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    Telephone and the Blockchain

    September 4th, 2014 by Adam Terwilliger

    Editor: Chulseapple Original:

    The security of an individual Bitcoin address is well documented and an awesome mathematical certainty. But what about the security of sending Bitcoin to somebody? Is there a mythical CEO of Bitcoin somewhere, warding off would-be hackers attempting to steal your funds through a man-in-the-middle attack? What guarantees the absolute certainty of your transactions? Quite frankly, mathematics!

    The Telephone Game

    Do you remember the telephone game from your childhood? A big group of people, say thirty, sits in a circle. One person whispers a word or a phrase to the person next to them. That person delivers the message to the next person, and so on, until the message goes entirely around the circle. The goal is for the message to get back around to the beginning exactly the same as it started.

    Why the Telephone Game Fails

    In a telephone game with thirty people, there are thirty separate, singular points of failure. This is a very important point, because even though the players in this game can be honest, all it takes is just one dishonest person to wreck the honest intentions of others. If one of the players decides to be that guy and wreck the game by sharing the wrong message, no one will know who threw the game. Since each whisper transaction is peer to peer, each player puts their complete trust in the one person that came directly before them to relay the correct message.

    Change the Rules!

    How could we fix the rules of the telephone game to ensure that it could never fail, keeping in mind the above issues? Instead of thirty people sitting in a circle, let's start the game with only one person in the room. This person creates a message, and then another person is allowed to enter the room and hear the message. We then change the rules so that no whisper will take place between just two individuals. We bring an independent group of 100 observers to assist. This independent committee records on a piece of paper all information possibly related to that whisper, including:

    • The time the whisper takes place
    • The individuals involved in the whisper
    • The actual message that was passed from person to person

    To incentivize this supervision, $1 USD is awarded for the successful recording of each whisper transaction. Unfortunately, bringing in this independent team would be expensive, especially if we paid every single one of these 100 individuals for each whisper in the game! After all, how much skill does it really take to listen to two people talking, and record the results? Therefore, we will require the winning observer to not only be the first one to record the whisper transaction, but also the first to solve a Sudoku puzzle correctly. I am pretty sure we could have asked them to do anything to prove they were working, but I like Sudoku puzzles, so Sudoku puzzles it is!

    ![]( http://sudokublog.typepad.com/photos/uncategorized/sudoku4920050829150940clue.png)

    As soon as the first lucky observer solves the puzzle, all other observers come to a consensus on who won. That person gets paid the $1 reward, and maybe even any tips the two people playing in the telephone game decide to give them for being so awesome at solving Sudoku puzzles. This new process is now not only safe to extend through the end of the telephone game with just 30 people, but also feasibly forever with an infinite amount of participants.

    In fact, the only way this game could be ruined is if a majority of observers are somehow in cahoots with one another, and decide to transcribe the message incorrectly. In theory, they could pool their puzzle solving power together, coordinate a fake message, and manage to solve the puzzle correctly before the other observers manage to be the wiser. This would be like re-introducing a singular point of failure to the system because a majority of the people in the room would have the power over the message being sent. We can fix this by inviting one thousand ... no ... one million observers to watch the whisper transaction! Good luck trying to coordinate a majority of that many people evil observers!

    Would You Trust This Network?

    If you had to get a message of value from point A to point B, would you trust the telephone game system I just outlined above? You ought to, because what I have outlined is essentially the Bitcoin blockchain. The blockchain is the irreversible ledger of all transactions that have ever taken place in the Bitcoin ecosystem, from one account to the next, and quite possibly one of the most significant innovations in technology of all time.

    From my telephone game analogy, each person trying to get a message to the next person relates to what are called blocks on the Bitcoin network. A block in Bitcoin is a combination of three elements: the hash of the previous Bitcoin block, the Merkle root, or the hash of all of the hashes of transactions that have taken place from one address to the next in the Bitcoin system, within about a ten minute time span, and the nonce, or a completely random number unknown to anyone at the time.

    The observers of the new telephone game I proposed are what we know in the Bitcoin world as miners. Miners earn a block reward for their work in the process of hashing together approximately the last ten minutes of each transaction, in addition to any transaction fees from user to user associated with that block. Just like in the new telephone game where merely observing took little to no skill at all, hashing transactions together is just as arbitrary. Therefore, a Sudoku puzzle-like game that mandates the miners to essentially guess a very large random number was created. This very large random number is known as the nonce, and it is added to the end of the previous hash to mint a block. This nonce requires the miners to prove they dedicated a lot of computing power to work; and at the same time, introducing a little element of luck to the process.

    Where Do Bitcoins Come From?

    In the beginning, no Bitcoin actually existed. Therefore, there were no coins to actually send from one address to the next, and no transaction messages to be broadcast. Just like the new telephone game, the Bitcoin network could not be started until an initial message existed to be sent. This initial message to be broadcast in Bitcoin is known as the genesis block. The reward for the first miner to observe this block, or any subsequent block for the immediate future, was 50 BTC (current value: approximately 27,000 USD).

    Even though there were no initial Bitcoin transactions in the genesis block, by default, every block that ever gets discovered on the blockchain has an unspent open-ended transaction called the coinbase, which is reserved for the miner who eventually wins the nonce guessing game. So, at minimum, there is one transaction that MUST happen every block, even if there are no other transactions on the network. Any other transactions on the network will be added on top of this and hashed down the size of one block. This coinbase reward that goes to the winning miner is known as the block reward. This block reward started out as 50 BTC, but subsequently has gone down over time at a predictable schedule, to match the idea of the value of Bitcoin eventually rising over time. For the first 210,000 blocks, the reward was 50 BTC, but this reward is cut in half for every 210,000 blocks after that. Currently, we are on approximately block 315,000, or a reward of 25 BTC per block.

    Attack of the 51!

    The more miners who are playing the Bitcoin game, the more likely someone will randomly be lucky. On average, the difficulty is designed to take about 10 minutes to go block to block. If computing power gets better, difficulty is adjusted to maintain this ratio.

    What would happen if the majority of the miners pooled their brute force computing power together to attempt to disrupt the network? Could this feasibly happen? Think of it from the miners' perspective.

    When your Bitcoin wallet says 2 BTC, it does not mean that they are physically there, like paper currency actually sitting in a leather wallet. Instead, those 2 BTC represent a ledger of transactions that is traceable back to the genesis block and that prove the entire history of Bitcoin leads to you having that many BTC sent to your address.

    If a miner were to pool their power with a majority of bad actors on the network, they would be able to essentially go back in time on the blockchain, and forge forward an alternate history that could fake transactions and swing the ledger to their benefit. This is what is known as a 51% attack, and it can completely destroy the trust anyone has in a [cryptocurrency] (http://en.wikipedia.org/wiki/Cryptocurrency).

    If you have ever seen the movie Back to the Future 2, you have seen an a 51% attack. In the plot of the movie, the chief antagonist, Biff, overhears Marty McFly in the future year of 2015, talking about taking a sports almanac back with him to the past to earn a little extra money by betting on known sporting event outcomes. Thankfully, Doc talks him out of this, but this does not stop Biff from overhearing the idea and thinking to do this himself. Biff famously steals the Delorian time machine, travels back to 1955 with the magazine, and successfully creates an alternate reality past 1955.

    So what exactly stops this from happening with Bitcoin?

    First, and foremost, there is not just one Biff mining Bitcoins. There are thousands of miners out there. It is true that some do merge their powers to become more powerful miners, but still, there are many of these groups. Thus, there is a distributed workforce working together in the honest process of mining Bitcoins. The probability of a single group, or even a distributed group, of dishonest miners forging past the honest miners to form an alternate reality is nearly impossible. Of course, anything is theoretically possible, but very highly unlikely, as long as Bitcoin has financial incentive to a distributed miner workforce.

    Why So Revolutionary?

    The blockchain accomplishes a complete, trusted flow of information that no one person is in charge of, GUARANTEED by mathematics to be genuine. In a world where one does not have to trust just one person to verify that something is true, there are truly no limitations to what can happen, or to the applications that can be created. This is why people truly get evangelical about Bitcoin, and truly believe in the power of cryptocurrency.

    Imagine any application where central points of failure create controversy:

    • Voting
    • Banking
    • Stock Markets
    • Government
    • Corporations
    • Law

    Now imagine the rules for these being completely rewritten with blockchain technology. The value of Bitcoin as a currency is important. However, the value of the protocol is limitless!

    -Adam Terwilliger

    New to the LTB network? Follow [this link]( http://letstalkBitcoin.com?ref=9de4636b) to let them know I sent you! While here you can earn all kinds of LTBcoin for actions you would already take, like commenting on blog posts, participating in the forums, and listening to podcasts!

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    Categories: General, Guest Blog

    Bitcoin Value and Mining Difficulty

    September 3rd, 2014 by Tron Black

    Original (dhimmel):

    It is no coincidence that the value of bitcoin goes up as the mining difficulty rises.  It is also no coincidence that the mining difficulty goes up as the value of bitcoin rises. There is a very tight linkage between the two.  To understand why, it is important to first understand how mining affects the difficulty.


    Mining for profit is very similar to a regular manufacturing business.  There are capital costs which include the mining hardware (ASICS -- Specialized mining hardware, GPUs -- Graphics cards, CPUs -- regular computers, and perhaps AC -- Air Conditioning).  Then there is the variable cost which is electricity.  The goal is to maximize the profit, which means getting the most out of the hardware, and then knowing when to stop mining and sell the hardware.  Most miners sell their newly mined bitcoin immediately to recoup their costs, which decreases the value of bitcoin because of the market sell pressure.  Those that hold bitcoin do better in most cases, and miners that hold also benefit the long-term value of Bitcoin -- more on this in another article.


    The difficulty goes up as more miners deploy more mining hardware.  The Bitcoin network automatically adjusts the difficulty up or down every 2016 blocks, or roughly every two weeks so that each mined block, worth 25 BTC, takes about 10 minutes to find.  Every machine, even a weak laptop, has a shot at finding the block on a pro-rata basis of how many hashes they calculate.  By joining a mining pool, miners can spread the reward in the same way that office workers get together and buy batches of lottery tickets to get a higher chance of getting a smaller payoff.  In a pool, if one of the miners finds a block, the bitcoin reward is shared with all his fellow pool miners.


    How and why is the bitcoin price correlated with the difficulty?  


    Every miner looks at the cost of equipment, the cost of electricity and then makes two educated guesses.  First, ‘How fast will the difficulty rise?’  And second, ‘How fast will the value of bitcoin rise?’  These two numbers are critically important and impossible to know in advance, but looking back at historical rates and projecting forward gives an idea of what they might be.


    Efficient market theory says that it will eventually be the same cost to purchase a bitcoin as it will be to mine a bitcoin.  Why is this?  Because if it’s cheaper to mine a bitcoin than to buy a bitcoin, miners will buy more hardware, burn more electricity, mine, and sell bitcoin into the market pushing the market rate down until mining is no longer profitable.  If it is cheaper to buy a bitcoin, then the money that might possibly go into mining will instead purchase bitcoin pushing the market price up.   


    Why mine at all?  Because the efficient market theory breaks down at the compressed timescales involved in bitcoin.  Rational market forces haven’t gone away, but they simply can’t adapt as quickly as the bitcoin ecosystem changes.  If you are prepared to mine when the price rockets on speculation and before the difficulty adjusts to compensate, there are significant profits to be made.


    We’ve all heard stories from the early Bitcoin days, literally only a few years ago, when mining bitcoin with a laptop would yield blocks of fifty bitcoin.  We’ve also heard stories of those same people turning off their computers because it just wasn’t worth it.  “WHAT WERE YOU THINKING?!”, you want to scream knowing that those same bitcoins are now worth tens of thousands of dollars.  But those folks were operating logically.  The cost of electricity exceeded the value of the bitcoins at the time.  It was better to buy bitcoin on the open market with the same money that would have been spent on electricity, although few did.


    So what changed from those easy, breezy, laptop mining days?  The difficulty has changed.  By design, half of all the bitcoins that will ever be mined were mined in the first four years.  Does this mean they were easier to find in the beginning?   Yes, but not because they were just laying scattered around somewhere.  The careful and considered design of the software by its creator, Satoshi Nakamoto, made them statistically easier to mine at the beginning and harder as more miners join the party.   These details are controlled not by smug elite bureaucrats, but by the Bitcoin software, and while software can easily be changed, it’s necessary that all miners use software that follows the same rules.  Since the rules are working well for the miners, it is nearly impossible to change the rules by getting most of the miners to switch software.


    Now there are fewer bitcoins left to mine, and the reduced number of bitcoins are distributed proportionately among the miners based on the resources they marshal for mining.  Add more miners and each miner gets fewer bitcoins until some miners drop out because their mining equipment is not as efficient or their electricity costs are too high.  Efficiency is the reason that mining with a laptop is no longer recommended.


    Mining is a great way to equitably distribute bitcoin and it does two other interesting things at the same time.  First, it takes value away from bitcoin because resources are spent on mining equipment and electricity instead of purchasing bitcoin on the open market.  Second, it increases the mining difficulty making each new bitcoin more expensive to obtain and therefore more valuable.   These two competing forces are in tension.


    In summary, value and difficulty are tightly correlated because when the difficulty rises to the point that mining is unprofitable, it makes more sense to purchase bitcoin which adds buying pressure to the market and vice versa.  The value of a bitcoin is dependent on a high difficulty and the mining difficulty is dependent on a high price.  With a few exceptions, like the recent exponential efficiency gains from improved hardware, the bitcoin value and mining difficulty will both go up, or both go down, but they will not separate - at least for very long.

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    Categories: General, Legal Activity

    Long-Arm Lawsky, Part I: Statutory Authority

    August 30th, 2014 by wildjo

    Editor: Cheryl

    Original:

    There are a lot of reasons to dislike the BitLicense regulations proposed by Ben Lawsky and his New York Department of Financial Services (DFS). Two of the more potent arguments that have the greatest potential to strike down the proposed regulations, if they are not first withdrawn or extensively and materially modified, are: 1) lack of statutory authority, and 2) unreasonable interference with interstate commerce. Today, in this Part I, I discuss the issue of DFS statutory authority, or lack thereof, as it specifically relates to virtual currency and bitcoin.

    In order for a state agency like the DFS to take any action, it must have authority to do so. Typically, such authority comes from state law. If the agency seeks to act outside its statutory authority, it does so unlawfully. That is precisely the situation we face with the DFS and its BitLicense scheme.

    If you have read the proposed regulations, you may have noticed the phrase at the top (right after the table of contents and before the introduction); Statutory Authority: Financial Services Law, sections 102, 104, 201, 206, 301, 302, 309, and 408. This is a reference to the state law that the DFS believes gives it the power to propose the BitLicense. A closer look at this enabling legislation reveals that the DFS has been far, far too ambitious.

    Under the flawed proposed regulations, the DFS prohibits any unlicensed Virtual Currency Business Activity (VCBA) that involves a New York resident. VCBA is defined as receiving or transmitting virtual currency; securing, storing, holding, or maintaining virtual currency on behalf of others; buying or selling virtual currency as a business; converting virtual currency to fiat or any other store of value; or, controlling, administering or issuing a virtual currency.

    However, under its relevant statutory authority, the DFS has only been empowered to regulate financial products or services. We may, at first glance, assume we know what financial products or services means and conclude that virtual currency and VCBA sounds like it might fall within that assumed definition. However, state agencies lack the authority to assume. Instead, they must look to the exact language of their enabling statutes. So, what does this phrase financial products and services really mean?

    Not surprisingly, the statue is too vague. The phrase is tautologically defined in Section 104 of the Financial Services Law as:

    any financial product or financial service offered or provided by any person regulated or required to be regulated by the superintendent pursuant to the banking law or insurance law or any financial product or service offered or sold to consumers&

    Clear as mud, eh?

    Seeking clarification from New Yorks Banking Law is equally fruitless as it contains no definition of a financial product or a financial service. (it merely defines banks, bank-like institutions, and bank mechanisms such as demand deposits). It neither defines financial product or financial service nor mentions virtual currency or virtual currency business activity. Instead the statute is utterly silent.

    A common tactic in statutory construction or interpretation is to refer to definitions contained in similar statutes to help define a term used in a law or regulation that is otherwise silent or vague. We dont have to look far to find a relevant definition of a financial product or service under federal law. Section 5481 of Title 12 of the United States Code contains the definitions relevant to federal banking law. Section 5481(15)(A)(i)-(xi) defines a financial product or service as (paraphrasing):

    1) extending credit and servicing loans; 2) extending/brokering leases of real or personal property that are essentially purchase finance arrangements; 3) check cashing, collecting, or guaranty services; 4) providing real estate settlement services; 5) providing appraisal services 6) engaging in deposit-taking activities or acting as custodian of any financial instrument; 7) offering stored valued instruments where the offeror controls the terms; 8) providing payments or financial data processing products; 9) providing financial advisory services; and 10) engaging in consumer credit reporting activity.

    In a nutshell, the definition describes a bank and traditional bank products and services. Since the definition defines the same phrase used in the New York statute and since both statutes regulate the banking industry, it is perfectly appropriate to assert that the DFS statutory authority is limited to this more specific definition. That is, the DFS is authorized to regulate certain traditional banking activity, and nothing more.

    This assertion is also strongly supported by the statutory purpose contained in New Yorks Financial Services Law. Section 102 is long, but is worth reprinting in full here:

    The legislature hereby declares that the purpose of this chapter is to consolidate the departments of insurance and banking, and provide for the enforcement of the insurance, banking and financial services laws, under the auspices of a single state agency to be known as the department of financial services and to accomplish goals including the following:

    (a)  To encourage, promote and assist banking, insurance and other financial services institutions to effectively and productively locate, operate, employ, grow, remain, and expand in New York state;
    (b) To establish a modern system of regulation, rule making and adjudication that is responsive to the needs of the banking and insurance industries and to the needs of the states consumers and residents;
    (c)  To provide for the effective and efficient enforcement of the banking and insurance laws;
    (d)  To expand the attractiveness and competitiveness of the state charter for banking institutions and to promote the conversion of banks to such status;
    (e)  To promote and provide for the continued, effective state regulation of the insurance industry;
    (f)  To provide for the regulation of new financial services products;
    (g)  To promote the prudent and continued availability of credit, insurance and financial products and services at affordable costs to New York citizens, businesses and consumers;
    (h) To promote, advance and spur economic development and job creation in New York;
    (i)  To ensure the continued safety and soundness of New Yorks banking, insurance and financial services industries, as well as the prudent conduct of the providers of financial products and services, through responsible regulation and supervision
    (j)  To protect the public interest and the interests of depositors, creditors, policyholders, underwriters, shareholders and stockholders;
    (k)  To promote the reduction and elimination of fraud, criminal abuse and unethical conduct by, and with respect to, banking, insurance and other financial services institutions and their customers; and
    (l) To educate and protect users of banking, insurance, and financial services products and services through the provision of timely and understandable information.

    In other words, the main purpose of the Financial Services Law was simply to consolidate the banking department and insurance department into a single agency (the Department of Financial Services) and to help these industries remain competitive in the state.

    Setting aside for now the cynical notion that the DFS just might be meeting these obligations by trying to kill bitcoin with the BitLicense, it is plain that the DFS authority extends only to the banking industry and bank-like financial products and services (as defined above). The authority to regulate virtual currency and virtual currency business activity outside the banking industry is found nowhere in the relevant New York statutes.

    Even if, for the sake of argument, the DFS did have the statutory authority to enter this new sphere of virtual currency business activity, the proposed regulations still go too far.

    Those who study bitcoin understand that its use as a virtual currency is only one of a multitude of actual and potential uses that are not inherently financial products or services (e.g. domain name registration, smart contracts, and notary services). Yet, the DFS does not distinguish between these non-financial uses of the technology. Instead, any business utilizing the blockchain could be found by the DFS to be engaging in the transmission of a virtual currency as defined in the proposed regulations.

    For example, if a New Yorker uses a service that assists him/her in transferring a fraction of a bitcoin to establish proof of existence on the blockchain for some digital creation, they have engaged in a transaction that would require a BitLicense, despite the fact that nothing about the business arrangement is financial in nature. Taking the example a step further, suppose that digital creation was valuable and worth over $10,000.00 at the time the transfer was made. Under the BitLicense scheme, the DFS could argue that the transfer requires compliance under the anti-money laundering provisions of the regulations due to the value ostensibly transferred on the blockchain.

    There are far more examples of this type of non-bank, non-financial use of bitcoin/blockchain technology than there are for virtual currency uses. Yet, the DFS, through its flawed proposal, is seeking to rake it all in.

    The DFS cannot unilaterally extend its reach into the virtual currency sphere without the New York legislature first authorizing it to do so through new legislative action. The state agency does not have the subject matter jurisdiction that the BitLicense proposal, as written, would require. Simply put, the DFS is utterly without statutory authority to proceed in the proposed manner, and the BitLicense would be ultra vires and unenforceable.

    Not only does the DFS lack statutory authority to issue BitLicenses, doing so would be an unreasonable interference with interstate commerce as every transaction on the blockchain is, by its very nature, an interstate activity. I will cover this argument next week in Part II.

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    The Blockchain, the BitLicense, and the High Costs of Compliance

    August 22nd, 2014 by wildjo

    Editor and proofreader: Cheryl Copy of original:

    Since the release of the proposed New York Department of Financial Services (DFS) BitLicense regulations on July 23, 2014, the crypto community has been concerned, but there hasnt been enough discussion of the specific implications such regulation would have. Its about time we put some flesh on those bones. Specifically, what would compliance with the regulations as written actually cost?

    The goal of this post is to provide some answers, but, first let me tell you a quick story about how I started thinking about it.

    The other night found me alone, sitting in my favorite chair, watching transactions in the bitcoin blockchain. It was a slow night, but my expectations were low.

    I pulled up the Blockchain.info block explorer and focused my screen on the flow of current transactions. I have to admit, it was somewhat enchanting to watch the constant stream of bitcoin commerce. Satoshi really gave us something to marvel at here.

    It wasnt long before the first large transaction rolled through. And they kept coming, and they kept getting bigger. After about an hour, I had seen everything from a $0.00 transaction with a $0.10 transaction fee to a $775,000.00 transaction with a $0.05 transaction fee.

    The blockchain statistics indicate that $800.00 was the average transaction amount during the twenty-four hour period in which I was watching. This was far higher than I had previously assumed. Clearly, a lot of value is moving effortlessly (e.g. cheaply) through the blockchain, which is precisely why the DFS wants to get involved.

    And this brings us to one of the meatiest and costliest parts of the proposed regulations.

    Section 200.15 requires all regulated entities to implement a full Anti-money laundering (AML) and U.S. Treasury Office of Foreign Asset Control (OFAC) compliance program. In subsection (d)(2), the regulations require a licensed entity to report within twenty-four hours all transactions (whether individual or cumulative) that exceed $10,000.00 in a single day. Subsection (g)(4) goes further and requires that a licensed entity track single transactions that exceed $3,000.00, with the implication that such transactions are suspicious. Subsection (d)(3) requires the immediate reporting of any suspicious activity regardless of dollar amount. This may not seem that bad or that costly, but I assure you it is.

    During my night in the blockchain, I conducted a very informal and unscientific test. I set my timer for three minutes and counted all the transactions greater than three thousand dollars during that time. After multiple rounds, the average was fifteen, with half of those being greater than $10,000.00. This would theoretically translate into a total of 7,200 transactions per day that could be subject of either a Currency Transaction Report (CTR) or Suspicious Activity Report (SAR). Thats well over two and a half million reports per year, and bitcoin is just in beta! Its a staggering amount of paperwork for bitcoin businesses to produce and for the regulator to actually make use of. But what would it cost?

    There is very little detailed information in the literature regarding AML compliance costs. One 2005 study estimated that regulated entities in the United States spent $1.8 billion (yes, thats a b) in annual AML compliance costs.1 The Financial Crimes Enforcement Network (FinCEN), reports that there were 15.8 million AML compliance reports filed in 2005.2 Doing some simple math for a down & dirty estimate suggests that each report filed in 2005 cost regulated industry $114.00. That kind of makes you feel bad for the banks until you realize that they simply pass those costs on down to us, which is exactly what the bitcoin community would have to do with this potential $820,000 daily bill.

    While possibly generating the greatest financial burden on the bitcoin space due to day in and day out application, Section 200.15 is not the only section to impose significant costs on BitLicensees.

    Section 200.5 requires that each BitLicense applicant submit a nonrefundable application fee. The proposed regulations dont state any amount, leaving it up to the discretion of the DFS, but we can make an educated guess. Every other market-entry license issued by the DFS requires a $12,500.00 application fee. Its no stretch to assume that the BitLicense will cost an equal amount.

    Section 200.4(a)(4) requires background checks for each Principal Officer and Principal Stockholder. In the New York market, these background checks run $650 a pop.

    Sections 200.14(a) and (b) require the submission to the DFS of quarterly financial statements and audited annual financial statements. It is the latter one that is the most costly. I recently had a moderately sized corporate client contract for their first audited financial statement and the final bill was around $35,000.00. Recall that this would be an annual expense under the proposed regulations.

    From here on out, estimating costs get a bit more speculative.

    Section 200.8(a) requires that each BitLicensee be sufficiently capitalized to ensure financial integrity. The sufficient amount of capital is solely determined by DFS. It could be a little number. It could be a big number. Your guess is as good as mine, but only the DFS guess counts.

    Section 200.9(a) requires that each BitLicensee maintain a bond or trust account in an amount acceptable to DFS. Again, it could be a little number. It could be a big number. Your guess is as good as mine, but only the DFS guess counts.

    Section 200.13(a) requires that each BitLicensee submit to biannual examinations. It is not quite clear what this would exactly entail, but it is a safe bet that each BitLicensee will want to prepare, which means accountant and legal costs, as well as lost opportunity costs associated with staff devoted to compliance rather than engaged in direct market making activity.

    Last, but not least, Sections 200.16(c) and (f) requires each BitLicensee to employ sufficient cyber security personnel, including a Chief Information Security Officer. Sections 200.16(d) and (e) require an annual cyber security audit by a qualified and independent third-party. The way these regulations read, one person isnt going to be able to be a jack of all trades and wear multiple regulatory hats. These regs require dedicated cyber security staff and third-party consultants, and both are expensive.

    We have now covered all of the vaguely enumerated costs of compliance contained in the proposed regulations. These are big, daunting numbers: $12,500 just to apply; $35,000 annually for an outside audit; $114 for each AML report (and you better be liberal in your reporting so as not to miss something and risk being assessed a penalty); $650 for each background check of each executive staff or investor; obtaining sufficient capital; posting sufficient bond; and on and on. But, theres more to it.

    Each applicant will necessarily incur the general consulting costs of developing all of the policies and procedures required under the proposed regulations, as well as preparing all of the disclosures, background information, business practices and strategy descriptions, marketing plans, advertising samples, etc., etc. that are also required to be disclosed with the application. In other words, there will be significant costs for simply putting the multi-layered application together. Lawyers and accountants will charge a lot of money for their guidance. Industry data shows that the average associate attorney in the New York market charges $400.00 per hour (with partners pulling in $1,000.00 or more). In a specialized field such as bitcoin licensing, you can assume that the fees are going to be above average. Even the smallest of the potential BitLicensees should plan on thousands of dollars to simply put the application together, with larger ventures approaching six figures. These will be sunk costs with no guarantee that the application will ever be approved.

    It should be clear at this point that the proposed DFS regulations would not simply make business in the bitcoin space do a lot of unpleasant stuff; they are going to make businesses in the bitcoin space pay a whole lot of money to do Them. That will have two consequences: it will set up obstacles to entering the space that only the most resource rich players can afford; and, it will introduce financial friction into the system and increase transactions costs. There is a strong argument that these consequences are antithetical to the fundamental principles underlying the bitcoin protocol. The crypto community has cause for concern.

    Sources:

    1. Yeandle, Mark, et al., Anti-Money Laundering Requirements: Costs, Benefits and Perceptions, June 2005
    2. FinCEN Annual Report Fiscal Year 2005

    Cover image courtesy of LittleShibe.

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    We Talk, Share, Create, Exchange, and Resolve: Decentralized Autonomous Society

    August 19th, 2014 by Alchemi

    New Editor: Crystal Editor: Cheryl

    Decentralized autonomous society empowers individuals by rewarding innovation through sharing, distributed ownership and abundance. By sharing innovative ideas we can build a much better, fair, transparent and innovative society which is based on group consensus rather than a society enforced by rules and regulations.

    Therefore for any society to operate on complete autonomy, it should have these 5 major components or in other words the 5 pillars as its foundation. I would like to explore these components and provide a bird's eye view of how decentralized autonomous society can thrive.

    • Decentralized Communication to talk
    • Decentralized Collaboration to share ideas and designs
    • Decentralized Creation to manifest goods and services
    • Decentralized Exchange to barter goods, services and resources
    • Decentralized Arbitration to resolve conflicts

    Decentralized Communication and Privacy

    Establishing privacy in our communication channels is the first and foremost priority in order to be self-autonomous and free. Without private correspondence we cannot strive to build a free autonomous society. Privacy enables an individual to be free as a self autonomous entity and thus empowering the society as a whole to be self autonomous.

    Why mass surveillance is a violation of Article 12 of Universal Declaration of Human Rights of United Nations?

    No one shall be subjected to arbitrary interference with his privacy, family, home or correspondence, nor to attacks upon his honour and reputation. Everyone has the right to the protection of the law against such interference or attacks.Source

    Mass digital surveillance in any form is an arbitrary interference of privacy and correspondence. Therefore it is a gross violation of human rights. On December 19 2013 the United Nations passed a resolution backing the right to digital privacy.

    Deeply concerned that electronic surveillance, interception of digital communications and collection of personal data may negatively impact human rights, the United Nations General Assembly has adopted a consensus resolution strongly backing the right to privacy, calling on all countries take measures to end activities that violate this fundamental tenet of a democratic society.Source

    we can hardly trust any third party to keep our information safe and secure because of conflicts of interest such as maximizing profits and legal obligations to local jurisdiction. The E-mail privacy can only be achieved through decentralized peer to peer communication.

    How does Bitmesssage enable E-mail privacy?

    Bitmessage is a P2P communications protocol used to send encrypted messages to another person or to many subscribers. It is decentralized and trustless, meaning that you need-not inherently trust any entities like root certificate authorities.Source

    Bitmessage protocol implements two major features which are storing the information in peer nodes for a limited period of time and encrypting the message end to end. Thus it is extremely difficult for anybody to intercept the information.

    Bitmessage is not the only open source tool that enables digital privacy as there are many other tools which serve similar purpose. One such tool is known as Tox which fascilitates instant messaging and video calls.

    Tox is a free and open-source, peer-to-peer, encrypted instant messaging and video calling software. The stated goal of the project is to provide secure yet easily accessible communication for everyone.

    Decentralized Collaborative Sharing vs Centralized Hiding

    Let us imagine a cave man discovered how to make fire to keep him warm and cook food. If he did not share his discovery and decentralized the concept of light and warmth but instead claimed intellectual property right on how to make light and heat, I do not think I would be able to type this article in a markdown format and share my vision with all of you today. The moral of the story is to let your light shine. It would be nothing but an absurdity for anyone to claim a patent right on how to make light and heat because inventions and discoveries are nothing but an innovative improvisation of a priori.

    There is nothing wrong in awarding compensation for inventions and discoveries. But it should rather be awarded to the collective for decentralized collaborative sharing than compensating global monopolies such as corporates for centralized hiding.

    In 1742 Benjamin Franklin invented a new type of stove for which he was offered a patent. Franklin refused it arguing in his autobiography

    we enjoy{ed} great advantages from the inventions of others, we should be glad of an opportunity to serve others by any invention of ours. source

    In similar veins Linus Torvalds could not afford to buy propriatiary Unix so he created Linux kernel and released the source code under GPL Licence so that it can be used for similar purpose and to empower others.

    Why is Linux kernel a success story even though it defied the conventional knowledge of the academic paradigm?

    Decentralized collaborative sharing enabled the success of Linux kernel.Thousands of ordinary people shared small pieces of code known as patches. Linus Torvalds designed and developed a tool known as git. This open source tool enabled the decentralized collaborative sharing by managing a distributed revision control archive and Linus along with his team merged the patches with the kernel.

    But the irony is that thousands of ordinary people who contributed to the Linux kernel walked away without a penny and the monopoly corporates such as Redhat and Google reap billions of dollars today in profits thanks to Linux kernel. It is neither fair nor ethical but it bootstrapped the open source movement because they don't want to kill the goose that lays the golden eggs.

    Open source tools that enables decentralize collective sharing

    Even though there are many tools that enable decentralize collective sharing I would like to highlight only two tools. One is git which enables to develop open source software by means of decentralize collective sharing and contribution of source code which I have discussed before. And the other one is Twister which is a hybrid of two peer to peer technologies such as Blockchain from Bitcoin and DHT from Torrents.

    Twister is a social microblogging peer to peer network such as twitter but is based on decentralized peer to peer network. It enables decentralized sharing of ideas and concepts without being tracked or compromising your digital privacy. It creates and authenticates users using Blockchain and stores the data using Distributed Hash Table (DHT)

    What is the issue with Centralized Hiding?

    By enforcing centralized hiding such as intellectual property rights on the masses, it leads to a situation where the benefits are funneled to the 1% at the cost of 99%. It also impedes innovation resulting in stagnation and scarcity thus empowering the few to control the many. For example if there are 7 different brands of cars and there is a billion of each brand, controlling and manipulating one of each 7 brands will be easier than controlling each of the 7 billion different cars. Control, manipulation and corruption are applicable to finite sets of numbers. They are of no relevance to infinite set of numbers.

    An example of a centralized hidden archive is the vault below the Vatican which runs for more than 52 miles and hoards vast collection of knowledge dating back 10000 years from various libraries from around the world such as Alexandria.

    Knowledge is power when applied, but is wisdom when shared. Power corrupts but wisdom redeems.

    Decentralize Creation and Abundance

    Let me clarify the key difference between creation and cloning. Creation is the process of manifesting our shared ideas and design into a physical or readable form. Cloning on the other hand is a process of producing photocopies of someone's design using it as a template. Creation can also be compared to writing your own book or novel but production is photocopying a book written by someone else.

    In a decentralized creation the value is based on network effect and abundance. Let us consider LTBcoin for example, the value of the coin will increase provided more people use the LTB network and the network creates higher quality content. Thus the value is not based on scarcity but is based on abundance. The decentralized creation operates on the principle of abundance, the more the better as we do not produce but we create.

    On the other hand, centralized production operates on the principle of scarcity of innovation, the lesser the better. This is because we do not create but we clone someone's design which resides in a centralized hidden archive. We are forced to pay a patent fee for the clone even though someone has the knowledge to design and create their own car.

    For example if we consider a centralized car manufacturing industry, the value of the car is directly proportional to the quantity that has been produced.Ford is a cloned mass produced car based on a single template.Even though there are million clones they have less value because they are not original, creative or innovative.

    Let me give you another example even though someone has the knowledge to use one of the open source software distributions like Ubuntu, every time he buys a new laptop or computer he is forced to pay the license fee for Windows which has its source code residing in the centralized hidden archive which the buyer has no access to.

    Decentralized exchange of goods, services and resources

    Any exchange involves two major transactions. We sell what we create and we buy what we need.Peer to peer payment system enables individuals to pay directly to the producers bypassing the middlemen. This enables the producers to have a better profit margin and the consumers to have better value for their money. One such example is OpenBazaar.

    OpenBazaar is an open source project to create a decentralized network for peer to peer commerce onlineusing Bitcointhat has no fees and cannot be censored.Source

    Lets say that you would like to sell vegetables from your garden. Using the OpenBazaar, you create a new listing on your computer with details of the vegetables and quote for the price in Bitcoin. When you publish that listing, it is sent out to the distributed p2p network of other people who use OpenBazaar. Anyone who searches for the keywords such as local vegetables will find your listing. They can either accept your price, or offer up a new price.

    If you both agree to a price, OpenBazaar creates a contract with your digital signature and sends it to an entity called a notary. In the case of a dispute an arbiter can be brought into the transaction. There is no third parties involved. The notaries and arbiters are also part of the distributed p2p network who the buyer and seller trust in case something goes wrong. The notaries and arbiters witness the contract and create a multisignature Bitcoin account that requires two of three people to agree before the Bitcoin can be released.

    Decentralized distributed exchange can also empower individual innovation at a personal level through crowdfunding. Crowdfunding in turn enables decentralized distributed ownership.

    Crowdfunding is the practice of funding a project or venture by raising monetary contributions from a large number of people, typically via the Internet. One early-stage equity expert described it as the practice of raising funds from two or more people over the internet towards a common Service, Project, Product, Investment, Cause, and ExperienceSource

    How decentralized distributed ownership is different from stocks and bonds?

    Decentralized distributed ownership enables individuals to directly own a company but not through third parties like stock brokers or banks. The dividends are paid directly to the individual owners of the company. Distributed ownership can enable all the 7 billion people of this planet to own one single company directly without any major issues or downsides.

    The funds raised through bonds are invested in public infrastructure projects such as roads, rails, bridges etc. The decentralized distributed ownership enables individuals to directly participate in the public infrastructure projects without the need for bonds.

    Decentralized Arbitration

    We as individuals each one of us is a sovereign. We are not a person but a sovereign, which is a basic right granted by the Creator. We exist simultaneously in a parallel multiverse which has many domains or dimensions that exist in parallel but we are aware of only one domain. These are some of the practical implications of the Multiverse hypothesis.

    We can only be tried in any jurisdiction as a person. We consent to be represented as a legal person to be tried in a court of law in a temporal domain. A person is a legal entity such as a limited liable company which can be tried by any jurisdiction. The purpose of a legal entity such as a person is to limit the liability to this temporal domain.

    We can create our own rules without involving any third parties to arbitrate and abide by them as a sovereign as long as the rules are consented by the counter party and are not violating the common law or natural law. This is made possible by the application of smart contracts.

    Smart contracts are computer protocols that facilitate, verify, or enforce the negotiation or performance of a contract, or that obviate the need for a contractual clause. Smart contracts usually also have a user interface and often emulate the logic of contractual clauses.Source

    What is Temporal Jurisdiction?

    As a sovereign, if anyone prefers litigation rather than decentralized arbitration, then they should be at liberty to exercise their freedom to choose their temporal jurisdiction in order to resolve their conflicts.

    When Ethereum started the first round of crowd funding the funds are managed by a company incorporated in Switzerland. The developers of Ethereum had the freedom to choose their legal jurisdiction of sale and thus are accountable to the laws of Switzerland but not accountable to the temporal jurisdiction of Canada or USA. This is a classic example of exercising their freedom to choose their temporal jurisdiction in order to resolve their conflicts in future.

    Disclosure

    This article is meant for informational purposes and is not an endorsement. Articles published on the LTB network are the authors personal opinion and do not necessarily represent the opinions of the LTB network.

    Further Reading

    https://en.wikipedia.org/wiki/Email_privacy

    https://bitmessage.org/bitmessage.pdf

    https://en.wikipedia.org/wiki/Tox_(software)

    https://en.wikipedia.org/wiki/Git_(software)

    http://twister.net.co/

    http://www.youtube.com/watch?v=9vZpNQUIqIg

    https://en.wikipedia.org/wiki/Multiverse

    https://www.ethereum.org/

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  • 46 Comments
    2,468 views
    Categories: General

    An Overview of Applications that Could Be Empowered by Bitcoin

    August 18th, 2014 by Jonathan Silverblood
    edited by denise 8/8/2014
    Please note that author wants to submit recording to release simultaneously with blog.

    "After editing, before publication, I would like to have the article recorded so it an be released with an audio recording attached. Please do not publish it before I have had a chance to get it recorded. (but you're more than welcome to do all edits so I get a final version to record.)"
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  • 58 Comments
    3,217 views
    Categories: General

    Counterparty, Dogeparty, and Why the Term 'Burning' Gives the Wrong Impression

    August 18th, 2014 by Rob
    Rob's Note: I changed the references to "simply" Cheryl and I discussed via DM. That's all I changed. Thanks!

    Original (editor: dhimmel; proofreader: cheryl):

    The world of cryptocurrency has progressed to a state where practically anyone can create their own cryptocurrency. With only basic experience using Bitcoin or Dogecoin, it is easy to create blockchain-based tradable digital-tokens, thanks to the Counterparty protocol, and its brand new implementation called Dogeparty.

    How does Counterparty work?

    The Counterparty protocol allows users to create and trade their own cryptocurrency tokens. Users do this with a wallet dedicated to sending and receiving Counterparty messages on the Bitcoin blockchain. The messages are broadcast by sending very small amounts of Bitcoin, coupled with Counterparty data. Only the owner of the private key for a Bitcoin address can send a Counterparty asset, and the complete history of counterparty transactions is as secure as the blockchain it runs atop (the Bitcoin blockchain, in the case of Counterparty, or the Dogecoin blockchain, in the case of Dogeparty).

    Burning isn't wasting

    The coin that acts as the fuel for the Counterparty system is XCP. The developers decided the most fair way to distribute XCP to those who saw the value in the Counterparty protocol was to allow people to acquire it for Bitcoin. People who wanted to own XCP sent Bitcoin to an address that has no private key, so all Bitcoin sent to that address was gone forever. But it was not wasted. It was effectively transformed, at a given rate of exchange, into XCP, which was distributed to each address that contributed Bitcoin. This process is referred to as burning, and it is often panned as a wasteful destruction of a coin and its value. However, the destruction of value in one coin sprouts new value in another coin, so the net effect is transformation, not destruction. Proponents see this method of coin-creation as the least corruptible way to launch a new platform; it removes major greed motive, and thus also removes the potential skepticism inherent to new platforms that provide huge fundraising windfalls to the development team.

    Why Dogeparty?

    Many people have jumped on the Counterparty platform, as it is the first easily-accessible way to create tokens that leverages the inherent security of the Bitcoin blockchain. For example, the Let's Talk Bitcoin ecosystem is currently run on a Counterparty asset called LTBCOIN. While the Counterparty protocol is relatively cheap to use, the costs add up when there's a lot going on. That's because each transaction requires sending Bitcoin and enough in miner's fees to make sure the transaction is recorded to the blockchain. Thus, any time you send a Counterparty token, you need to send a base-level of Bitcoin. Recently, the Counterparty developers decided to create a version of their protocol that would live on the Dogecoin blockchain. That not only reduces the transaction fees to less than 1% of the those running on the Bitcoin blockchain, it also allows for much faster transactions. Now, anyone who wants to experiment with asset creation on the Counterparty protocol can do so for pennies! 

    The Dogeparty protocol uses XDP as the native unit for the system, instead of XCP used for Counterparty. If you want to create your own assets, you need XDP, plus some Doge (as you must send Dogecoin to carry the date for the Dogeparty transaction). Because the Dogecoin protocol just launched, the "burn" period is still in effect, so you can acquire XDP by using the Dogeparty Wallet to send Doge to a specific non-recoverable address. I've seen this process interpreted as a non-sensical wasting of Dogecoin, as an artificial attempt to prop up the overall Doge platform. But that overlooks the fact that people are converting their Doge into XDP, because they believe in the potential of the Dogeparty platform. After seeing how well Counterparty has worked on the Bitcoin blockchain, it is not surprising there's excitement about Dogeparty, even for people who have never been involved with Dogecoin.

    Counterwallet & Dogeparty Wallet

    One thing you'll immediately notice is how easy the developers made it to get started with their web wallets. Simple go to counterwallet.co or wallet.dogeparty.io, click the button to create a wallet, and save the pass phrase you are given. That's it. People can send you asset tokens on the platform, or you can create your own assets, provided you have the native coin (XCP or XDP) and some Bitcoin or Dogecoin to send in tiny amounts, to carry your token transactions. Once you have both the native token and the blockchain currency in your new wallet, you simply go to Address Actions, and click "Create a Token (asset)," and fill in a handful of details about the asset. Note that the asset name land-grab has already begun on both platforms.

    When you have a wallet running in your browser, it is not simply a connection to a Counteryparty server. Once the wallet is launched, your browser is actively a javascript wallet. Thus, trying to log into your wallet from a second computer, when the wallet is already open on another computer, can cause problems (fortunately, the wallet warns you if you try to do this).

    Risks

    This is all experimental (for that matter, even Bitcoin is technically still in Beta). It is certainly possible there are bugs or exploitable flaws in both implimentations of the Counterparty protocol. Of course, the hashing power securing the Dogecoin blockchain is but a tiny fraction of the hashing power securing the Bitcoin blockchain. And, unlike Bitcoin's trend of ever-increasing hashrates, Dogecoin's hashrate is well off of highs reached in February of this year. So there's a lot more risk of a 51% attack on Doge. Such an attack could render recent transactions (of Doge or Dogeparty assets) invalid, but Dogecoin and Dogeparty assets still couldn't be spent without having the private key for a particular address. Counterparty's original flavor, running on the Bitcion blockchain, appears to be much more secure from 51% attack, as its hashrate eclipses all others.

    Perhaps a greater risk is that most users are using the online Counterwallet or Dogeparty Wallet. All that's required to access either wallet is a passphrase, because two-factor-authentication has not been implemented yet. Many people would not feel comfortable with their tokens being so accessible if their computer (or password itself) was compromised, so I hope 2FA will be added to the online wallet soon. There are also offline wallets offered that can be complied by users, but it is unclear how many people will utilize these much more technical wallets. If you're about to put any serious value into a Counterwallet or Dogeparty Wallet, or base an important project on these protocols, an offline wallet is the safe way to go. 

    Bottom line

    These are very exciting technologies that bring nontechnical cryptocurrency enthusiasts the ability to create their own asset tokens, at a very low cost. And that doesn't scratch the surface of these protocol's more complex abilities, or explore interesting uses that may develop on top of these platforms. If you have any desire to experiment with these platforms, now is your chance to dive in as an early adopter.

    Disclosure: I own small amounts of XCP and XDP. Note that implications of trading in these new tokens may be a tax headaches for those who attempt to be 100% compliant with outdated tax regulations. Read More
  • 49 Comments
    3,624 views
    Categories: General, Legal Activity

    Death and Bitcoin

    August 15th, 2014 by wildjo

    Editor: Edward
    Proofreader: Cheryl

    For too many people, the answer to the question "What happens to your bitcoins when you die?" will include some variant of "lost." Of course, that does not have to be the case if we use the legacy estate law of our home jurisdictions. These legacy systems, however, have the same disadvantages of the financial system we are trying to make obsolete with cryptocurrencies: trusted third parties and gatekeepers.

    There are alternatives within and on top of the Bitcoin protocol that can overcome these legacy estate law disadvantages. This article identifies two and suggests a mechanism in which they may be employed to provide simple estate-like planning in a decentralized, autonomous way without the time cost and monetary expense of traditional strategies.

    [The above was written by the original author. I assume it was meant to be used as an excerpt/preview for the article. I made some minor edits.]

    ----------------------------------------------------------------------------------------------------------------------------

    What happens to your Bitcoin when you die?

    For some of us outliers in the U.S. cryptocurrency communitythat is, those of us who didnt grow up with a computer in the home and are old enough to have learned how to type on an actual typewriterthe twin certainties of death and taxes are on our minds more than others. In this regard, crypto presents unique challenges. How do we pass on our Bitcoin wealth and legally avoid unnecessary estate expenses, while also protecting our private keys while we are still alive?

    The world of estate law (the law governing the management of a persons assets, with an eye to how they will transfer after he or she dies) has some ideas, but, not being crypto devotees, those ideas center around how to wrangle crypto into their non-crypto world.

    For example, the proposed Fiduciary Access to Digital Assets Act (FADAA) would simply give trusted-third parties enhanced rights (and liability protection) to force a software or hardware company to provide anothers private information. That may be necessary in some situations, but Im sure the crypto community can come up with a better and more generally applicable decentralized and autonomous solution that minimizes the need for trusted third-parties and gatekeepers (and their associated privacy risks and fees).

    Why is the status quo unsatisfactory? The main problem with legacy estate law is that it requires the disclosure of private keys to trusted third-partiesexecutors, trustees, agents operating under a power of attorney, conservators, and personal representativesso that they may access the decedents wallet and distribute the decedents digital assets. Thus, we reintroduce the trust factor back into an area of the cryptocurrency arena that was doing just fine without it. Not only must we trust that these third-parties wont access our wallets while we are living, but we must also trust that they will keep the private keys secure and provide continuity of care in the event they predecease us. Continuity of care requires the introduction of even more third-parties, but is necessary, if not required under some state professional responsibility codes, when attorneys and other professional fiduciaries are involved.

    Another deficit of the legacy estate system is that it necessitates the inclusion of gatekeepersprobate courts/judges, magistrates, executors, attorneys, and state agencies (e.g. vital statistics departments). In even the simplest of situation where all the necessary information is known and all the heirs are getting along, these gatekeepers impose costs in terms of both time and money. Where information is absent and heirs disagree, those costs can be extraordinarily high. Sadly, the latter scenario is far too common.

    Estate law is a required course in law school. I suffered through it and swore I would never practice it when I became an attorney because it can capture the human species at its very worst. The cases usually have the same last name on each side of the v., as in Jones v. Jones and Smith v. Smith, because some relative feels they got the short end of the inheritance stick and decides the only way to be vindicated is to blow up the family. These fights rage on because both sides are empowered by a legal system and legal profession that stands to profit from the dispute. Family relationships are devastated and family assets dwindle in the process. Insert the technological difficulties and relative unfamiliarity of crytpocurrency and you are simply adding heavy fuel to those fires; fires that can only be snuffed out with the loss of additional time and money.

    No. Satoshi was right. We need to continue to keep trusted third-parties and gatekeepers out of our digital financial lives as much as possible, both during our lives and after our deaths. The problem is, however, that there is no clear way to accomplish this within the Bitcoin protocol. Or is there?

    Im no coder, and my computer competency is just deep enough to make me dangerous. Still, we need to start considering this question, so allow me to kick it off and allow other, more sophisticated, members of the community to take it further.

    In my view, what we are looking for is a mechanism that allows a wallet holder to send a percentage of their wallet balance, whatever that balance may be at some indeterminate time, to another wallet(s) upon the death of the first wallet holder. There are a couple elements here that we need to parse out.

    First, the transaction needs to take place in the future. As I understand it, this function (or something very similar to it) already exists within the protocol. It is called LockTime and is a major feature of distributed blockchain contracts that allows a payment to be made from one address to another after the specified period (n) has passed. Without more, such a function could be used as a crude estate planning tool by selecting a date beyond which is the reasonable life expectancy of the initiating party. However, that means that the initiating party could never change their mind and that the beneficiary might have to wait years before they receive the asset. A lot could happen in that intervening period to make such a transaction unpalatable.

    To make this function better for autonomous estate planning purposes, we would need to modify the LockTime functionor build on top of itto allow us to modify the transaction date repeatedly. If this were possible, we could set up transactions to our heirs on New Year's Day of each year to be distributed, for example, on January 1st of the following year. If we pass away within that period, then transaction propagates. If we dont, then we modify the transaction on New Years Eve to take place in another year, repeating the process until we are no longer around to do so and the transaction kicks in. In the meantime, this flexibility allows us to adjust who our beneficiaries are, the amount they would receive, or to suspend the transaction altogether at any time. In other words, it gives us the flexibility of the existing estate law system (e.g. rewriting a will) with the autonomy of the Bitcoin protocol.

    The second element to address is the amount transferred. With the current LockTime function, the amount of the coin transferred must be specified and it is removed from the wallet. However, in the new estate planning space we are creating for ourselves, while we want our heirs to inherit what is left over, we might want to spend some of our Bitcoin in the meantime. Having to deplete our wallet balance, even if temporary, in order to make a contingent LockTime transaction, could be inconvenient. But, what if we could modify the function to allow for a percentage of the then existing wallet balance to be transferred? For example, I set a transaction to my daughter to be completed a year from today and the amount is set at twenty-five percent of the balance existing in my wallet at that specific time. I could then accommodate multiple heirs with set percentages and not have to worry about changing the transaction each time my wallet balance changed.

    In this scenario, I could set up empty wallets for each of my beneficiaries, teach them how to use the technology, make sure the private keys were preserved (e.g. in a safe), and instruct them to get their own wallets and move their distribution out of that interim wallet and into their own, secure wallet upon my death. This prevents the private keys to my account from being compromised, while minimizing the period of time that the interim account is vulnerable (it will not be used except on the moment the contingent LockTime transaction is ultimately made and then transferred out to the beneficiaries' own wallet) while also ensuring that the LockTime transaction can be recovered (private keys kept in safe place known to me and relevant beneficiary). All of this accomplished autonomously, with only me and my beneficiaries playing an active role.

    Another use of a system of this nature would be to safeguard wallets in the event of lost private keys. For example, on my birthday each year, I could create a TimeLock transaction that would transfer my balance (0-100%) to another address on my following birthday, unless I rescinded it at any time before that magical date arrives. In the interim, if I lost my private key, there is a contingency in place that would allow me to recover my balance in the new wallet and all I would need is a little patience.

    Getting back to our estate planning use, an autonomous system of this nature is similar to the legacy estate planning systems pay on death (POD) or transfer on death (TOD) account. There, an account holder designates a beneficiary and informs the institution holding the account of their identity. During the principals life, the beneficiary has no right to the account, but title and right vests immediately with the beneficiary at the moment of the principals death. This allows the account to be distributed to an heir(s) (the designated beneficiary) outside of probate. The drawback, of course, is that the beneficiary has to obtain and present a certified copy of the death certificate to the bank in order to take possession. This can waste time and money.

    A contingent TimeLock % balance transaction is clearly superior as it accomplishes everything a POD/TOD account does, while keeping the gatekeepers (in this case, the institution issuing the death certificate and the institution holding the account) out.

    There are a lot of nuances to any given jurisdictions estate law and a lot of complexities that go into a persons estate plan. This discussion is, by no means, an attempt to cover any of that ground or to provide legal advice to the reader. Rather, the goal here is to kick off a discussion of a basic wallet/protocol function that could be one strategy in an overall estate plan, and, most importantly, one that minimizes the drawbacks of the legacy estate planning system and its trusted third-parties and gatekeepers.

     

    In other words, Im hoping we can answer the question, What happens to your Bitcoin when you die? with, No worries. Its in the blockchain.

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  • 34 Comments
    1,972 views
    Categories: General, Guest Blog, Fiction

    Grandpa, Tell Me 'Bout the Good Ol' Days

    August 14th, 2014 by Tron Black

    Editor: Cheryl

    “Hey Jimmy what do you have there?  Oh goodness, I haven’t seen that shoebox since I was teenager.  Were you in the back of my closet?   Bring it here.  Open it up and let's take a look.  It’s my box of old paper dollar bills.  I thought they might be worth something someday.  Boy!  Was I wrong!”

    "When I was kid, back in 2014, people used to trade this paper for housing, food, gas, and cell phone service. Yes, believe it or not -- paper.  I know, it’s bizarre and still makes me chuckle. And they had these big machines called ATMs back then that were bolted to the sides of buildings we used to call 'banks'. These ATMs would spit out these green paper slips with pictures of dead presidents on them.  And then, for whatever reason, other people would trade these slips of mostly green paper for things they wanted. Surprisingly it worked. Sure, it seems archaic now, but people didn't think so at the time.”


    “What?  Oh, banks? Yeah, they would store and track your money like your Samsung S27 bitcoin wallet does now, only they were entire buildings staffed with real people. In fact that social center down on Main Street where they have that little room with the ice cream machine and the big steel doors -- that was a bank.  If memory serves, Bitcoin existed back then, but I guess it just took some time to adjust to the new way of storing and sending value.“


    “What happened to paper money?  Oh, that’s a long story.  It started a long, long time ago in the early 1970s when President Nixon decided that the paper money was accepted well enough that it didn’t need to be backed by anything, so he just stopped allowing convertibility to gold.  Looking back with 20/20 hindsight, it was a really stupid thing to do, but it worked for a while.  Nobody thought much of it at the time.”


    “What happened next?  Oh, not much at first, but in 2008 the first problems started.  It wasn’t so much because of Nixon’s bone-headed decision, but because those ‘banks’ I was telling you about were allowed to loan out more than they held in deposits.   They created more money by making loans, and they could create as much as they wanted as long as they could find people to borrow.  They started loaning to everybody, and I mean everybody.  ‘No job, no problem, here’s your loan.’  Sure, looking back, it seems insane, but I don’t think people in that era really understood money.”


    “Then, the banks had this brilliant idea to insure against loan defaults and sell the loans as investment grade.  The banks used some clever, but ultimately self-destructive methods to hide the bad loans and pretend they were investment worthy.  Well, as you’ll soon learn in your history class, and what should’ve been obvious at time, those with no jobs couldn’t pay their loans, so they didn’t.  There were so many of these bad loans that the insurance companies couldn’t make good, so the whole system was at-risk.”


    “Well, as you can imagine, this was a pretty scary time for those that benefitted from creating money out of nothing.   What were they to do?  What could they do?  They figured they could make more money out of nothing and use it to try to save the system, so that’s what they did.  They just started creating money like crazy to buy Treasury bonds.  This helped the political class back then because they could spend this new money to create programs and buy votes.  There were dozens of different programs to get the money out into the economy.  It didn’t matter how crazy the idea.  We were even sending money to other countries to buy their cooperation.”


    “It worked for a while.  They just kept pumping more ‘free’ money into the system, and people didn’t seem to care.  If you were poor, you got free stuff. Why complain?  No job? -- free money.  If you were rich, you got even richer since borrowing costs were super low so you could borrow cheap and invest in the stock market.  If you were a CEO, you couldn’t lose because you could just borrow cheap, buy back your own stock and get rich.   But, if you were a saver back then, you got crushed.”


    “Jimmy, would you hand grandpa that drink of water? Thanks.”


    “It wasn’t until 2017, when things turned bad for almost everyone.  There weren’t enough people working to keep the system going.  The defaults started again, and surprisingly they hadn’t learned anything the first time.  They ramped up the printing presses again to buy even more Treasury bonds.  Only now, there was so much interest owed it was like running on an accelerating treadmill.  We could loan ourselves more money out of thin air and be the only buyers with an infinite imaginary bank account, or we could offer more interest to get other interested buyers, but only at our own peril because increasing interest rates on our massive debt was crippling.  We were trapped.”


    “Even the Wall Street guys could see the writing on the wall and started looking for safe havens.  What’s Wall Street you ask?  Ah, funny story, there was this guy from New York named Ben Lawsky.  He started Wall Street’s woes, but that’s a story for another time.  I’ll take you to the Wall Street museum sometime.”


    “Anyway, they were desperate to get dollars into the economy, so dollars were easy to come by.  If you had something that had real value, you could get lots and lots of dollars, but saving dollars was futile.  Savers were again getting crushed.  People wanted anything that couldn’t be conjured out of thin air.   It wasn’t only bitcoin that people wanted, it was also food, gold, real estate, and farm land.  Bitcoin was the easiest to store, and transmit, so it worked best when trading for food and other daily needs.”


    “Once the ball was rolling, it picked up speed.  Some say it made the Weimar Republic look tame by comparison.  Since nobody wanted the green slips of paper, but wanted bitcoin instead, the transition happened very quickly.  Thankfully, your grandma and I did fine because we already had some bitcoin before the rush started.  I kept that shoebox full of dollars, partly as a reminder, and partly because I really thought they might be worth something someday.”


    “Well, off to bed."




    The events depicted in this story are obviously fictitious -- there’s no way paper money can last ‘til 2017.  Any similarity to any person living or dead is merely coincidental - except for Ben Lawsky - he’s real and couldn’t be reached for comment because he’s too busy shooting NY in the foot.

     
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    Bitcoin and Intrinsic Value

    August 6th, 2014 by Tron Black

    Warren Buffett, generally a shrewd investor, surely knows the financial definition of intrinsic value, but inexplicably he does not understand Bitcoin. How do I know he does not understand Bitcoin? Because he called it a "mirage," said it had “no intrinsic value,” called it “a joke,” and compared it to a check. A check? Bitcoin, the network, can be compared to the entire banking system that processes a check, which includes the clearing system, the image scanning system, the ATM network, the credit and debit system of the Automated Clearing House, the SWIFT financial messaging system, and ultimately the institutions that we trust to safely track our balances and return our deposited funds upon request.


    Warren’s uninformed and off-the-cuff remark sparked a conversation about the intrinsic value of Bitcoin. We need to begin by defining "intrinsic value," because it has a different definition for a financial investor than it does for most noninvestors. Investors look at the book value and add the discounted cash flow to arrive at the intrinsic value, which is often different from the market value. Most noninvestors think of intrinsic value as the value of a thing itself. Noninvestors often cite the example of gold, or of a knife that can cut, splice, and dice. Gold can be used for industrial purposes. It is extremely malleable, shiny, and contains other unique physical properties. I posit, however, that gold’s real value lies in its scarcity and in its worldwide acceptance as a store of value. Knives, on the other hand, are great tools of utility value.


    Mr. Buffet’s ability to calculate the difference between intrinsic (or fundamental) value and market value gives him a real investing edge. I respect his investing acumen and I mean no disrespect for him when I declare he is wrong about Bitcoin.


    Perhaps if Warren thought about Bitcoin differently, he might come to a better conclusion. He regularly purchases stocks, so he understands that market. A stock, based upon the investor's definition of intrinsic value, represents partial ownership in an ongoing business that holds assets (book value) and makes money, which can be included in its value when discounted for time. Once Mr. Buffet learns a bit more about Bitcoin, I hope he will realize that upper-case Bitcoin, the network, holds tremendous value because it can be compared to a banking system, or a worldwide collection of banks and all of their systems. While lower-case bitcoin, the currency, can be compared to an index fund or an exchange-traded fund, which would indlude all the bitcoin companies in the Bitcoin ecosystem.


    Value is subjective and contextual. It is subjective because it depends on the feelings and opinions of the person doing the valuing. It is contextual because it depends on the circumstances and setting of that person.


    Let’s explore this with a simple example. Imagine you are stranded alone on a desert island with no internet connection. You are hungry, thirsty, and you cannot get off the island. Three things wash ashore -- a laminated-paper bitcoin wallet that gives the private key for an address that holds 100 BTC, a shoebox full of freshly printed US $100 bills, and a crate containing a knife, some flint, nine hens, a rooster, and several large sealed bottles of crystal-clear purified water. Which has the most value -- to you?  


    Now change the context, and imagine you just polished off a meal at a five-star restaurant and you ate too much dessert. You’re faced with the choice between the same items, but now you might want to count the $100 bills and check the public bitcoin address to decide whether you would rather take the bitcoin or the shoebox full of cash.  


    OK, one last example. This time you have eaten a nice meal while reading about China and Russia striking a deal to use their native domestic currencies to settle trade and purchase energy in the form of gas, oil, and coal. You are faced with the same choice of food, bitcoin, or dollars. But now you’re rattled. You think, “What if the dollar is losing its status as the global-reserve currency? What if dollars come flooding back to the United States as other countries choose not to hold them? What if government numbers for inflation are being blatantly manipulated?” You give it more thought, and you reason that you could take the dollars and buy stock in global companies in order to protect yourself. Then it hits you: “This is why the stock market is doing so well. It is not in recovery at all. People are shifting to stock assets in the face of a manipulated and devalued currency.” Your choice now comes down to buying global stocks, or taking the bitcoin. You look at the history of Bitcoin over the last few years, compare it to the S&P 500, and you make your choice without even needing to count the dollars in the shoebox.
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    Intro to Decentralized DNS

    August 4th, 2014 by mike ward

    The Domain Name System (DNS) is the Internet's version of a phone book, allowing computers to lookup an IP address like 66.175.222.204 from a given domain name like letstalkbitcoin.com. Today's Domain Name System is sagging under the heavy weight of political and technical problems. It has held fast for years, but worsening technical issues and growing concern over governance seem implacable in a system designed with centralized control.

    In this series of articles we intend to examine the key issues more closely, and look at specific initiatives in the crypto-currency space designed to alleviate the pain points or create new opportunities. We will be outlining some of the next generation DNS alternatives being built, and talk with some of the visionaries making it happen.

    But first, it is important to identify what the most serious problems really are. Which ones are intrinsic problems that any distributed naming system will exhibit? Which ones are shortcomings of centralized systems, such as we currently have?


    Freedom of Speech

    In most parts of the world speaking out against government censorship, corruption, or government policies is a risky proposition. By speaking out, we refer to publicly voicing dissenting opinions, published on a website for the whole world to read.

    In a world where thought leaders can keep a low physical profile, electronic censorship has become the de facto weapon of choice in the suppression of ideas and ideology. Mass access to these voices, and the censorship thereof both rely on using domain names.

    Today domain names are routinely seized for various reasons. Sometimes people are indifferent, or even supportive of this - in the case of child pornography websites for example. Sites filled with hate speech, promoting violence against ethnic, religious, racial, or other minorities are routinely taken down via domain seizures. Registrars are only too happy to comply with governments to minimize citizens' exposure to the ugliness that is hatred and bigotry.

    But this is a slippery slope. It is not clear that the system benefits us all when the censorship occurs because content is alleged to be in violation of copyright law or politically threatening. Is seizure of domain names justified when sites are being used to spread malware? Is revolutionary speech too destabilizing, and when can it safely be tolerated? The answer of course, is highly subjective.


    Privacy

    Over the years, the Internet Corporation for Assigned Names and Numbers (ICANN) has developed processes for making decisions which are highly inclusive of a range of stakeholders. Unfortunately the loudest voices get a disproportionate share of influence, and this has contributed to an erosion of privacy for domain registrants.

    Information about who is the registrant of record for a given domain name are currently accessible via a mechanism called WHOIS. ICANN requires this information, and the penalty for non-compliance or falsifying the info can be domain seizure. This is very convenient for corporate holders of intellectual property rights, in order to identify and go after those who are perceived to be infringing on those rights.

    There is a strong case to be made against requiring such disclosure from registrants. However, ICANN's Expert Working Group on WHOIS and Privacy recently published their report recommending the expansion of WHOIS in a way which further weakens privacy for individual registrants by requiring and exposing street address and phone number data.


    Internet Security

    Identity is at the heart of many online security challenges. "Who is that, and should I trust them?" is the most basic concern in many interchanges on today's Internet. Indeed, identity and reputation management are considered by some to be the holy grail of social interactions on the Internet.

    As users interact with websites which offer services and information, each side tries to determine the likelihood that the other is sufficiently identified, and that the interaction will be conducted safely. A potpourri of technologies is employed to accomplish this today, which is another way to say that we struggle mightily.

    Trust on the web today is primarily established using digital server certificates. The entity at the other end, with whom users interact, establishes a basis for trust by providing one of these. It will be signed by an even more trustworthy certificate authority. In case it is not yet evident, this system if fraught with peril and requires a lot of trust. The current system has proven over time to be untrustworthy.

    Another area of concern is the control structures. Registry operators are the authorities for top level domains like .COM. Root servers are those lynchpins which contain the authoritative DNS data for resolving domain names. They are both prime targets for attack, as well as central points of failure. There are other central targets in the system as well, including ICANN itself, which guards a private key used to sign certificates for these root servers.


    Domain Thefts

    Aside from the domain seizures that routinely occur, the risk of theft is always present in the current domain name system. The classic scenario is the compromising of a victim's registrar account along with an email account. The specifics could involve keystroke loggers, social engineering to access registrar accounts, registrar employee collusion, or plain old inadequate password management on the part of registrants or registrars.

    However it happens, when registrar accounts are compromised, the domain names are typically transferred to countries with less mature judicial systems, or less cooperative political leadership leaving the victims with little or no recourse.

    Assets secured on a blockchain work differently. Transferring control of assets involves presenting private keys. That is all. No password management, hacking servers, etc. The security of such an asset is completely up to the person controlling the private key.


    More Problems?

    There are other shortcomings to the current domain name system. But we have outlined enough here to give our readers a sense of where we expect to see blockchain-based solutions making inroads.

    Big changes are coming to the domain name system as we know it today. Our current system has been in place since the 1980's, and is ripe for change. In fact people have been working on blockchain based remedies and replacements for this thirty year old system that we have come to depend on.

    What will our global namespaces look like a few years from now? How similar will these systems be to our current one? Stay tuned as we bring you the ideas of some key visionaries who seek to rework this aging system.

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    Solution to Sybil attacks and 51% attacks in Decentralized Networks

    August 3rd, 2014 by Alchemi
    Original (dhimmels):

    In the early days Internet started as a symmetric peer to peer decentralized network of computers. As time passed by, the Internet became more asymmetric and concentrated in a few centralized data centers with billions of PCs and laptops on the edges. The reason Internet started as peer-to-peer decentralized networks are scalability, high fault tolerance and resilience to censorship. However security is a major drawback in these types of networks as it is almost a certainty that malicious nodes will be joining the network from time to time. These malicious nodes can flood the network with invalid packets, thus preventing the packets from being delivered causing a simple flood attack.

    Another common attack is Man in the Middle (MitM) attack in which an attacker places himself between two peer nodes in the network. Such an attack can remain undetected, as long as the attacker remains passive. This also enables the attacker to listen to the communications between the two nodes. As a result, the attacker can assume the identity of both the peer nodes, compromise one or both nodes and try to infiltrate the network. 

    What are Sybil Attacks and Sockpuppets?

    Sybil attack is another security vulnerability specific to peer to peer decentralized networks as it is open and anonymous in nature. The attack is named after the subject of the book Sybil which deals with the case study of a woman diagnosed with Dissociative Identity Disorder. The main component of the Sybil attack comprise of creating a large number of pseudonymous identities. Once the identities are accepted as peers they try to gain control of the network and subvert the whole network from within. The network’s resilience depends on the main criteria which is how easy it is to create an identity and be accepted as a peer. As there is no 100 percent fail-proof firewall against these types of attacks, the best defense against sybil attacks is to make it as impractical as possible.

    Sockpuppet is a term that implies many online identities for the sole objective of deception in the online communities.

    A sockpuppet is an online identity used for purposes of deception. The term, a reference to the manipulation of a simple hand puppet made from a sock, originally referred to a false identity assumed by a member of an Internet community who spoke to, or about, themselves while pretending to be another person. A significant difference between the use of a pseudonym and the creation of a sockpuppet is that the sockpuppet poses as an independent third-party unaffiliated with the puppeteer.

    What is 51% attack?

    A “51% attack” means a bad guy getting as much computing power as the entire rest of the Bitcoin network combined, plus a little bit more.

    In his white paper Satoshi proposed the Proof of Work. The main purpose of this algorithm is to minimize 51% attacks. However proof of work does not completely eliminate 51% attack. If a bad guy tries to launch an attack, the algorithm makes it harder as it requires a lot of resources to take down the hashing power of 51 percent of the nodes that constitutes the Bitcoin network. I would therefore like to discuss the possibilities of mitigating these risks by proof of reputation.

    Why centralized proof of work increases the risk of 51% attack?

    Let us imagine a case scenario where the proof of work is centralized in a few data centers. As a result whoever controls the data centers can intentionally manipulate the proof of work algorithm of the decentralized network to his own ends. It is also feasible for the hackers to have a total control of the network. It will play out exactly the same way the centralized Bitcoin exchanges are getting hacked nowadays. Thus we can conclude that if we centralize the proof of work it only magnifies the risk of the attack rather than mitigating it.

    Why delegated Proof of Stake is equivalent to centralized Proof of Work?

    Delegated proof of stake magnifies the risk of 51% attack same as centralized proof of work. It is relatively easy to corrupt, say 100 delegates than to corrupt the 51 percent of the stake holders.

    A bank is an example of a hybrid of delegated Proof of Stake and fractional reserve system. When a user deposits 100 pieces of silver coins into a bank, the user delegates his stake of silver to the bank. Then the bank releases a token of 10000 notes based on the user’s 100 pieces of silver coins.

    The issue with banks is that it involves trusting the third parties as it is based on delegated Proof of Stake. If the trust is violated it magnifies the risk out of proportion because of fractional reserve system. Thus Delegated Proof of Stake cannot be classified as a decentralized system because one has to trust a third party to delegate his stake. In the long run more users tend to delegate their stakes because of brand loyalty, user friendliness etc. This leads to more centralization, violation of the trust, dilution and corruption of the whole stake. 

    Proof of Reputation

    The motive behind proof of work is based on the control of processing power while proof of stake is based on the percentage of wealth. It is very easy to corrupt both. On the other hand the motive behind proof of reputation is based on ethics and morality which is very resilient to corruption.

    Let us examine the Proof of Reputation in depth and its implications. Assuming there are 10 anonymous generals who don’t trust each other but are willing to undertake an invasion by providing 1000 soldiers each. In return they are willing to settle with one tenth of the spoils. It is highly probable for a general to either have 2 to 3 sockpuppets, to conspire with another 5 generals or the combination of the two.

    Let us now bring in the proof of reputation in the equation. Say for example each general has a score for Proof of Reputation which is based on how many of the 1000 soldiers like them. It is very difficult to gain good reputation for all the 3 sock puppets even if they tend to have similar reputation as it negates the purpose of the sock puppets. If a general tries to conspire with another 5 generals, it will be very difficult to conspire with all the 5 generals with good reputation. This is because each one will have to risk his reputation.

    In a decentralized peer to peer network it is next to impossible to corrupt 51% Proof of Work, 51% Proof of Stake and 51% Proof of Reputation of the whole network. 

    Implementation of Proof of Reputation

    Proof of Reputation can be implemented as an assurance contract which is explained as follows:

    In a binding way, members of a group pledge to contribute to action A if a total contribution level is reached. If the threshold level is met, the action is taken, and the public good is provided; otherwise, the parties are not bound to carry through the action and any monetary contributions are refunded.

    The problem with assurance contract is that it enables free riders. Free riders are those who do not contribute to the public good but reap the benefits of the public good at the cost of other contributers. In order to eliminate the problem of free riders, Alex Tabarrok proposed Dominant Assurance Contract by publishing a white paper. Dominant Assurance Contract not only defines the monetary incentive, expiry date as in Assurance contract but also adds another parameter known as minimum number of contributers required for the contract to come into effect.

    Therefore Proof of Reputation has to be implemented as a dominant assurance contract to discourage free riders. One method of implementation is based on semi-trusted oracles. Gavin Andresen explains the implementation as follows.

    So I’ll start there, and imagine that there are semi-trusted ‘oracles’ that compete to be the most reliable and trustworthy verifiers of contracts. People involved in contracts choose N of them, and then require that contract conditions be validated by one or more of them before the contract pays out. Pick more than one so no single oracle can steal the contract’s funds, but less than N in case some of them go out of business or just aren’t around to validate contracts when it is time for the contract to pay out.

    These oracles need an agreed-upon, machine-readable contract language, but that shouldn’t be hard. There are lots of interesting design decisions on what information contract scripts have access to (and lots of not-so-interesting-to-me design decisions on the language itself; is it stack-based, register-based, high-level, low-level bytecode, etc etc etc).

    Another method of implementation is by awarding tokens to miners based on honesty and integrity. Tokens are basically an implementation of the assurance contract to make sure that the motives of the miners and end users are aligned for the common good. For example, if the mining pool operators will tweak their mining rigs between 10-20 percent for a period of time then the operators will have an incentive to be honest and earn reputation as tokens in addition to mining incentives. If a miner is using a mining pool, he can pledge may be 5% of his total Bitcoin mining towards the dominant assurance contract so that the mining pool will receive a reputation token which can be pegged to the market value of Bitcoin.

    Tokens can also be crowd funded as a pledge by the stake holders in the decentralized network to ensure the miners and pool operators have an incentive to be honest, hence earn reputation. The tokens can be earned or burned depending on the nature of the coin which is either inflationary or deflationary. If it has to be burnt it can be released as a token and claimed by charities.

    The tokens can be issued either as 1 to n, n to n or n to 1, depending on individual requirements based on Counterparty protocol, Colored coin protocol for Bitcoins or Dogeparty protocol for Dogecoins.

    Another method of implementation is using the Lighthouse platform. Lighthouse has a lightweight encrypted HD wallet. It uses payment verification by directly synchronizing with the block chain. It also enables dominant assurance contracts for people to pledge for the projects directly using Bitcoins. If they want their money back before the contract reaches its target amount, they can revoke the pledges they have already made. As the contract is entirely based on the block chain, pledges cannot be claimed individually. They can only be claimed when the combined pledges together reaches the targeted amount.

    LTBcoin

    In LTB network, Proof of Reputation is being implemented to defend against sockpuppets which is based on token controlled access. Each piece of content is mapped to certain tokens and quantities. If the quantity is zero, the content is accessible to users. If the quantity required is more than zero, the content is then blocked.

    Token-Controlled Access (TCA) is a simple idea. In a given system, different levels of access to that system are granted according to the combination of tokens in a particular user’s wallet. 
    Token Controlled Viewpoint (TCV) is an application of TCA to information content (forums, posts, comments, bonus content, bloopers, walkthroughs, tips, tweets, supplemental blogs, RSS feeds or other data) on basic web pages. 

    Disclosure

    This article is meant for informational purposes and is not an endorsement. Articles published on the LTB network are the author’s personal opinion and do not necessarily represent the opinions of the LTB network.

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    Categories: General

    Hashing, Football, and Bitcoin

    August 2nd, 2014 by Adam Terwilliger

    Original text below (dhimmels):

    Say you are presented with a list of names of every player that plays in the National Football League (NFL) with the names of their teams hidden. I then ask you to name anyone that plays for the Indianapolis Colts professional football team based solely upon the names on this list. You can guess as many times as you want until you are successful. However, the catch is you are one of many people playing the game and only the first person to guess correctly wins a prize.

    Of course this would be easy if you had some familiarity with the NFL or you if you had your smartphone nearby. However, assuming you knew nothing about football and you didnt have any access to information otherwise, you may have to run through quite the amount of possibilities hoping for success. In the NFL, there are 32 teams with 53 players on the active roster for each team, or 1696 possible players that could play for the Colts. So, this would be very time consuming, but still doable eventually.

    What exactly is a Hash?

    What I have just described for you is a very basic idea of a hashing function. A hashing function takes a bunch of items and converts them into a precious few. The term hash comes from an analogy of chopping and mixing. For instance, if you have ever had a breakfast hash, then you know there are elements like onions, peppers, potatoes, and corned beef that get combined in a customized way to make delicious dish. In the example of the NFL, the ingredients being hashed are all of the athletes, and the delicious dishes are all of the teams that make up the league.

    Hashing functions are as arbitrary as the aforementioned NFL example. All that is required is that many elements are split into a fewer amount of outputs, or containers. So, anytime your mom asked you to sort your room when you were younger, technically she was asking you to create your very own hashing function to sort your junk. Our convention as a society of using a calendar to describe cycles of time is actually a very clever hashing function as well. All of us are hashed into 365 containers (366 if you are a leap year baby) based on the day we are born. Ever heard of a "hashtag" on twitter? Many comments about a topic sorted into a few categories that describe it.

    Mathematical hashing formulas are just as arbitrary. Say I have an input space of {0,1,2,3,4,5,6,7,8,9} and my hashing function is just to add each number by ten and round up or down to the nearest ten depending on the number. The set of outputs would then be {10,10,10,10,10,20,20,20,20,20}, or by eliminating repeats, {10,20}. All that is required to hash in general is to arbitrarily convert many elements to a few categories. An added security convenience of such a function is how hard it is to guess the original input based solely on the output.

    Why is Hashing Important?

    Hashing functions have a wide range of uses. Typically, they increase efficiencies in quickly locating an item. For instance, knowing in which drawer I store my socks helps me get dressed considerably faster in the morning than if my socks are on the floor mixed in with all my other clothes. However, if I am looking for a specific pair of socks, it still may take some time to sort through the drawer. But, at least its still considerably less time than if all my clothes are mixed together randomly on the floor.

    For something like Bitcoin, we would never want have a hashing function like a sock drawer or an NFL team. Or, even worse, a sock drawer of an NFL team! This is because the many-to-few sorting that takes place within Bitcoin are the many private keys to the few public addresses that contain funds. If there were only 1696 private keys and 32 public addresses with Bitcoin as in the NFL example, then there would be some MAJOR issues.

    First and foremost, imagine how mad you would be if you were the 33rd person in line at a bank where only 32 accounts could be created! So, any system looking to have many people using it should at least have enough space for each person to create at least one account. Furthermore, say we alter the rules of the Guess the NFL team game to be instead a scenario where naming any member of the Denver Broncos unlocks a vault representing the entire net worth of the team. Suddenly, your incentive to spend time making as many guesses out of all of the 1696 possibilities as fast as possible grows quite considerably. So, the sample space of private keys should be considerably larger than 1696. It should also not be as low as 32, because guessing any of the keys randomly would open up any of the vaults.

    So How Does Bitcoin Use Hashing?

    One of many clever ways the bitcoin protocol makes use of hashing algorithms is in the process of generating bitcoin addresses. Every bitcoin address has a private key and a corresponding public key. You can think of the public key as a storage locker and the private key as what enables someone to spend funds that are located in their locker. The choice of the protocol is to generate the storage locker from the private key, but how?

    A private key is a 256 digit random number made up of a series of 0s or 1s. When you generate a new bitcoin address, you are taking one of the possible private keys and running it through a series of hashing algorithms to produce an output that makes it very difficult to guess its input. In fact, as we are about to see, it is so difficult that it is virtually impossible.

    Before any hashing takes place, first the private key is put through something known as elliptic curve multiplication to generate a private/public key combination that are linked to one another. This result is then put through a gauntlet of several complicated hashing algorithms with really cool and intimidating names like SHA256 and RIPE-MD160. The result at the very end is one of possible public addresses. When you see a bitcoin address such as my tipping address below, it is just essentially a vanity plate that represents one of these possible bitcoin storage locker possibilities.

    While it is true that hashing takes many items to just a few, the few in this example is actually quite large. Checking with my good friends over at Wolfram Alpha, the few is actually the number listed below.

    I dont think we have any more problems with 33 people in line trying to get an account!

    Each of these containers are all that will ever exist to store a total sum of 21,000,000 possible bitcoins ever to be in existence. Every time you spend a bitcoin, you just move a coin (or part of a coin) from one container to the next.

    So, What's the Big Deal?

    Now, you might be thinking, "Hey...there are more private keys available than public containers&couldnt someone rob from my container!!!" And the answer is yes, it is of course possible. In the same way that it is possible to find out you won the lottery while vactationing on Mars. Any hashing function where the set of inputs is larger than the field of outputs will produce, by nature, collisions by the pigeonhole principle. Sometimes math doesnt have to be scary. Its just obvious. If you have more pigeons than containers, one container has to have more than one pigeon!

    Even with this possibility being out there, somewhat simple algebra can explain just how unlikely it would be for someone to find another key that works for your locker.

    If you take the number of private keys divided by the number of public containers, you get: , or private keys that correspond to the same bitcoin address.

    Sure, you could brute force your way through these. Although, by comparison, it has been estimated that there are grains of sand on the entire earth. Trying to find another key at random that opens up someone elses locker is like searching through every grain of sand on the planet.

    Sounds like way too much effort for me. Id much rather be spending my free time eating some great corned beef hash and watching my Indianapolis Colts play some football!

    -Adam Terwilliger

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    SecretBitcoinProject.com goes Stellar! But... why?

    August 1st, 2014 by Mike Roncone
    No I’m not referring to the Incubus song, although I like where your head is. 

    Rather, Jed McCaleb’s new project (formerly secretbitcoinproject.com) has finally come to fruition. Today users who signed up to be alpha testers received an email which introduced the new project: “Stellar”.

    Before we begin, I would like to caution you that this article is not intended to give a full technical breakdown of any of the protocols described within. Any information presented is intended to convey a very basic level of understanding. Many aspects of the programs have been left out. There is also quite a bit of conjecture on my part. Though I have tried to be relatively unbiased and present the facts where there are facts and my interpretation of events where interpretation is needed, you may see things differently. I encourage you to post those differences in the comments so that we can talk about them further! I have a financial stake in both the Ripple network and the Stellar network. 

    For anyone who is familiar with Ripple, Stellar will sound quite familiar to you. This is because Stellar is essentially a carbon copy of the Ripple project of which Jed was a founding member. Ripple was Jed’s biggest pet project after selling Mt. Gox. Though it has received seemingly infinite amounts of scrutiny, it has also arguably seen quite a bit of success in its resiliency.

    The question is: Why would Jed ditch Ripple and create basically an exact copy of it?  For that, we have to speculate a bit.

    Before we go there however, the following is a quick-and-dirty rundown of what Ripple is and what it provides for those who are not already aware. I will not get very technical here; for that you can go to their website.

    Ripple was created to provide a network that could seamlessly convert any one currency to any other in the middle of a transaction. Let’s say that we only hold U.S. dollars because that is the only currency we trust. We see that Alice is selling key chains online and they are really cool, so we decide that we are going to buy one. There’s one problem though… She only accepts Euros.

    Since we only have dollars,  this would normally necessitate the conversion of USD to EUR and then somehow conveying that to Alice in Europe. All of this can be quite costly and time consuming. In many cases the international wire fees would cost more than the trinket to begin with. Usually, we would just forget about the key chain and move on.

    This is where Ripple came in. Ripple created a cryptographically based network where users could hold any currency they wanted, and send any amount of that currency to another user. The transaction would be confirmed in seconds, and in those seconds between remittance/receipt, the initial currency would be converted automatically to whichever currency the receiver preferred. Ripple does this by providing a third “currency” known as ripples (XRP). Ripple the token is used as the third party to any currency exchange on the network. Thus, USD would be converted to XRP at the best possible rate and then converted to EUR at the best possible rate. This exchange can actually be done through any number of currency combinations, resulting in the best possible exchange rate on the market every single time. The best rate is determined through a built-in process known as “pathfinding”.

    This is essentially what Stellar is as well. So why the fork? Again, much of this is speculation, but I will attempt to come up with an explanation here.

    It is well known to the Ripple community that Jed had a falling out with the company that currently runs the core development of the Ripple Protocol – Ripple Labs. The first thing to understand is that Ripple Labs is a for-profit entity. All ripples were pre-mined just like stellars were on Stellar. These ripples were allocated to founders, early stage investors, and Ripple Labs. Like Stellar, the majority of the internal tokens were set aside by the core development entity for free giveaways. These giveaways would be used to promote the adoption and subsequent health of the network. In Ripple’s case however, these giveaways and the exact nature of ripple distribution have been a bit foggy since the very beginning. This has brought enormous amounts of scrutiny from bitcoin enthusiasts and is still one of the main arguments against the platform itself.

    It appears as though the decision to basically fork Ripple stems from a philosophical issue. Ripple Labs seems to have changed directions from Jed’s initial vision of Ripple. According to Jed, the initial vision was to provide a way for regular people like us to send payments in any currency, anywhere in the world, at little-to-no cost.

    It appears as though Ripple Labs has decided to pursue other outlets for their platform by way of acting as a sort of back-end clearing house for financial institutions. This change in the tide appears to have been at the cost of basically ignoring the common user.

    Because of this difference in vision, Jed stepped down from all of his responsibilities at Ripple Labs. He then announced to the community that he would begin selling what was left of his enormous founder's allocation of XRP on the open market. As one can imagine, this caused a crash in the value of XRP, since his one founder allocation would be enough to wipe out the entire order book of offers across all currencies on the network. Afterwards he would have still had an obscene amount of XRP left. In case you were wondering, he never dumped the entire amount all at once.

    In comes Stellar. Mechanically it appears to be almost, if not the exact, same platform as Ripple. However, I can spot two key philosophical and one key mechanical difference right off the bat, and there may be more.

    The first mechanical difference that I see is the total amount of Stellar that will ever exist. Instead of being a fixed amount like bitcoin or ripple, 100 billion stellar was created in the genesis block and more will be generated at a fixed rate of 1% per year. This introduces some degree of inflation which can arguably be good or bad depending on your perspective. The two main arguments in favor of the mechanism, according to the foundation, are to account for both lost stellars as well as economic growth. This 1% is allocated weekly to the top fifty accounts voted to receive such a distribution by the community. The foundation’s hope for these inflationary funds is that “holders will use the inflation-generated stellars to enable novel business models or to fund causes they support".

    In the first philosophical case, the Stellar Development Foundation is a 100% not-for-profit entity. Its only goals are to provide support/development for the Stellar network as well as “expand financial access and literacy worldwide”. All of this can be found in their mandate. It will not take any profits and only allocated 5% of the genesis stellar toward financing future operations. For the rest of the genesis stellar the breakdown is as follows: 50% dispursed to the “direct signup educational program”, which involves giving users who create new wallets some stellar. Then 25%, the  “increased access program”,  will be given away to nonprofits that aim to support the underserved/under-banked populations across the globe. Finally, 20% of the genesis stellar will be given away in the “bitcoin program”,  which aims to give back to both the users of Bitcoin and Ripple. Without these two protocols, Stellar would likely not exist. It could also be argued that Ripple is included due to the crash that followed Jed’s intent to sell announcement. This ended up costing many users quite a bit of money.

    The second philosophical case is a big one. I mentioned previously that Ripple Labs appears to have switched gears from being user-focused to business/institution-focused. From all angles that I can see, Stellar looks to be targeted towards the regular person. Stellar wants to be what Jed wanted Ripple to be originally; a wallet for the everyday person to side-step the big, bad legacy financial system and support payments from person-to-person across the globe at little-to-no cost. One can see the individual focus all over their website, and especially throughout their mandate. Stellar is very focused on financial literacy and accessibility which absolutely starts at the individual level.

    There you have it. In my opinion, this is what caused Jed to essentially fork Ripple and pursue his original vision for the technology. In the interest of full disclosure, I have had a significant stake in Ripple for quite some time now. I also plan on pursuing a significant stake in Stellar.

    In any case, it will be interesting to see how both networks play out in the long run. Due to the difference in objectives, it may be that Ripple and Stellar can coexist and both be wildly successful. Only time will tell.

    If you are interested in seeing what Stellar is all about, I encourage you to sign up at http://www.stellar.org. For creating an account and linking your Facebook profile to it, you are credited with 5,000 stellar. If you confirm your email address, you receive another 1,000 stellar. Finally, for testing the network and sending 1,000 stellar to someone else you are credited with another 1,000 stellar.

    As an added bonus, if you send your 1,000 stellar to me, I will return 500 of it back to you as a win-win for the both of us. You get 1,500 stellar instead of 1,000 and I get some extra stellar as a tip. Full disclosure: there are better offers on the Stellar forums, but if you enjoyed my article and are feeling generous I would love to work with you!

    My Stellar username is: mjroncone and if that doesn’t work the address is: gPcDRFkyksJh5o53Lr8dbEfH7KSYfaPvMv

    If you are reading this article and are not a member of LetsTalkBitcoin.com, I encourage you to go here and sign up! (Caution: referral links) That way you can send me a private message or ping me in a thread by using @Mike if you have any questions or if I have failed to return your 500 stellar. 

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    Categories: General, Columns

    A History of Zombie Events

    August 1st, 2014 by John W. Ratcliff

    About a month ago I posted an article on 'Let's Talk Bitcoin' entitled 'Rise of the Zombie Bitcoins'.  In this previous article I presented a great deal of data and analysis about the state of the bitcoin blockchain in relation to long unused addresses.  In that article I argued that the bulk of the bitcoins mined for the first two years have never been moved and, most likely, never will be.  I also argued that bitcoins which have sat in addresses for an extremely long time with absolutely no spend activity are arguably lost forever.  In total these 'zombie' bitcoins represent roughly 25% of the number of bitcoins which have ever been produced.  This is such a huge quantity that knowing whether or not they should be considered part of the active economy is an important mystery to investigate.   And investigate is what I have been doing. I have discovered in the data presented in this article strong evidence that this view may be wrong. It turns out that someone who mined the earliest bitcoin blocks has been spending them at semi-regular intervals in relatively recent history.


    Today I will not be presenting a great deal of analysis.  There are only two simple graphs and no burndown charts.  Instead I am going to be providing absolute raw data that you, the reader, can use to become a blockchain researcher yourself.  You can use this data to produce your own findings, graphs, and conclusions.  I encourage readers to download this dataset and explore interesting ways to chart it and then leave links to those results in the comments section of this blog post.


    This dataset can be extremely fascinating to dig through because, while most of those old 50 bitcoin mining reward blocks have never been spent, there are still some being shaken loose today.  It might be pretty interesting to track down when and where this happens and follow where they lead to.


    For example, here is the address of a bitcoin public key which contained nothing but a miners reward block of 50 bitcoins created on July 13, 2010.   Then, on May 1, 2014, BOOM, the owner came along almost 4 years later and transferred these coins to two other addresses; one receiving 45 bitcoins which remains untouched, and another that has a lot of transaction history.  So, while it is true that the vast majority of those ancient 50 bitcoin miners reward blocks have been untouched, occasionally they do, in fact, rise from the dead.  This dataset provides you with a window directly into every single time this has ever occurred.  So let the chase begin!


    I would like to explain what this dataset represents and how it was created.  I wrote a piece of software which analyzes the entire bitcoin blockchain at one day intervals since its inception.  For each day I gather all of the bitcoin public key addresses which are in active use and look for any which have had spend transactions performed that day relative to keys which were untouched for over two years.  This dataset is current as of today, July 26, 2014.  


    I start with the assumption that these 'zombie events' are infrequent and becoming more rare all of the time.  I believe the data set attached shows this to be true.


    For each zombie event I provide the following detailed information as a single line in a comma-separated-value file which can be imported into any standard spreadsheet program.

    Here is a link to a spreadsheet which shows a list of the top 148 days since April 2013 that have had significant amounts of very old bitcoins transferred. You can cross reference any of these days against the full datset to drill down into every single individual public key address and transaction that was involved. You will note that most of these 'zombie events' refer to bitcoins which were last moved in 2011 and 2012. It is much more rare to see bitcions which were mined during the first year of the blockchain being moved.


    Date: This is the date at which the zombie event occurred.

    LastDate: This is the last date that his address was used prior to this event.


    PublicKey: This is the bitcoin public key address associated with this event.  You can copy/paste this key into the blockchain.info website to get the entire transaction history to match.


    Type: The type field classifies whether this public key is associated with a 50 bitcoin miners reward, a 25 bitcoin miners reward, or is simply a normal bitcoin address not previously associated with a miners output.


    BalanceBefore : This is the balance held at this key before the zombie event occurred.


    BalanceAfter : This is the balance held at this key after the zombie event occurred.


    ValueChange: This is the amount of bitcoin value which was transacted during this zombie event; not necessarily all bitcoins may have been spent.


    Age: This is how old this key was in days since its last send transaction prior to this event.  Minimum age is two years for this dataset.


    ZombieScore : This is a computed value equal to the number of bitcoins previously associated with this address times the number of days since it was last used squared.


    In the provided data set immediately following each day that new zombie events have occurred (and zombie events do not happen every single day), a subtotal is included.  The subtotals per day include the following.


    TotalZombieCount : The total number of zombie events which occurred on this day.


    TotalZombieValue : The total value in bitcoin addresses associated with the zombie events for this date.


    TotalZombieValueChange :  The total value change which occurred, which is not necessarily the same as TotalZombieValue since not all of the bitcoins associated with each key may have been spent.


    TotalZombieScore : The total zombie score for all events on this day.



    Now let's take a look at some of the most significant zombie events in history.  There have been around 24,000 'zombie events' throughout the lifetime of the bitcoin blockchain.  Considering the fact that there have been millions and millions of transactions, this points out just how rare an event it is when bitcoins older than two years get moved to a new address.


    Take a look at these four public keys.  These are public keys associated with block miner rewards of 50btc each that were mined over a couple of days starting January 30, 2009.  This is quite literally just a few weeks after bitcoin was started, and highly likely belonging to either Satoshi or one of his close friends.  These were all spent on the same day over five years later on February 7, 2014.  Maybe Satoshi (or Hal Finney) had some bills to pay?  Realize that this first address is a coinbase-reward from block #2400!


    The oldest ever was this address which mined a block on January 30, 2009 (just a few weeks after bitcoin was started) but was spent on February 6, 2014.  Was this Satoshi?


    Here are the four addresses:


    15coobWGLz5rTPPLwMqDrC848g5rSqgXX1

    1CgrbzKje66Pcz1egaAnhr7qEGfdk9atS2

    1KiCeqdXxzTYeq1dDUi6B1265cqFwsihzm

    14pDPbeBCCn4CoNKc7YZJnJSWnqfoxf1XF


    Then we find that on November 15th and November 18th of 2013 someone (Satoshi??) cashed in 1,850 bitcoins over those two days from public keys that date back to January 29, 2009!  On November 18th, 2013, bitcoins were at their near all time high of over $1,100 each.  So on those two days someone who mined blocks on January 29, 2009 of the history of the blockchain cashed out over a million dollars worth of the earliest bitcoins!  


    On October 9, 2013, probably the same person, cashed out 200 bitcoins from the earliest blocks.  Here is one of the public keys of the four he cashed in.  Again, this person is cashing in bitcoins mined right around January 30, 2009.  Probably the same person.


    I must admit that I was surprised to find these transactions.  Apparently someone who mined bitcoin in the earliest days has, in fact, been cashing out some of them in relatively small batches (if you can call a million dollars worth of bitcoin 'small').  This person is either Satoshi himself or, more likely, one of the first handful of people who downloaded and were running the bitcoin client which could mine bitcoins easily on a CPU back then.  This demonstrates that at least one person who mined bitcoins in the earliest days actively controls the keys and is making withdrawals over time but probably not anywhere near their entire stash.  This is indeed very interesting data to inspect!

    Here is a spreadsheet which highlights the several phases that bitcoins which were mined during just the first few weeks of the blockchain were moved over the course of the last year.



    So who are the people likely to have been mining bitcoins in the first few weeks? Likely they were individuals participating on the cyberphunk mailing list and responding to Satoshi's announcement of the availability of the software. Some likely candidates include:

    Satoshi Nakamoto
    Hal Finney
    Ray Dilinger
    Dustin D. Trammell


    The bitcoin zombie event with the highest zombie score in history is this transaction on March 10, 2014 of over 111,114 bitcoins when this public key got emptied.  Considering the timing, this could have been related to the MtGox fiasco.  It could also belong to the Winklevoss twins or could have had something to do with Silk Road; I’m really not sure but maybe someone knows and can post it in the comments section.


    On March 7, 2014, the following four public keys, three containing 40,000 bitcoins and one containing 30,000 bitcoins, for a total of 150,000, were all transferred out of addresses which had not been touched in 842 days from November 16, 2011.  Considering the timing the movement of these coins was probably associated with MtGox's claim that they 'found' a bunch of old bitcoins they had lost.


    Here are those four addresses:


    16Ls6azc76ixc9Ny7AB5ZPPq6oiEL9XwXy

    12HddUDLhRP2F8JjpKYeKaDxxt5wUvx5nq

    1cXNTyXj4xPGopfYZNY5xfSM1EPJJvBZV

    1MyGwFAJjVtB5rGJa32M6Yh46cGirUta1K





    Finally, I will include two quick charts.  The first shows the number of zombie events that occur daily over time.  As you can see, during periods of time when the bitcoin price was running up, the number of zombie events (indicating people cashing in and moving a lot of old bitcoin public keys) goes up substantially.  Note that this is just a total count of 'events', it does not graph value.


    NumberOfZombieEventsPerDayOverTime.png


    Here is a graph of the absolute total value in bitcoins rising from the dead on a daily basis.  Note that the Y axis has been clamped at 18,000 bitcoins since on just a few days hundreds of thousands of bitcoins were moved and throw the graph out of scale.


    ZombieValueByDay.png



    References:

    Here is a link to a graph showing the distribution of bitcoin balances by age.

    Here is a link to a spreadsheet showing every day that a sigificant quantity of bitcoins rose from the dead, meaning value older than two years old was transferred.

    Here is a link to the raw data as a straight ASCII comma separated value file showing every single 'zombie event' over the lifetime of the bitcoin blockchain and up until July 27, 2014.

    Here is a link to a spreadsheet which shows the top 1,534 bitcoin public key addresses with a balance of greater than or equal to 1,000 bitcoins.

    Finally, here are some overall blockchain statistics as of July 27, 2014.

    * Total Blocks: 312,869
    * Total Transactions: 43,386,218
    * Total Inputs: 102,938,959
    * Total Outputs: 115,051,298
    * Found 42,288,981 addresses which have ever been used.
    * Found 39,120,232 addresses with a zero balance.
    * Found 1,509,310 'dust' addresses (less than 1mbtc) with a total balance of 206.78281 BTC
    * Found 1,335,814 addresses with a balance greater than 1mbtc but less than 1btc, total balance 116,862
    * Found 208,989 addresses with a balance greater than 1btc but less than 10btc, total btc: 528,389
    * Found 99,695 addresses with a balance greater than 10btc but less than 100btc, total: 3,532,151
    * Found 13,407 addresses with a balance greater than 100btc but less than 1,000btc, total: 3,044,956
    * Found 1,435 addresses with a balance greater than 1,000btc but less than 10,000btc, total: 3,210,357
    * Found 97 addresses with a balance greater than 10,000btc but less than 100,000btc, total: 2,206,252
    * Found 2 addresses with a balance greater than 100,000btc, total: 295,838

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