from one currency to the next. While many people tend to focus on the flat fees levied on both sender and receiver, the main cost burden is accrued through the currency conversion, where the spread is often over 8 percent. Unlike the simplified version of the correspondent banking system provided above, the real process is actually very opaque. The sender and receiver typically do not know how many banks are within the chain of correspondent banks, and there are currently no good mechanisms for tracking funds. So banks cannot provide an exact date for when funds will arrive at their destination. In fact, many wires end up getting lost in the process, often delaying international payments by one or two weeks. For the receivers, this creates the stress of not only not knowing when the funds will hit their accounts, but also not knowing where the funds are or even whether the funds will ever reach their destinations. For the sender, this typically results in increased customer support costs and less time to hold onto the working capital used to pay employees and contractors. This is clearly not an ideal situation for any of the participants other than the intermediary banking institutions who are generating additional revenues. So what would an international payroll solution look like if it used Bitcoin and the blockchain?

Sender $0 Initiation fee Sender bank or payment platform

Receiver $0 Receiver fee

Blockchain Transactions

Receiver Bank

Here is the step-by-step breakdown of the new blockchain-based international contractor transaction above: 1. Client initiates domestic bank transfer for a vastly reduced or zero flat fee.

Uber, the Internet rideshare company, offers a prime example of how Bitcoin can simplify the payroll process.

This means that Bitcoin payroll and payments companies now have full control over the entire payments process. Fees and transfer times can be dramatically reduced by removing intermediaries and directly accessing all the players involved. In many circumstances, employers receive better rates than the interbank rates, saving them money, and the employees and contractors have access to their local funds next day. And unlike the current financial system, both the employers and their workers can actually track the funds, providing insight into when the funds will arrive and assurance that the funds will actually reach their destinations. It is obvious why both individuals and corporations are looking to Bitcoin for a better payroll solution. Some people are using pure “Bitcoin payroll” systems, while others are working with systems that leverage Bitcoin as an intermediary step. There is even a service that allows employees and contractors to receive their wages through Bitcoin without requiring their employer to sign up. Market research carried out by Bitwage, one international payroll services provider, suggests that even among the Bitcoin community, many people don’t know that they can receive a chosen percentage of their paychecks in Bitcoin even when their employer has not signed up for a Bitcoin payroll service. It is surely only a matter of time before more employers and employees transition away from antiquated traditional payment systems to the vastly superior solution that Bitcoin provides. In the near future, the everyday pain of international payroll payments will be a thing of the past.

2. Domestic bank forwards funds to Bitcoin Payroll & Payments company’s domestic bank next business day. 3. Bitcoin Payroll & Payments company facilitates near instant international blockchain transaction. 4. Bitcoin Payroll & Payments company takes a nominal fee depending on the service. 5. Contractor receives domestic bank transfer from Bitcoin Payroll & Payments company’s domestic bank in the receiving country, forwarded one business day later, and pays vastly reduced or zero flat fee.

Jonathan Chester

Jonathan Chester is founder and Chief Operating Officer of Bitwage, the leading international Bitcoin payroll company in both volume and users. He has been featured in Entrepreneur magazine and has spoken at various blockchain and payment conferences around the United States, including Transact15 and Inside Bitcoins NYC. 45

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The number of businesses using and accepting Bitcoin continues to grow. This increased utilization brings with it a need for businesses to train their employees on the use, management and security of Bitcoin-based processes and workflows. Employers and managers can’t afford to assume basic literacy among their staff when it comes to understanding the basics of this new technology. Just as previous disruptive technologies such as email, social media and the Internet itself have brought new training needs to organizations, Bitcoin also requires that we train staff on how to maximize the advantages of the technology while minimizing the risks that attend a poorly implemented Bitcoin strategy. Beyond Knowledge Transfer

When considering organizational training as it relates to a Bitcoin integration strategy, the first thing many leaders might focus on are Bitcoin’s technical aspects. While technical details and factual background are certainly of high value and need to be carefully considered, often the most substantial result obtained from formal training initiatives is not technical but cultural and psychological. That’s because effective training programs


do more than just transfer knowledge. Strategic training initiatives can also instill confidence, enhance buy-in and develop enthusiastic champions in an organization, turning skepticism or resistance into support and cooperation. The result can be a long-term competitive advantage in an environment of rapid change. As the pace of massive change increases, organizations that are more effective at learning are better able to adapt and thrive. Achieving this goal requires looking at the training objective from more than a content-delivery perspective. The Charismatic/Structured Divide

Let’s compare two hypothetical organizations as they prepare to introduce Bitcoin literacy training into their workplaces. Both organizations’ leaders are enthusiastic about Bitcoin, are personally invested and have confidence the technology will provide substantial benefit to both their organizations and the larger community. The first leader approaches accomplishing this objective in an unstructured way, primarily relying on his natural leadership talents, his organizational role and the power and respect that comes with that position. He uses his personal charisma and reputation

in the industry to promote and encourage employees and colleagues to learn more about Bitcoin. He is enthusiastic and frequently talks about Bitcoin in company meetings. If anyone asks him questions about Bitcoin, he is quick to explain how confident he is that it will bring value, and why he is a proponent. He encourages his associates and employees to explore the technology on their own, and he even makes a practice of helping his team members open wallets by giving them a small number of bitcoins to play with. The second leader takes a more structured approach. She thinks through what she is trying to accomplish and comes up with a written executive summary statement that clearly encapsulates her mission. In her case, she defines her objective as: “Develop both technical fluency and cultural enthusiasm in our organization around Bitcoin technology so the team is capable of both implementing Bitcoin- related pilot projects and capitalizing on opportunities as they arise.” Rather than overtly promoting the technology using her personal charisma, she decides to work closely with a subordinate who is respected in the organization as a conservative, careful planner who is relatively risk-averse. She meets with that subordinate one-on-one and appoints that person as project leader rather than spearheading it herself. She asks the person to help her plan a structured training initiative to accomplish her written objective. The two of them work together to both develop the list of tasks that need to be accomplished, and then schedule these items on the calendar with specific milestones and deadlines. Because she selected someone who tends to keep her grounded and has the managerial courage to ask tough questions, the interaction between the two of them sharpens the leader’s ability to predict areas of skepticism and resistance in the organization, and to prepare potential responses to objections or roadblocks that may arise.

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Shaping the Pace of Change

Over time, both organizations make progress on their Bitcoin initiatives, but each organization evolves a bit differently. The first organization starts off with a lot of excitement. The leader is effective at getting a high level of buy-in, especially among his closest circle. Several team members open wallets, and a few even invest some of their own money into Bitcoin. Besides the intellectual fun of team members simply learning about this inherently interesting new protocol, they get an additional boost when they see a rapid 20 percent rise in value in the first couple of weeks after they invest. Alas, disappointment follows when the dollar value of their bitcoins eventually drops 25 percent. This has the effect of momentarily dampening their enthusiasm, but may actually serve the purpose of simply adding to their learning about the reality of Bitcoin price variations as they tackle

the multiple initiatives and projects they are responsible for implementing in their jobs. Under an unstructured charismatic leader, though, emotional energy can ebb and flow, and Bitcoin can become just another project on a worker’s to-do list. The initial burst of enthusiasm and excitement fades—along with a small amount of the trust and confidence workers had in their leader. While they still respect and admire him, they may come to feel that Bitcoin is hardly as transformative as the leader led them to believe. The second organization starts off slower. From the beginning, everyone involved knows this is a long-term initiative that is unlikely to achieve instant results. Team members view the Bitcoin training initiative as preparing for the future, as opposed to hopping on a fast-moving train today. The plan has a year-long timetable with specific events such as attendance at a conference, scheduled

participation in webinars and a series of formal classroom training initiatives. As time elapses and the plan is executed, the build-up of enthusiasm is much more gradual than in the first organization. Every once in a while a lower level team member catches a bit of Bitcoin fever and it becomes a good-natured positive joke around the water-cooler, but organizationally the team has its mind set on a longer-term goal. After a year of structured training, the leader is able to look back at a substantial increase in both the general support of Bitcoin technology and the deep level of understanding that begins to percolate through the organization as concepts such as “distributed ledgers,” “smart contracts” and the "Internet protocol for money, trust and value” become part of the organization’s internal dialogue and lexicon. Most would agree that the second leader took the wiser approach.

A Four-Step Plan

I see four basic steps in the organizational training process for Bitcoin fluency:

Consider your options and set a budget.

Create a shared vision.

The shared vision may be the most important step. Long-term success in an organization requires more than just leadership carrying the torch. While that’s critically important, it’s only a first step. The fire needs to spread from that torch— and that means organizational buy-in. It’s not just the leader’s vision that sustains and enhances successful teams. It’s what the individual team members and performers think and believe that shapes the innumerable

Execute your plan.

Develop a structured plan and schedule.

little interactions that ultimately lead to success or failure. That’s true whether it’s a minor project or a major organizational change initiative such as developing your organization’s Bitcoin fluency and skill base. It’s important to keep in mind that the shared vision should not be fixed, but must evolve and develop its own momentum as the plan unfolds. It’s critical to start with the shared vision as a primary objective, though, because any training program’s effectiveness

is closely tied to the level of motivation and enthusiasm among the participants. People rarely learn much in a training class they don’t want in the first place, and purchasing self-study training resources that remain unused is a sad waste of time and money. There are plenty of options for various components of the training plan. It helps to have some basic categories, though. cont. 47

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Self-Study or Formal Class?

One useful approach is to consider options on the scale of self-study vs. formal structured study programs. These exist on a continuum rather than separate poles, because good self-study programs have formal structure and good formal study programs have self-study components as well, e.g. in preparatory work or self-directed exercises. The best trainers adopt the perspective of a coach who is focused on supporting your people’s efforts at taking charge of their own learning as opposed to viewing themselves as experts downloading their knowledge for the benefit of your team members. Therefore, a great plan typically includes both self-study and formal training elements. Some options to consider when it comes to Bitcoin training: • Free self-study resources such as those available at and various webinars. • Paid self-study courses such as those offered by • Assembly of a corporate book and resource library. • Conferences and trade shows. • Formal training classes, either publicly scheduled or custom-delivered for your organization.

There are pros and cons to these alternatives, and selection should be made based upon the circumstances and priorities in your organization. The chart below addresses an appropriate budget for several options, as well as how each one tends to rate in several categories as compared to the other alternatives. “Certainty” refers to the level of certainty that the resource will actually be utilized. How confident can management be that the investment will not be wasted and that the purchase will result in measurable change? “Motivational value” refers to how much that training alternative moves the needle when it comes to cultural buy-in and enthusiasm, in addition to the technical skills transfer objective that workplaces sometimes overemphasize. “Adaptability” refers to the ease with which that resource can be customized and directed toward incorporating organizationspecific content and strategic objectives. Once the specific alternatives are chosen and budgeted, the difference between success and failure can often come down to the diligence applied to the scheduling of the resource on a calendar. This is of particular importance when organizations attempt to accomplish their objectives internally using less formal methods.

Things that get scheduled onto a calendar tend to get done. Things that don’t get scheduled, don’t get done. It’s as simple as that. While it’s very rare that someone won’t attend a scheduled formal class, the utilization of self-study resources is typically abysmal. That means it is critical—if you want to make sure your organization gets its money’s worth from an investment in self-study resources—that you take the step of assigning a scheduled date and time for the people in your class to spend going through that resource. Ultimately, the return on any project or initiative is about how well the people in the organization execute on the plan. Training projects are no different than any other project when it comes to this truth. Good project management means execution is observed and measured. Formal or informal evaluations on the effectiveness of the training initiative on accomplishing the original objectives are an important part of the management process. With the thoughtful application of the principles and tactics discussed in this article, your organization should be able to make substantial progress on its Bitcoin-related organizational development objectives.



Motivational Value

Technical Value

Ease of Scheduling





Low to Medium






Low to Medium









$2,000/each + travel



Medium to High



$895/each + travel






$5,000 to $10,000






Sterling Ledet

Sterling Ledet is the founder of Ledet Training, a chain of Adobe, Apple and Autodesk authorized training centers with locations in Atlanta, Chicago, Denver, Houston, San Diego and Washington, D.C. He is a Certified Bitcoin Professional and Certified Technical Trainer in addition to holding multiple training certifications from various software vendors. He's been a leader in the software training field since 1996. His organization offers technical training classes in his training centers, onsite at client locations and online at


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BITCOIN – The Regulators Are Here


More to Come By Bitcoin Law Team Martin Mushkin, Joseph Sahid and Rony Guldmann


Transactions that are computationally impractical to reverse would protect sellers from fraud…. The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes.” What Nakamoto could not address at the time was how Bitcoin’s operators should be regulated, if at all, so that we laymen would have trust that we are dealing with “honest nodes”, i.e. the people entering those immutable transactions. So here comes government—like it or not. Decades ago, the governments of the leading financial centers set up regulatory anti-money laundering systems (“AMLs”) to stop drug dealers, terrorists, gun runners, human traffickers, child pornographers and the like from transferring money among themselves and laundering the money so it looked like clean cash. Banks and other financial players must comply with “know your customer” (“KYC”) rules to stop money laundering. Lists of notorious bad actors are available on the web. Cash is bulky to move. Along comes Bitcoin and BINGO—money, i.e. value, can be transferred anonymously in minutes in a way that eludes established AML/KYC regulations. And along with that comes the fraud that nobody wants to be the victim of. The Federal Government Is Here The prime federal player in the Bitcoin world is the Financial Crime Enforcement Network (“FinCEN”). This agency of the

U.S. Treasury enforces the Bank Secrecy Act, portions of the Patriot Act and other laws. These laws are the primary regulatory sources of the AML/KYC rules. The rules require all kinds of dealers in currency and alternative currencies to register with FinCEN. This is true regardless of where the Bitcoiner is located—within or outside the United States—if he deals with U.S. residents. Among those who must register are banks, thrifts, savings and loans, credit unions, credit card companies, money services businesses (like check cashers, traveler’s check issuers, currency exchanges, and money transmitters), securities and commodity futures dealers, insurance companies and gambling casinos. There are exemptions from registration for those who use Bitcoin solely to obtain goods and services, for chips or gift cards which cannot be converted to money and for other similar uses. Bitcoins are “currency,” so whether a Bitcoiner must register can be a difficult question. Once it is decided that registration is necessary, registration with FinCEN is easy. The forms are online. However, the registrant needs to know in what category to register. And once the Bitcoiner has registered, there are compliance issues. That’s the rub. The regulated business must establish a sophisticated structure to keep track of all transactions, comply with the AML/KYC rules, refuse to deal with known bad guys, and automatically report certain transactions. They must even file SARs, “Suspicious Activity Reports.” Even structured financial transactions—those

Bitcoin regulations are constantly evolving. This map reflects information available at the time of publication.

Regulation has started! Like it or not, Bitcoin and all cryptocurrencies publicly available will be regulated to one degree or another. The reason for regulation is to make sure that people dealing in other people’s money do so honestly and with due regard for fiduciary standards. Blockchain technology has been used to produce the bitcoin, a cryptocurrency which works as an alternative to fiat currency. The vaunted beauty of the blockchain, and hence the bitcoin, is that once a transaction is accepted into the chain it is immutable— the block is there forever, right or wrong. Of course if you know the key, another transaction can be entered into the chain referring to the old immutable item and “correcting” it, but the original stuff remains. Only the transferee knows the key, and he may be just an anonymous email address. If he will not cooperate, the transferor is stuck. Unfortunately, misuse of blockchain keys has also produced massive frauds on occasion. When bad things happen, even those among us who want no government involvement are likely to look to government to fix the problem. After all, frauds are perpetrated by people, and governments deal with people’s acts. In his famous white paper introducing Bitcoin, founder “Satoshi Nakamoto” states: “What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.

Bitcoin Friendly Bitcoin Neutral Bitcoin Conflicted Bitcoin Hostile

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intended to avoid regulation, must be reported. Hundreds of thousands of transactions are reported annually. Fortunately, the regulations provide exemptions for small transactions and payments to sellers of legitimate goods and services. It can get even more complicated. There can be securities legal issues. Bitcoin options and swap markets have appeared and the federal Commodities Futures Trading Commission (“CFTC”) has ruled that it has jurisdiction over this activity. That opens up a whole other regulatory area. The States Are Coming The states are promulgating their own regulations. These are to protect their residents and to make sure that the state does not become a pirates’ haven for bad guys preying on good guys. Cryptocurrency regulation is in its infancy, so these regulations are only beginning. New York is in the forefront. On August 8, 2015, New York’s regulation of cryptocurrencies became effective. Many of the same Bitcoin businesses that must now register with FinCEN will also have to register with the State of New York. But the registration process is much more complicated and expensive. The registration fee is $5,000 and the registrant must show up front that it has all the necessary structures in place—ALM/ KYC rules, compliance personnel, net worth, a bond, audits, outside confirmation of the background of the officers. It’s a big deal. The regulation provides for registration of cryptocurrency businesses which conduct transactions “involving New York or any resident of New York.” “Involving” is a very broad word. A few years ago, under the Alien Torts Claims Act, the federal court in Brooklyn took jurisdiction over cases where New York residents were hurt while in Israel in attacks by Hezbollah terrorists. The defendants in these cases were a Jordanian Bank and a Canadian bank. In each case they had transmitted funds to the terrorists through their New York correspondent banks. Those transactions took seconds to pass

through the system on their way to the recipients, but that was enough to establish jurisdiction. If a Bitcoin transaction took a similar route, New York regulators might claim jurisdiction since New York residents would technically be involved. Some companies have decided not to deal with New York residents. Others are registering and the regulators have announced that they will work with the registrants. The New York rules have the word “reasonable” in many sections. After all, New York has years of experience with registering money transmitters. Nevertheless, cryptocurrency regulation is as new for them as it is for the registrants. Registrants must label their materials to show they are registered in New York. That should become a badge of integrity, much as banks advertise they are members of the FDIC. California California is not far behind. A bill similar to the New York regulation was being considered in the legislature but was shelved last Fall. Only time will tell whether it will be resuscitated. In the meantime, California’s Department of Business Oversight has asserted its authority to regulate digital currencies even without legislation. Connecticut Connecticut passed a law this summer authorizing its Department of Banking to regulate some Bitcoiners. It remains to be seen how stiff the regulations will be. North Carolina North Carolina’s assembly has passed a bill to regulate cryptocurrencies. It requires a minimum $150,000 surety bond, and a net worth of $250,000. It has been sponsored by a member of the assembly who is also a Vice President of Wells Fargo. The bill expressly provides for registrants to appoint approved agents to work under the licensee’s control, somewhat like the way Western Union appoints agents, like news/candy stores, to operate its money-transmitting business.

However, regulators have also made clear that certain kinds of Bitcoin businesses are exempted from the regulation. New Jersey The New Jersey legislature is also considering Bitcoin regulation, but it seems that whatever bill emerges will include tax incentives to encourage jobs—generating Bitcoin businesses. Other States Are Investigating Not every state has adopted a definitive position. Some have suggested that Bitcoiners may have to register as money service providers. See the categories of possible money service providers above. Others have simply warned that people dealing in cryptocurrencies have to be wary of rip-offs. What Is a Bitcoiner to Do? Bitcoin is in the infancy of its regulation. No doubt common honesty is required. Bitcoin cannot be used to deal in drugs or in any of the other crimes noted above. That needs no new laws. What is not so obvious is when a Bitcoiner has to register— and where. Does the Bitcoiner simply mine or maintain a wallet? Does he exchange fiat currencies for bitcoins or transmit value from Ms. A to Mr. B, whether within a country or between countries? The lawyer’s first answer to these kinds of questions will usually be “IT DEPENDS – let’s look at the details.” The regulations use and define words like user, transmitter and exchanger. However, the definitions in the regulations are of little help in many situations. The following are some hot areas of inquiry. The creation of a bitcoin is obviously the first step in its existence. The Bitcoin miner must first buy a mining computer. As with the purchase of any product, the miner must make sure he is dealing with an honest seller, and check out the machine. Much purchasing is done online and sometimes paid for in Bitcoin, an irreversible transaction. Sometimes, machines are simply not delivered, particularly if purchased from allegedly overseas sources —check it out. The remedies 51

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for non-delivery or for faulty machines are those for the bad purchase of any product. When the miner mines enough bitcoins to create a block accepted by the blockchain, he has created a product much like an ingot of gold or any precious commodity. At first he will keep it in his own wallet. Maybe he will set up a wallet on another person’s site, a person who acts as a bank maintaining virtual wallets for other people. Does the depository have to register? To get any use out of them, the miner must sell his bitcoins. That may mean exchanging for other goods, for services or for fiat currency. In doing so he must transmit the appropriate amount of bitcoins to the key number supplied to him by the counter party of the transaction. Thus he has exchanged his bitcoins for goods, services or fiat currency. Is he a user, transmitter, or exchanger under the applicable regulations? Does he have to register with FinCEN and perhaps one or more states? Hmmmmm. Suppose a person trades bitcoins over the web. She buys bitcoins on one site and sells them on another, hoping to make a profit. Is she a mere user, or an investor? Suppose she does this, not only for herself but also her husband, mother, father or best friend. She is successful and soon she and her friends meet regularly to decide how they will individually trade. They then pool their money (crypto or fiat) and authorize one person to trade for the group and distribute profits, while requiring the members to contribute funds to cover losses. Putting aside securities laws issues, is the organization just a user or investor or has it become a money service provider? The answers will vary with the details of the organization, activity and location.

It has been reported that thousands of Bitcoin ATMs will be set up in Greece and in other countries. Their purpose will be to permit people to deposit fiat currency into the machines which will credit them with bitcoins. They can then deposit the bitcoins into a wallet located anywhere. That is, transmit the value represented by the bitcoins. The transaction can also go the other way— deposit bitcoins and get cash. The system can be used to transmit money (value) anywhere in the world in short order without passing through the normal banking system encumbered with all its controls, third parties, regulators and high fees. The ATM will have sold bitcoins, exchanged it for fiat currency and transmitted it who-knows-where. Or vice versa. The need and/or desire to regulate is legion. Is the owner/operator of the ATM some kind of money service provider and if so, what kind? In what jurisdictions must he register—if at all? We have dealt only with U.S. law. But what will Greece (or some other country) have to say about this? Another hmmmmm. Suppose the seller of the ATM has nothing more to do with the machine once it is sold? Is he subject to regulation? This seems the same as selling a car. But the answer will not always be obvious. For we are dealing in the financial world where the transmittal of value is highly regulated and constantly scrutinized. Now suppose he is the owner of the ATM and sells it with a contract to maintain it for a flat fee—no share in any profit or loss. Or suppose the fee is a percentage of the gross value of any transaction. Or suppose he fully owns, operates and

Martin Mushkin was an SEC Senior Trial Attorney, has published extensively, and has been listed in Who’s Who in American Law. Joseph Sahid is a litigator handling commercial and financial disputes, was a partner in Cravath, Swaine & Moore, and is listed in Who’s Who in America. Rony Guldmann works in a variety of litigation and transactional matters. The authors are the Virtual Currency Law Team at located in New York, Connecticut and California and concentrating on corporate finance, business regulation and litigation.


Martin Mushkin

controls the ATM to the point of maintaining its Bitcoin and/or fiat money inventory. Now suppose he buys the machine and carries out one or more of these activities from and in the U.S. At what point does he have to comply with U.S. federal and/or state laws? Add to that the possibility that he is outside the U.S. but the machines are in the U.S. How is this activity any different from standard fiat currency transactions for the deposit of checks via your mobile phone, the withdrawal of currency from an ATM at a 7/11, or paying for a cup of coffee by holding your mobile phone up to a handheld scanner at Starbucks? Who must comply with the AML/KYC laws and/or register with the authorities? Yet another hmmmmm. The blockchain is the key. Bank of America has already filed fifteen blockchain-related patent applications and is preparing twenty more, hoping to use this technology to keep track of its funds and transmit them from account to account. A committee of the Conference of State Banking Supervisors has recommended regulation much like that of New York. Honduras will now be using blockchain technology to record land title transactions. And Ecuador is now the first country in the world to have introduced its own government-backed virtual currency. The Russian Duma will be considering new regulations on “money surrogates” in February, which will presumably include Bitcoin. But it is not yet clear how extensive these regulations will be. It is reported that some banks give Bitcoin businesses a hard time and will close accounts or refuse to open them. Stay tuned.

Joseph Sahid

Rony Guldmann

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Bitcoin first appears as an academic paper and a computer program in late 2008. Very little is known about its creator, Satoshi Nakamoto, as his only presence on the Internet consists 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. October 31st – Satoshi Publishes the White Paper Bitcoin’s seminal concept paper, “Bitcoin: A Peer-to-Peer Electronic Cash System,” is first published, describing the technical and economic foundations of the currency in detail.







Bitcoin’s year starts on January 3 and an official Bitcoin client is released soon after on the cryptography mailing list. The Bitcoin community itself grows slowly in the first two years, picking up new members by word of mouth. New members begin mining, causing the Bitcoin network’s hash power to increase, with mining difficulty increasing exponentially.

Bitcoin begins to fulfill Satoshi’s vision as a store of value and transactions begin on several online exchanges. The community grows slowly throughout this year, which is marked by technical innovations such as the first hosted wallets and mining pools. GPU mining is also developed, leading to a large increase in the network’s hashing power.

A large number of new businesses appear, growing to meet the needs of the Bitcoin economy. Bitcoin gains more and more prominence in the media. This year is also marked by a number of technical developments and innovations, but also a number of hacks and thefts. The price of bitcoin rises as high as $32 before dropping back to $10 in a period of high volatility.

January 3rd – The Genesis Block The original “genesis block” is mined by Satoshi, officially starting the Bitcoin blockchain.

May 22nd – Bitcoin for Pizza The first known Bitcoin transaction for a physical item occurs when a forum user pays 10,000 bitcoins, then worth $25, for another forum user to order a pizza for him. At current bitcoin prices, the cost of that pizza would be equivalent to approximately $1 million. December 12th – Satoshi Disappears Bitcoin founder Satoshi Nakamoto makes his last forum post before disappearing, and Gavin Andresen quickly assumes a more central role in Bitcoin development.


April 20th – Bitcoin in the Media An article on Bitcoin by Forbes appears online and in print, and is translated into many languages around the world. The online release on April 20 and print release on May 9 are immediately followed by sudden rises of nearly 50 percent in the price of bitcoin, bringing the price up from $1.20 on April 20 to nearly $6 on May 10. June 8th – Rising to New Highs The price, after peaking at an all-time high of $32 on June 8, drops precipitously to $10 and bounces back up and down several times before stabilizing at $17.

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GLOBAL EXPANSION At the beginning of June, Bitcoin finally breaks out of its nearly four-month-long period of extreme stability as prices shoot past $6. News attention is once again positive and a speculation-induced bubble begins to fester, leading to another price crash in August. During this time period, a number of the original Bitcoin companies and exchanges begin to be replaced by new challengers. Blogging site WordPress begins to accept Bitcoin, and Bitcoin Magazine publishes its first issue.

January 16th – Bitcoin’s TV Appearance Bitcoin is featured on an episode of The Good Wife, creating a threefold blip in Bitcoin’s prominence as measured by Google search volume. May 26th – Growing Chinese Bitcoin Adoption The volume of international Bitcoin users continues to increase, and Bitcoin makes a sudden appearance in China as BTCChina becomes the world’s second largest exchange for one day. Bitcoin price begins rising shortly afterwards.

2013 BOOM AND BUST Days after the beginning of the new year, the bitcoin price begins picking up once again. Bitcoin business also booms; gambling sites like SatoshiDice are the first to post unprecedented returns, and merchant providers and mining companies follow soon after. Soon enough, the Bitcoin economy is right back to where it was in spring 2011—except this time with ten times the force. The Bitcoin network hashing power increases exponentially as the first ASIC Miners come online. Conferences: The San Jose Bitcoin Conference, held in May, brings together more than 1,200 Bitcoin users from around the world to discuss the technical, legal and business issues around the currency. It’s followed by a number of similar conferences in London, New York, Atlanta, Amsterdam and Latin America. Merchants: This year, mainstream companies including OKCupid, Shopify, Virgin Galactic, Overstock and Reddit begin accepting Bitcoin for payment. Startup Activity: Silicon Valley begins to get involved with Bitcoin as several leading venture capitalists announce investments in Bitcoin companies. The BoostVC accelerator launches in San Mateo to invest specifically in Bitcoin startups. The New York Bitcoin Center opens its doors to provide a central location for education and trading on Wall Street. March 16th – Cyprus Freezes Bank Assets Residents wake up to find that their bank accounts have been frozen and 10 percent of deposited funds will be seized to pay for a bailout for a failing bank. The Bitcoin price shoots past $50 for the first time two days later and will soon top $100. April 9th – Bitcoin price hits high of $266, and promptly crashes back down to $50 before making a partial recovery. However, hope is not lost and at the Bitcoin conference in May, the community remains excited. The feeling continues to dominate in the London conference at the beginning of July. The main challenge will prove to be government regulation, especially in the United States, but businesses step up to handle the challenge.

October 2nd – Silk Road Shut Down The Silk Road, the largest black market site on the Tor network, is shut down by the U.S. FBI, and its alleged owner, Ross Ulbrecht, is arrested in San Francisco. Amidst fears that Silk Road is responsible for a large part of the Bitcoin economy, the bitcoin price briefly falls from around $127 to a low of $85 before almost immediately recovering to $110; one week later, the bitcoin price is back exactly where it was before Silk Road went down. November 18th – First U.S. Senate Hearing on Bitcoin The Senate Homeland Security and Governmental Affairs Committee summons witnesses from the Bitcoin community and the U.S. Government for the first Bitcoin-related hearing on Capitol Hill. The hearing is entitled, “Beyond Silk Road: Potential Risks, Threats, and Promises of Virtual Currencies.” The hearing starts off with the first panel of representatives from branches of the U.S. Government, including the Treasury Department, Department of Justice and Secret Service. November 28th – Bitcoin Price Begins to Increase. Driven by consistent media attention, merchant adoption and steady growth, the bitcoin price begins to increase. Increased media coverage and speculation drives the price to $1,200, its highest price ever, before falling back down into the $800s. Many attribute the steep decline to uncertainty about the Chinese government’s stance on Bitcoin amid rumors of a ban. 55

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A MATURING INDUSTRY The year begins with a period of increased interest and media attention even though the price has fallen from its November highs. The concern of regulation is weighing on everyone’s minds as Bitcoin undergoes a transition to mainstream consumers. Bitcoin is a growing topic of discussion for traditional financial institutions, investment banks and central bankers worldwide. Conferences: Bitcoin conferences and meetups are held all over the world. From Singapore to Toronto, Indonesia to Dubai to Tel Aviv. Bitcoin also begins to make appearances at consumer tech and finance conferences, including the Consumer Electronics Show, South by Southwest® and Money20/20. Merchants: TV Provider DISH, electronics retailer TigerDirect, and charities United Way and Wikipedia all begin accepting Bitcoin donations and payments. PayPal announces that it will integrate Bitcoin into its payment processing software for merchants.

February 20th – Exchange Mt. Gox Fails Mt. Gox, one of the oldest and most popular exchanges, announces that it is filing for bankruptcy as a result of hacking, mismanagement and theft. While the closure of Mt. Gox is unfortunate, it represents the failure of a single business, not of Bitcoin. Mt. Gox’s closure also serves as a wake-up call for Bitcoin community members to not place trust in one centralized exchange, but to diversify where their bitcoins are stored and even which exchanges are used. March 6th – Newsweek Claims to Identify Satoshi Nakamoto Newsweek reporter Leah McGrath Goodman writes a cover story claiming that a 64-year-old engineer is Satoshi Nakamoto, the creator of Bitcoin. However, he denies any involvement in Bitcoin and after further investigation, it appears that Satoshi’s true identity is still unknown. March 25th – The IRS Issues Tax Guidlines on Bitcoin The IRS issues tax guidelines on Bitcoin: Less than one month before Tax Day in the U.S., the Internal Revenue Service issues guidelines as to how users of virtual currencies should treat these currencies and report gains and losses. The Bitcoin community’s reaction is less than enthusiastic due to the IRS stating Bitcoin will be treated as a commodity and not a currency. Further dialogue and negotiations are expected.

July 17th – First Draft of BitLicense Proposal Published The New York State Department of Financial Services (NYDFS) publishes the first draft of their proposal for regulating digital currency companies. It is followed by a 45-day period for the community to comment on the proposal. August 21st – NYDFS Extends BitLicense Comment Period After numerous responses from the Bitcoin community and business leaders, NYDFS Superintendent Benjamin Lawsky extends the comment period by an additional 45 days and issues clarifications regarding the scope of the proposed regulation. September 23rd – PayPal Begins Integration PayPal executive Scott Ellison announces that the company has developed partnerships with leading Bitcoin payment processors to enable all PayPal digital goods merchants to accept Bitcoin seamlessly. December 4th – U.S. Marshals Holds Second Auction The U.S. Marshals Service holds a second auction for an additional 50,000 bitcoins seized from alleged Silk Road owner Ross Ulbricht. The auction winners are revealed to be Tim Draper and a syndicate led by Barry Silbert’s SecondMarket.

April 11th – Official Says China Will Not Ban Bitcoin The Governor of the People’s Bank of China issues a statement clarifying China’s stance on Bitcoin. The Chinese government sees Bitcoin as more of an asset than a currency and a ban is out of the question.

December 11th – Microsoft Begins Accepting Bitcoin Microsoft begins accepting Bitcoin for payment using payment processor BitPay. With $87 billion in annual revenues, this makes Microsoft the largest company in the world to accept Bitcoin.

May 15-17 – The Bitcoin 2014 Conference The Bitcoin Foundation hosts the most diverse international Bitcoin conference to date, with attendees from more than 50 countries gathering in Amsterdam, Netherlands. Attendees include Bitcoin enthusiasts, entrepreneurs, investors, and even representatives from Botswana and Kenya.

Bitcoin St. Petersburg Bowl: BitPay and ESPN have achieved the improbable by merging college football and sophisticated tech.

June 27th – U.S. Marshals Hold Bitcoin Auction The U.S. Marshals Service holds an auction for approximately 30,000 bitcoins seized from Silk Road. After a private bidding process, venture capitalist Tim Draper is revealed as the winner of all auctioned bitcoin.


On December 26, Bitcoin experiences its largest mainstream push, introducing the digital currency to 30,000 fans and reaching more than five million American households. The match-up between University of Central Florida and North Carolina State University takes place at the Tropicana Stadium in St. Petersburg, FL.

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ECOSYSTEM GROWS DESPITE PRICE DECLINE January 20th – Coinbase Raises $75M Coinbase raises $75M funding round from a group of leading venture capital firms, including Draper Fisher Jurvetson, Union Square Ventures and Andreessen Horowitz. The New York Stock Exchange (NYSE), Fortune 500 bank USAA, and Spanish megabank BBVA also participate in the funding round. February 25th – Insurance Provided BitGo unveils Bitcoin insurance in partnership with the XL Group, a global, A-rated insurance company. Under the terms of this insurance policy, all of BitGo’s users are automatically insured for $250,000 against loss of bitcoins stored using BitGo. February 25th – Bank of England Issues Report Bank of England issues research report on Bitcoin, saying that “Digital currencies, potentially combined with mobile technology, may reshape the mechanisms for making secure payments, allowing transactions to be made directly between participants." March 27th – The Bitcoin Investment Trust The Bitcoin Investment Trust receives approval from the Financial Industry Regulatory Authority (FINRA) to begin trading, making it the first Bitcoin-based financial product available in public markets. May 7th – First Bitcoin License in New York is Issued The New York Department of Financial Services issues its first license to Bitcoin exchange itBit, allowing them to operate in all 50 states as a fully regulated financial-services entity with FDIC insurance. May 18th – Bitcoin Trading Bitcoin Tracker One (COINXBT), an Exchange Traded Note with Bitcoin as the underlying asset, begins trading on NASDAQ OMX Stockholm. It quickly launches in other countries to give investors an easy and secure way to invest in Bitcoin on regulated exchanges.

June – Bitcoin Prices Rally Anxiety from a Chinese Stock Market crash and a potential Greek exit from the Eurozone drives demand for a safe haven asset like Bitcoin. Prices rally more than 50 percent in a four week period. June 24th – NASDAQ Tests Blockchain Techology NASDAQ announces that it has partnered with Bitcoin startup Chain to conduct a pilot program of trading shares of private companies using blockchain technology. September 15th – Support of The R3 Blockchain J.P. Morgan Chase, Barclays, UBS, Citi, Bank of America and Morgan Stanley team up to support the R3 Blockchain project. R3 is an innovation and research firm focused on building the next generation of global financial services using the blockchain. September 17th – Bitcoin Ruled a Commodity The US Commodity Futures Trading Commission (CFTC) issues a ruling against Coinflip Inc. in which it defines Bitcoin and other digital currencies as a commodity. This ruling sets the stage for future discussions of Bitcoin’s regulatory status. September 21st – Inc Releases The 21 Bitcoin Computer Inc, a secretive Bitcoin mining company started by Silicon Valley veterans releases its first product, the 21 Bitcoin Computer. The computer is intended for developers and comes with an integrated mining chip and a set of tools intended to assist development of Bitcoin applications. October 8th – Gemini Begins Trading Gemini, a regulated Bitcoin exchange founded by brothers Tyler and Cameron Winklevoss, begins trading. The exchange was first announced in January and obtained its banking charter as a limited liability trust company, which means that all its funds (held by a partner bank) are FDIC insured.

2016 THE BLOCKCHAIN EXPLODES February 16th – Chinese Digital Currency The Chinese central bank, the People's Bank of China (PBOC), announced that it has been studying digital currencies for a long time and plans to release a digital currency version of the yuan. The Chinese digital currency will be legal tender and inssued by the central bank exclusively. January 21st – Funding Rounds Announced Digital Asset Holdings, the blockchain startup run by former JPMorgan Chase & Co. banker Blythe Masters, raised $52 million from investors and signed a contract to settle trades on the blockchain for the Austrailian Stock Exchange. Blockchain companies Gem and Symbiont also announced funding rounds, signaling increased institutional interest in the blockchain.

September 12th – Bitcoin Leaders Meet The inagural Scaling Bitcoin Workshop is held in Montreal, Canada, bringing together the Bitcoin development community, miners and executives from industry leaders to discuss how to grow and scale Bitcoin. February 9th – Advancing The Blockchain The Linux Foundation annnounces the Hyperledger project, an open source project to advance the blockchain digital technology for recording and verifying transactions. Members include ABN AMRO, Accenture, ANZ Bank, BNY Mellon, Cisco, CME Group, The Depository Trust & Clearing Corporation (DTCC), Deutsche Börse Group, Digital Asset Holdings, Fujitsu Limited, Guardtime, Hitachi, IBM, Intel, , J.P. Morgan, R3, State Street, SWIFT, Symbiont, VMware and Wells Fargo. 57

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

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merging technologies have a long history of initial aversion, of being feared and despised by the beneficiaries of threatened business models. Examples of humanity’s resistance to innovation include the Luddites of the Industrial Revolution, 19th century Romanticism, and more recently the media-fueled technophobia that dared to challenge the Internet. Fear has failed in the face of new technologies, as time and again, humans discover convenience, utility and a better quality of life.

Bitcoin introduced the concept of a blockchain, a type of cryptographic data structure that uses logic, which can be summarized as being simply “logs with rules.” Blockchain technology is no exception, a fact made evident by the resilience of Bitcoin and substantial institutional buy-in from the world’s largest banks and financial exchanges.


Blockchains not only deliver irrefutable logs, but they allow you to share that history with other parties so that you are all acting on the same information at the same time. Today’s experts tout the inevitable capitulation of centralized networks to decentralized ones, and the proof is in the pudding. The most powerful computing network in the world is more powerful than all of the world’s Top500 supercomputers combined. That’s the Bitcoin blockchain. Bitcoin introduced the concept of a blockchain, a type of cryptographic data structure that uses logic, which can be summarized as being simply “logs with rules.” The log itself is cryptographically secure, immutable and trusted by its users. Because every party trusts the log, they can also run secure applications on top of it, like asset issuance, peer-to-peer trading, smart contracts (a.k.a. programs), and automation. This gives businesses the ability to act on the same data as a third party and know that the other party can see the same information… all without compromising the integrity of the data. Identifying the right blockchain solution for your business can be tricky.

Blockchain technology is new and a little unrefined, whereas database technology— to which it is often compared, though not accurately so—has been tested, trusted and proven over the past 50 years. An important difference between the two is that blockchains aren’t designed to store vast amounts of data. In fact, currently, they are better outfitted to be transactional logs that reference databases. Why is a log so important? One word: chronology. When it comes to reconciling transactions, for example in a double-spend scenario, order matters. Chronology is important not only to financial transactions, but also in making business decisions. When it comes to acting on the information you have, you want to know that the information is irrefutably sound. Blockchains not only deliver irrefutable logs, but they allow you to share that history with other parties so that you are all acting on the same information at the same time.

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Let’s explore how that might work in the real world through three use cases. Insurance—A private blockchain could be used to enforce a contract, like an insurance policy. The insurance company, the bank and the policyholder are all participants in the network with different user types, access controls and capabilities. The policy itself is programmed on the blockchain, and claims can be automated under a certain set of criteria. This policyholder has flood detection devices in their basement, and when a flood begins to seep in, the monitoring devices relay the incident to the policyholder and the insurance company. The policyholder authorizes the release of funds with his or her digital signature. The rules of the contract require that the insurance company also authorize - a multi-signature transaction and when they do, the bank is notified in real-time to deposit funds into the policyholder’s account. These “if this, then that” rules allow the parties to create intricate automation rules and controls. The blockchain connects these three entities to a network they all trust, and now they are able to reduce resource expenditure, like time and paperwork, and improve disaster responsiveness.

Luxury Goods—Proof of origin and legitimacy is the principal instrument of value in the trade of luxury goods. A blockchain could help track the purchase and distribution of fine jewelry. Today, the purchase of a Rolex comes with a certificate of authenticity. But once I sell that Rolex on the Internet, that piece of paper becomes suspect, and the origin of the watch becomes unclear. On a blockchain, that paper is replaced with a digital certificate and its record of ownership is recorded as it changes hands over the years. Now there is a log that represents every Rolex out there, and every time ownership is transferred, there’s a record of it. When the watch becomes separated from its digital token, through theft or simply being lost, there is a record of its last legitimate owner. Proof of ownership and immutable record keeping are central concepts to blockchain technology, which makes it an interesting application for provenance and supply chain management.

This gives businesses the ability to act on the same data as a third party and know that the other party can see the same information… all without compromising the integrity of the data. …so why is a log so important? One word: chronology.

Debt Sales—Blockchains enable multiple entities to view and write to the same data store. This could potentially reduce reconciliation processes, redundancies, and other costly operational inefficiencies. If insurance companies, banks, hospitals, and debt collectors used a blockchain to manage the lifecycle of a patient’s medical bill, instances of debt collectors calling on bills that have already been paid would be reduced. Many patients will pay an overdue bill directly to the hospital, rather than giving out their payment information to debt collectors. But when that happens, the databases of debt collectors are not automatically updated. The debt collector in this instance has not collected the debt, and when the bank “buys back” that account, they sell it to another collection agency. The cycle continues, creating a regulatory nightmare and frustration for the patient and the hospital. Using a blockchain to relay the status of a bill, where each party can submit updates, would allow these businesses to make decisions based on the correct information and would reduce costly redundancies. These examples assume the technical complexity and stakeholder buy-in is present to make these blockchain applications work. Getting to that point is going to be very challenging for blockchain service providers, but the interest is there. Innovative industry leaders from finance, healthcare, supply chain and IT are already experimenting with this technology. The current problems this technology can solve may be a narrow window of possibilities, but they will impact the way we share and secure value.

Emily Vaughn

Emily Vaughn, Director of Marketing at Gem has been involved with Bitcoin and blockchain technology since 2012 and previously worked in marketing at BitPay before joining Gem in 2015. A marketing veteran in blockchain technology, Vaughn believes education is the most important factor in early adoption. Vaughn has initiated a variety of educational projects in blockchain technology in collaboration with BTC Media, notably The Distributed Ledger. Gem provides data integrity for enterprises powered by blockchain technology and is based in Venice, CA. 61

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n 2015 the blockchain entered a new phase of public awareness. Bitcoin, which once generated all public comment on cryptocurrencies, took a backseat to the larger subject of blockchain technology. Major magazines like The Economist featured stories on the amazing potential of the blockchain. Their comments have followed a similar narrative: while Bitcoin is an innovation, it is a product and application of the blockchain, while it is the blockchain itself that offers a genuinely new innovation with huge implications for financial institution infrastructures.


Recently, Nasdaq announced it would incorporate the technology into its operations All the comment and activity surrounding the blockchain has been more than just speculative or academic: major financial institutions, banks and stock exchanges have been investing time and money into adopting blockchain technology into their infrastructure.


That same month, Barclays announced it currently is home to more than 45 Bitcoin and blockchain related experiments. Similarly, Deloitte has a cryptocurrency group that numbers around 100 people across 12 countries in which the company operates. Recently, Nasdaq announced it would incorporate the technology into its operations. At the time of the announcement, Nasdaq CEO Bob Greifeld stated the blockchainâ&#x20AC;&#x2122;s benefits to the industry are immense and cannot be ignored. As of January 2016, 42 major banking institutionsâ&#x20AC;&#x201D;including Barclays, RBS and Goldman Sachsâ&#x20AC;&#x201D;have joind an initiative led by financial innovation firm R3 to standardize the use of distributed ledger technologies. The goal of this partnership is to establish an industry-wide protocol consistency, marking the first significant commitment by the banks to collaboratively evaluate and apply this emerging technology to the global financial system. In September 2015, Barclays announced it currently is home to more than 45 Bitcoin

and blockchain related experiments. Similarly, Deloitte has a cryptocurrency group that numbers around 100 people across 12 countries in which the company operates. Other entrants into the space from the traditional banking system include UBS, Citi and USAA. These projects now underway can be grouped under the heading of 2nd generation or Blockchain 2.0 initiatives. These developments underline that the blockchain has now entered an intermediate, corporate test phase. There are many use-cases being explored by both startups and large financial institutions. This is a process that is expected to be ongoing well into 2016, with viable products in the space becoming operational within this year. While none of these are currently deployable, we expect that to change over the coming months.

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Company acceptance of blockchain integration will require vision from the top…


While it’s never easy to predict the future, and while this is by no means a complete list, what follows are some of developments we are currently seeing: Security Settlement - Many financial institutions and startups are currently working to improve the securities settlement process using blockchain technology. The most significant gains would be a system in which the security is embedded directly onto a blockchain (most likely, a private “contractual” blockchain managed by known participants). This would allow for near-instantaneous settlement, and eliminate much of the friction and risk associated with post-trade operations. Syndicated Loans - It can take up to 20 days to settle syndicated loan trades, making this a prime market for disruption using fast and efficient blockchain settlement. There are companies currently developing offerings in this space. KYC (Know Your Customer) - Cryptographic ID could reduce KYC friction by enabling a more efficient verification process. However, existing regulatory constraints and the fact that most ID must be government-issued could stifle development in this area. Derivative Trading - Blockchain 2.0 projects with advanced scripting capabilities could enable financial institutions to flexibly create derivatives matching their immediate needs and risks, with all the standard advantages of blockchain-based assets, specifically automatic execution and cryptographic security.

With all the talk of disruption in the financial sector, many companies looking to leverage blockchain technology are faced with dizzying numbers of competing claims and pie-in-the-sky predictions. The chance to pull the rug out from a competitor has dazzled many a chief innovation officer. While it is important businesses embrace the opportunity the blockchain presents, they must proceed with caution. This is more than just boilerplate advice. Blockchain technology has gained significant attention in a relatively short period of time, leaving many financial institutions without the expertise needed to sift through competing claims. Business should approach change in the following way: Seek out people who have the expertise but are not trying to push any particular product or platform; thoroughly vet your options before deciding who to work with, and then again when selecting products; take an agnostic attitude when considering different platforms; and look for advice from a professional who has sufficient depth of background in the space to cut through the hype. As a general rule, while waiting to see which movers in the space are proven winners, businesses should start the process of adoption in-house with test products— remembering also that entrenched aspects of a company’s culture will have to be nurtured towards change before adoption can happen. Company acceptance of blockchain integration will require vision from the top, and this will need to be clearly communicated to staff throughout your workplace.

Anthony Di Iorio

Anthony has been building the Canadian Bitcoin, cryptocurrency and decentralized technology community since 2012. Based in Toronto, he works with the city’s major innovation hub, MaRS, organizing events and advising startups. As CEO of Decentral Consulting Services, he and his team help small business and major banks, as well as other financial enterprise clients navigate these disruptive times. 63

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How to Build Tamper-Proof Titles with Blockchain Technology by PETER KIRBY


home mortgage in Honduras charges 18 percent interest on a 10-year note. That’s like having a credit card on your house. Why so costly? Because the banking system in Honduras doesn’t trust that you will continue to own your house. Imagine if someone could steal your home by making a few changes to a database. Imagine that your family could lose everything because a few bureaucrats with high-level access to the land registry could kick you out. Or if one day you woke up and didn’t actually own the things you had paid for. This is reality for most of the world. National land registries in developing countries are notoriously corrupt, and rife with fraud and negligence. The World Bank and other international organizations have spent billions trying to correct the problem, but the flaw at its core remains the same: Absolute centralization corrupts absolutely.

ADDRESSING THE TITLE CORRUPTION PROBLEM The blockchain offers a promising opportunity for new solutions. The blockchain is essentially a shared database, distributed across the globe

on thousands of computers, with no central authority. Anyone can write a data to the blockchain—but once written, the data can never be unwritten. The mathematical proof can’t be fooled. Trust the math, not the people. So in theory, we can attach all of the land titles of the world to blockchain entries and they become permanently tamper-proof and immutable. Just like a Bitcoin transaction, there’d be no way to “double spend” a home. Except that it’s not quite that straightforward. First, we have the major limitation of Bitcoin: the network doesn’t have enough capacity. Seven transactions per second means the blocks in the blockchain aren’t big enough to hold all the title data in the world. If we increase the block size, the volume of the network grows to become unwieldy, and could overwhelm the applications that depend on it. Second, we have the “double-spend-askyscraper problem.” What happens when the value of a single asset on a network becomes more valuable than the whole network? Now we’ve created both a reason to attack the network and an even more compelling reason to attack the single transaction that contains the skyscraper.

Third, we have a core privacy issue. If every property record becomes public, transparent and easy to move without recourse, we've created a very good incentive to kidnap and hold people hostage for their property. Especially when transfer of your home is as easy as a few clicks on a wallet.

CAPACITY, SECURITY AND PRIVACY The challenges of a blockchain title-recording solution are far from insurmountable. Fundamentally, title issues are a record-keeping problem. The goal isn’t to tokenize houses. The goal is to create permanent, immutable audit trails for all land title records. This can be done in three simple ways. One: Title and record management should be handled using document management software run by a central property institute. The software should have multi-signature access control and cold-storage back-ups. It would track every change, and store a log file in the blockchain. Unauthorized changes could be safely reversed. Two: All title chains should have an immutable blockchain audit trail. So every easement, every lien, every change in

Peter Kirby

Peter Kirby is the Chief Executive Officer of Factom. A seasoned entrepreneur, Kirby has spent the past 15 years involved in numerous successful early-stage tech companies. As a leader in the blockchain space, Peter has led multi-million dollar operations and was the driving force behind delivering major products to market. Peter earned his degree in biochemistry from Lehigh University in Bethlehem, PA and an MBA in Entrepreneurship from the Acton School of Business in Austin, TX, where he graduated Summa Cum Laude.


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Imagine if someone could steal your home by making a few changes to a database. Imagine that your family could lose everything because a few bureaucrats with high-level access to the land registry could kick you out. ownership is hashed, timestamped and stored in a unique chain. If a property is incorrectly changed, the audit trail helps revert to the previous state of the database. But, because it’s a hash, it’s impossible to use the entry to go backward and recreate the documents. The private data stays private. The data layer would vastly extend the capacity of the blockchain, making it possible to create millions of entries and large numbers of unique property chains. Three: All process steps should also be tracked and given a blockchain audit trail. The digital signature of the attorney who

submits the file would be captured and recorded. The ID of the user who types in the legal description would be logged and recorded. The final results are recorded. This way, you use the power of the blockchain to prevent the “garbage in equals garbage out” problem of all record-keeping systems. Errors can be identified and corrected in real time and bad actors have a permanent record of fraudulent behavior. Sunlight is the best disinfectant. The key insight is this: Unique instruments like loans, real estate and fixed income products don’t fit simply into a coin-shaped solution.

They’re audit and record-keeping problems, not movement of digital asset problems. Though the blockchain is a powerful tool for auditing and record keeping, the core limitations require additional tools to be built on top of the blockchain to solve record-keeping problems. The good news is: Innovative solutions that combine the capacity and flexibility of document management software with the encrypted security of the blockchain will allow us to build more accountable and transparent instrument-recording systems, and keep them honest. In math we trust. 65

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Above from left to right: Remington Ong, Vitalik Buterin, Dr. Feng Xiao, Ada Xiao and Bo Shen


ou’ve built your own company. You enjoy trailblazing work that takes you around the world. Your business contributes to both the economy and the social good, and you recognize how the two are intertwined. You are an entrepreneur. And a quintessentially successful one at that. No one can say you haven’t stretched yourself. But you’re still a bit restless. (Because all entrepreneurs are restless— it’s a defining quality.) And you think: What more might I do? How else can I do something useful for this world?

Your name is Dr. Feng Xiao. Your name is Bo Shen. Your name is Vitalik Buterin. And you think you might want to work together. Those were just a few things on the minds of the three entrepreneurs last October when they gathered in Shanghai, China, each with an intense interest in blockchain technology. The idea was to put their heads together, throw some ideas around, and see what might suggest itself about this increasingly intriguing new protocol that was turning heads in the financial world.

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So the Russian-born, Canadian-reared, Switzerland-residing Buterin, a blockchain technical guru and founder of decentralized contract platform Ethereum, flew to Shanghai to meet with Shen and Xiao. Shen is co-founder of Invictus Innovations (the team behind the financial contracts platform BitShares), and Xiao is the founder of Chinese mutual fund giant Bosera Asset Management. He also serves as vice chair of China Wanxiang Holdings, which is the financial arm of Wanxiang Group, one of China’s largest auto parts manufacturers. Think of it as a kind of consummate summit meeting of the digital era, with the collective brainpower and business acumen in the room surging off the charts, final landing place unknown. A few days later, the threesome had sketched the broad outlines of what was to become Fenbushi Capital, a $50 million for-profit venture capital fund dedicated to supporting startups across the blockchain world. (Fenbushi translates as “distributed” in Mandarin.) Appended to that was its nonprofit affiliate, Wanxiang Blockchain Labs, a fund designed to provide a steady stream of grants ($300,000 annually) to support research and education projects in the blockchain domain. The nonprofit arm, unlike the startups seeking VC funding from Fenbushi, aren’t about bringing financial return to their developers, but are instead intended to contribute to the collective knowledge of the blockchain and its potential applications across a broad swath of human activity. “None of the three partners had the time to start new companies directly in the blockchain space either together or by themselves,” says Remington Ong, who also has a partnership interest in

Fenbushi and serves as a spokesperson for the company. “But they also agreed the industry is in the very early, nascent stages, and just creating one company within a specific niche of the blockchain wouldn’t have enough impact on the ecosystem as a whole. So they decided the best use of their resources was to pool them and invest in others who could advance the industry.” Besides which, Ong adds, “What they didn’t want to do is create just another

No industry limitations. Just as long as it helps build the blockchain. We tell applicants to give us a good working demo, present it well, and sell the story.

Bitcoin wallet or mining tool; there are plenty of good ones and lots of competition out there already. They were looking for innovation, for ideas that will help grow the industry at large.” That means moving beyond the internal Bitcoin industry—producers selling to insiders and enthusiasts—to the wider blockchain world and its many vertical applications, such as financial and legal services, supply chain logistics, and auditing. Both Fenbushi Capital and Wanxiang Blockchain Labs, Ong adds, are designed to support those efforts, the former by funding worthy product and service development, the latter by funding the best research and code that grant money can buy. “A lot of work needs to go into building infrastructure, and though the

blockchain world is open source, that doesn’t mean it’s free. Developers still need to be fed, but where does that money come from? Wanxiang Blockchain Labs wants to help answer that question.” The grant program awards up to $50,000 every two months, entertaining proposals literally from around the world, some for just a few thousand dollars, up to the entire $50,000 if one project proves worthy. Most, however, tend toward smaller sums, which suits Wanxiang Blockchain Labs just fine. The first awards in December 2015 generated such intense response from multiple qualified applicants that the award was doubled to $100,000, which was dispersed among nine projects. Then in early January, Wanxiang Blockchain Labs spiced up the whole enterprise by joining with co-sponsor Deloitte to host the “Shanghai Blockchain Hackathon,” a spirited affair drawing teams of blockchainheads from around the world who worked feverishly through a long weekend to draw up and then present plans for blockchain enterprises. Fueled heavily by caffeine and substantial cash awards of $30,000/$20,000/$10,000 to the top three pitches, some 100 participants represented 23 teams. The winning proposal addressed a far more efficient and accountable means of tracking transactions in world trade. “We place very few limits on the projects we want to support,” notes Ong about both Fenbushi Capital and Wanxiang Blockchain Labs. “No industry limitations. Just as long as it helps build the blockchain. We tell applicants to give us a good working demo, present it well, and sell the story.”

The core value of Fenbushi Capital, adapted from the Analects of Confucius: “Keep always a curious heart, an acute mind, and resolve to learn new things every day.” 67

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Like every profound innovation, Bitcoin, the world’s first decentralized digital currency, has seen a stampede of imitators and would-be improvers. Since its release in 2009, more than 700 cryptocurrencies have followed in its trail, though only a half-dozen today have a market cap north of a legitimizing $10 million figure. (Bitcoin’s is at $5.6 billion.) Currently ranking Number Five or Six on any given day, but moving steadily up, is a coin that does more than merely flatter Bitcoin by hoping to catch a few excess rays of glory. The Dash digital currency launched in January 2014 is already more prominent than all but a handful of Bitcoin alternatives. It has achieved its remarkable and steady ascent by clearly articulating and then making good on its mission to create a fast, private, totally self-governing and self-funded network that radiates ease of use for its holders. While studiously avoiding any claims that it will replace Bitcoin in the crypto world, Dash is methodically building its infrastructure and making a name for itself as a complementary vehicle that answers a variety of emergent needs. Notably, as its name implies, it is known for its fast transactions. You want fast and secure? Try Dash’s 1-to-4-second “InstantX” transactions, which virtually eliminate the possibility of a buyer “double-spending” the amount of a purchase while the action clears. You want privacy so that marketers, business competitors and other

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interested parties can’t access records of your spending habits or preferred commercial locales? Dash’s “PrivacyProtect” allows no light in on your transactional life, so it remains private largely because the money you use is mashed up with many other transactions. You want a truly decentralized network where every participant has a vote, and near-instantaneous voting allows the network to adjust quickly to changing circumstances or new ideas? Dash has added a second tier to other cryptocurrencies’ traditional one-tier network of miners in the form of “masternodes,” a kind of network server consortium that anyone holding 1,000 dash can join, becoming his or her own node operator. You want easy transaction protocols to swap money with friends or family? Enter Dash’s upcoming “social wallet,” which will allow a kind of preferred-friends list in your account to make transactions even easier than they are with standard commercial contacts.   Dash also distinguishes itself in the crypto world by how it apportions awards from the blockchain. Rather than directing 100 percent of blockchain awards to the miners who are solving its complex algorithms, Dash splits awards between miners and masternodes at 45 percent each, while reserving the remaining 10 percent for the network. The nodes vote in a provable decentralized fashion to allocate resources and reinvest in the expansion of the network.

This provides ongoing return on investment for miners and masternodes, with a self-funding mechanism that allows the network to get help from contractors when a need emerges and the network votes to expend funds to do the work. The Dash award protocol solves the problem of networks being so decentralized that there is no funding center to secure needed services for the network’s optimal functioning. Dash recently used this provision to hire two contractors to install ATMs that are critical to the protocol’s access and acceptance in the marketplace. Although Dash’s value has hit several all-time highs in recent months, Business Development Manager Daniel Diaz distinguishes between what he calls "fundamental value” and the kind of “casino value” that all cryptocurrencies have ridden up and down in recent years. “There will always be currency speculation and bubbles driven by emotion, but that’s out of our control, so we don't concern ourselves with it,” says Diaz. "Our focus is on building sustainable, fundamental value that will drive the price higher because the network gets stronger and more useful over time. Our goal is to facilitate a truly decentralized, peer-to-peer economy that allows people to be in total control of their finances. That has never been possible before, especially with the safety, privacy and network infrastructure that we have put into place with Dash. We are in this for the very long term." 69

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Serial entrepreneur and VC Matthew Roszak has paved an impressive path on his way to becoming one of the top figures in the burgeoning blockchain industry. With over a decade of venture investing in technology, and founding a half-dozen enterprise software companies along the way, Roszak formed Tally Capital to build and manage his investments in the blockchain ecosystem. Over the past three years, he has invested in over 20 companies, including wallets, exchanges, payment processors, miners and beyond. Roszak is now one of the most deep-rooted players in the industry. His most recent endeavor is launching Bloq, an enterprise blockchain software company that he co-founded with Bitcoin core developer and industry visionary, Jeff Garzik—which has caught the attention of some of the most prominent technology and financial services companies around the world. “Early on it was important to invest in and build out the onramps, bridges, roads and tunnels of this industry, and help foster innovation and adoption,” explains Roszak. “There’s still a ton of work to do in order to get Main Street and Wall Street to jump on this train, however the momentum is clearly building.” Roszak’s investments are comprised of industry headliners including BitFury, Blockstream, Factom, MaidSafe and Noble Markets. He also brought on longtime business

partner and tech mogul Flip Filipowski to serve as chairman of Tally. Outside of his direct investments, Roszak’s passion for the industry is further underlined by making such moves as founding the Chicago Bitcoin Center, a technology incubator, and serving on the boards of the Chamber of Digital Commerce and BitGive. In addition, Roszak was a producer of the first Bitcoin documentary, The Rise and Rise of Bitcoin. This comprehensive approach provided some key elements in determining where next to invest his time and energy. Roszak had developed a keen network of industry CEOs, technologists and entrepreneurs to help him think through a particular start-up, technology or trend. “These discussions helped frame a ‘heat map of the blockchain ecosystem,’ in terms of what was working, not working, and where the white spaces were forming.” Bloq was created within a month of a breakthrough conversation between Roszak and Garzik, when the two sat down last year to compare notes on future opportunities in blockchain. Garzik is one of the premier thought leaders in the industry going back to the early days of Satoshi, and was the key technologist at BitPay, backed by Richard Branson, Peter Thiel’s Founders Fund and Li Kai Shing’s Horizon Ventures. Pre-Bitcoin, Garzik spent a decade at Red Hat developing and

fine-tuning open source software for some of the largest companies in the world. For companies looking to adopt blockchain technology, Bloq is building out the much needed scaffolding and infrastructure between the protocol and application layer. “Bloq’s mission is to lower the entry barriers and operational costs for companies innovating with blockchain technology, and help this industry scale.” Customers are calling Bloq the “Red Hat of Blockchain.” Red Hat, currently valued at $12 billion, is the poster child of developing mission-critical software and support for enterprise customers that leverage Linux’s open source operating system. Bloq is in many ways emulating and applying that much-needed playbook to this new technology frontier. So on what day will the blockchain revolution happen? “Think of blockchain technology adoption as a freight train,” Roszak suggests. “The train may look like it’s moving slowly right now, however there’s an incredible amount of momentum building given the financial and intellectual capital jumping on board—that momentum and innovation will continue to unfold at a significant pace.” “This technology will have incredibly positive and profound implications for industry, government and humanity—and I envision Bloq playing a key role in realizing that future.”

@MatthewRoszak 71

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ack in 2013, when Micah Winkelspecht started seriously looking into Bitcoin, he spent most of his time reading, researching and looking for people to talk to. In Los Angeles, that meant regular visits to a park downtown where Bitcoiners were meeting up. “It was fifteen people in a park,” Winkelspecht remembers. “I said to myself: Bitcoin is way more important than this.” He began organizing his own meetups and soon began bootstrapping a startup. He had quit his job to “deep dive” into Bitcoin and didn’t know what exactly he would do. “I just knew it would be something important.” Three years later he is CEO of Gem, one of the nation’s first and most vibrant blockchain solutions providers. “Data integrity will be one of the most pressing concerns for business over the next decade,” Winkelspecht says, “because blockchains allow data to be shared securely with full integrity across every industry.” The result, he explains, is not just increased profitability but improved efficiency and irrefutable security. Gem’s focus on blockchain enterprise solutions was a natural outgrowth of its initial business model as a Bitcoin API (Application Program Interface) developer. The blockchain was invented by now-infamous (and still pseudonymous)

How Gem Is Building the Future of Data Integrity Satoshi Nakamoto in 2008 as the transaction network for the digital currency Bitcoin. As such, it provided a decentralized means of authorizing and recording Bitcoin payments with a level of security never before equaled on the Internet or anywhere else. As Gem’s website succinctly describes it, “The blockchain gets its name from its structure, which consists of time-stamped blocks of transactions, linked in chronological order. Each transaction record and block is irrevocably recorded and secured by cryptography.” “When I read Satoshi’s white paper [proposing Bitcoin] I tried to poke holes in it from a technical perspective, but I couldn’t find any,” Winkelspecht says. He became fascinated with Bitcoin and its blockchain after spending 12 years working in Los Angeles’

A blockchain gives you the ability to store data with full integrity. You can know for certain the data you are acting on has not been modified or tampered with. You know for certain who created it, who touched it or changed it, when they changed it, and who subsequently acted on it.


“Silicon Beach,” developing companies and startups. Satoshi’s proposal for a new digital currency and the payment system to go with it “struck into the two worlds that interested me the most after the financial collapse of 2009— technology and money.” He believed after 2009 there was a better way, and he wanted to be a part of it. Winkelspecht’s first project on his own was to write an open-source library he called MoneyTree, that he describes as a “kind of BIP 32 hierarchical deterministic wallet.” By 2014, he had raised venture capital and Gem was officially launched. “After working on building a Bitcoin wallet, I realized that

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there were no good tools out there for developers who wanted to build in the ecosystem, and that’s what Gem would do—create the tools.” Winkelspecht recruited his new team on a set of criteria that included passion and excellence, but not necessarily previous experience with Bitcoin and blockchains. “We went after spectacular people across a variety of industries, knowing that the Bitcoin part of it can be taught. Now we’re like a family.” Bringing together a cross-industry group has also supported Gem’s ability to relate to the needs of a wide variety of clients. The Gem team soon realized that blockchain technology had applications well beyond the scope of Bitcoin or even the financial industry. “We realized blockchain technology was not a financial technology, but a data management tool. It allows us to build extremely robust data infrastructures—high level automation that simplifies, decreases costs and maximizes efficiency.”

Gem now excels at the most demanding of blockchain applications, from bank-grade security to smart contracts and the securing of asset and transaction integrity. The company takes a holistic approach to creating solutions, working side-by-side with customers from prototype to production. Because all industries use valuable data to make informed business decisions, the benefits of blockchain technology will be sweeping. Winkelspecht says that just in the last six months, Gem has witnessed a significant spike in the blockchain inquiries made by large enterprise companies. The bigger financial enterprises jumped in first, he says, because “if you are a large institution moving a large amount of assets, you’re going to see the positive impact of using blockchains right away.” But other applications are looming fast on the horizon in arenas that include health care, Internet of Things, media, distribution, digital rights and royalties.

Blockchains allow you to replace that third party with powerful business logic that runs on data you can trust. It has all the benefits of a central data repository with none of the drawbacks.

The largest growth area in the coming year will be health care, Winkelspecht predicts. “Think of it this way,” he suggests. “A blockchain gives you the ability to store data with full integrity. You can know for certain the data you are acting on has not been modified or tampered with. You know for certain who created it, who touched it or changed it, when they changed it, and who subsequently acted on it. “No previous data platforms allowed multiple parties to communicate with this level of transparency and security with their market partners; they had to rely on spaghetti-networked bilateral APIs or some central third party acting as trusted intermediary. “Blockchains allow you to replace that third party with powerful business logic that runs on data you can trust. It has all the benefits of a central data repository with none of the drawbacks.” His advice to business people looking for blockchain use cases in their own organizations? “First, look to see where there is some sort of manual reconciliation of data workflow requiring human intervention and processes, or delays due to data reconciliation. Second, look for areas where there is not necessarily a great deal of trust between parties, where you want to build a system you can automatically trust.” In the future, Winkelspecht observes, people won’t talk about blockchains any more than they now talk about the lower level architecture that makes the Internet work. “We’ll just use them every day without thinking about it. Their presence will be ubiquitous.”

Photograph by Dawn Bowery

From left to right: Matt Smith, Thomas Liakos, Emily Vaughn, Micah Winkelspecht, Madeline Mann, Julian Vergel de Dios, Bez Reyhan

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This industry is evolving at an unprecedented pace. If you don’t take time to stop and look at the highlights, yesterday’s news quickly becomes tomorrow’s footnote (check our History and Events page for evidence of this). And I would be remiss if I didn’t acknowledge the industry-wide move to rebrand all things Bitcoin to Blockchain… a bandwagon even we’ve jumped on at BTC Media, by updating yBitcoin’s cover to include “+Blockchain,” and launching our new blockchain media property Distributed. However, with this letter, instead of reflecting on the past, I want to look forward to what I think 2016 holds. And since everything published on paper is permanent, it might be a bit of fun to write these down and evaluate what I got right and wrong a year from now. So here goes: —The Blockchain bubble continues to grow as Fortune 1000 companies continue to pour R&D dollars into the space. —Bitcoin prices hit all-time highs in 2016, fueled by the blockchain bubble and the June 2016 Bitcoin Halving. —Bitcoin Core development will have more insight and feedback driven by Bitcoin enterprises, leading to Bitcoin’s immediate scaling issues being resolved. —China will play an increased role in digital currency’s evolution, particularly around regulation and monetary policy. —Bitcoin sees its first major acquisition by an incumbent financial institution or the first U.S.-based IPO. As you can tell I’m pretty bullish, but if you stand in my shoes it’s difficult not to be. Four years ago we never dreamed we’d so quickly arrive at where we are today—the Bitcoin network is more secure, more decentralized, more developed and more accepted than ever before. Slowly the dialogue around this technology has shifted from one of “if ” to one of “when”... and the “when” is approaching closer and closer every day. I think the People’s Bank of China summed it up best in a recent statement: “Digital currency is an inevitability.” Welcome to the inevitability; please share this magazine and enjoy your front-row seat on the world of Bitcoin and blockchain technology.

David F. Bailey

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Volume 3, Issue 1