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    Categories: Columns

    Using Bitcoin in Patagonia

    August 5th, 2014 by arturodelia
    **With Argentina in the news a lot, it's hard to ignore the need they have to find a better way to do business.** Especially when printing more pesos just isn't going to make the problem go away. One small store owner in the Patagonia has taken the opportunity to accept bitcoin instead of the depreciating Argentine peso. So I headed down to the beautiful town of San Carlos de Bariloche, famous for its mountains, enormous fresh water lake and Swiss style town, to make my first purchase with bitcoin. Besides, I've been studying bitcoin for over a year now and I hadn't made my first bitcoin purchase yet! I bribed my family with a promise to get them goodies from the store to come with me so they can not only see how cool it is to use this new international money, but finally see in action the very technology I was bragging about for so many months. The downtown located Maxikiosco is a quick stop for snacks on the go. Just a few blocks from where we were staying so it was perfect. I opened the "Aceptamos Bitcoin" branded door and right away in an Argentnian tone and look spoke to the owner asking in spanish, "So you really are accepting bitcoin?". A slow smile came to his face. Little did I know that his store was becoming popular with clients paying with bits. He confirmed and we selected our items. So I put all the goodies on the counter and he counted quickly the final sum in pesos... and that's where the ease of bitcoin came to a screeching halt. If you don't yet, Argentina has two rates. The oficial and the "blue" rate. The first is the oficial rate of the peso to the dollar (and any other fiat for that matter). The second is the "black" market rate that fluctuates depending on the actual demand on the dollar (Mycelieum has confirmed with me that they are planning to put a blue rate in their wallet soon). Bitcoin is exchanged at the blue rate of course, so that means converting the peso to the blue rate to the bitcoin. After a few minutes of this, we confirmed how many bitcoins... or milibits... and that's the thing, he hadn't moved over to milibits yet, even though the small purchases he sells would be more convienient for him. But that was easier than trying to scan the small QR code on is small iPhone4 (even my 4.9" android is too small for me!). He was going to dictate the account to me but I halted him. I have a strict rule of no manual inputs. That's just rediculous in this day and age. So he wanted to text me the address to my cell phone so I can copy and paste it. It took me a second but I did notice eventually I had no cell signal in his store... which meant I also needed wifi to confirm the transaction with him. My family looking at me now is doubting they were going to get their promised drink and snacks. "Fear not! Over 20 years in the IT industry, I've seen worse!", I exclaimed. He had wifi. I tried to connect to it. No luck. I had seen this before, cell phone hung, waiting for an IP address. I wasn't about to try to start troubleshooting his wifi router no matter how easy it could be. I wanted my drink now. He said he knew another wifi (possibly the neighbor's?)... and success! Alright, now back in busines. I noticed he was using bitpay on his laptop. At this point, I took over and said to him to just show me the QR code from his laptop screen. I scanned that in a jiffy and then sent him the milibits. I was not expecting the speed of which the propagation occured, for no faster than me entering my pin to confirm the sending amount, did I hear a beep on his laptop. That was fast. He gave me a huge "We Accept Bitcoin" spanish sticker as a gift. I had my first bitcoin transaction, and it was as cumbersome as all the podcast stories I've heard everyone has had for their first time as well. Now my bitcoin address had an output. Not a virgin anymore. We both agreed no need to wait for any confirmations, that's just more peace of mind than a necessity for these kind of transactions. I had to thank my family for their patience and even going back there again later in the day and made another transaction much smoother (saved wifi and bitcoin address helped!), I realized that there is a much better setup small business owners can have if they do the following: 1. Open wifi called "bitcoin". If we all set aside an open SSID (seperate from your corporate/home network), we could have also the largest open network that not only advertises for free the bitcoin network, but as well, help previous bitcoin cutomers automatically connect to a network for propergation confirmation. 2. Screen facing customer with the requesting QR code. Best if it would itemize each purchasing item with a total in the fiat/bitcoin amount. The store owner should make the requesting amount and have that displayed in large on the screen so that the customer only needs to scan it and confirm the send. That would make for a much smoother transaction and even faster than credit cards or cash (if you need change). I have other ideas for multiple checkouts with one cashier but that's another post. 3. Discount for using bitcoin. Although he is the only one accepting bitcoins, passing on the savings the merchant would have had to pay had the customer used a credit card, would help in their own marketing and also for the paying customer to opt in to pay for a miner's fee. I like the idea of paying the miner's instead of these multi-billion dollar companies. The bitcoin scene is growing in the south of Argentina. The best thing we can do is convert fiat slowly to it as a savings account (to avoid these rollercoaster violatilities), use it when possible (to encourage the economy to stay in BTC), and help others understand and use it. I average about 2 hours per new adopter in helping them understand, setup their new account, back it up, erase it, restore from backup and then do the first transfer. I remind everyone to have a method for your accounts to be accessed in case of your death so to not see the funds lost forever. --- Arturo D'Elia has been working in the IT industry for the last 21 years. He's currently volunteering freely and independantly in the Argentinian Patagonia to help people learn and understand bitcoin. Any donations for this cause is greatly appreciated! His profile can be found here: https://plus.google.com/+ArturoDElia Read More
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    eBay and Microsoft Eye User-Created-Value Platforms Similar to LTB

    August 5th, 2014 by bcohen

    Original (dhimmel):

    !!!!! SENSITIVE TITLE - PASTE IN PLACE BEFORE PUBLISHING: eBay and Microsoft Eye User-Created-Value Platforms Similar to LTB !!!!!

    On July 9th, 2014, EcommerceBytes reported that eBay is considering "Compensating Users to Post on the eBay Boards. This was revealed when eBay held a Weekly Chat with the eBay Community Team on July 2nd:

    This week, the eBay Community team wants to hear your ideas about rewards & recognition for Community participation.

    EcommerceBytes noted that:

    In response to a question about what the eBay moderator meant, the moderator replied, For example, if eBay were to reward members for their Community participation, what types of participation should we consider? Number of posts? Number of correct responses?

    While EcommerceBytes said the move smacks of desperation, I will offer a different perspective. This is a paradigm shift whereby users will actually create and share value of the network and not just transfer (i.e. reallocate) value across it.

    The scope of eBays reward program eBay Bucks could expand beyond purchasing products into the realm of rewarding message board users. While eBay bucks is currently a walled garden it is possible that we could see it float through the gift token that I discussed over at Bitcoin Magazine in eBay Files Patent Application for Programmable Money. Or less likely but still possible, eBay could let Bucks be freely traded on a platform such as that proposed by IBM (see IBM Building e-Currency Platform, including Bitcoin.

    In what seems to be synchronicity, eBay posted the weekly chat announcement on June 30th which was just a couple days after Lets Talk Bitcoin! (LTB) launched LTBcoin (see the announcement at Introducing LTBCOIN, our new crypto-rewards program for LTB Creators and Community. LTBcoin according to the tokens website is a brand new kind of thing. It is a crypto-rewards system where people who help LTB to be useful are rewarded for their efforts. And its built on Bitcoin! In describing LTBcoin (LTBc), I have said Purchase not required. Participation is (Twitter). In fact, you cant buy LTBc from Lets Talk Bitcoin! However, everyone and anyone who participates in the Lets Talk Bitcoin Network (LTBn) is rewarded and distributed LTBc based on their participation in the network. Content creators receive the most amount of LTBc for their efforts but anyone can submit content (blog posts, podcasts and videos). Similar to eBays value proposition, 2.25 million LTBc were initially distributed to LTB community members with five or more forum posts and that registered a LTBcoin Compatible Address. LTBn is continually innovating and released Magic Words on July 17th in which a magic word is spoken on the podcast and listeners redeem the word on the Lets Talk Bitcoin website and are rewarded five times as many LTBc if they had read an article on the Lets Talk Bitcoin website...Yes, even reading an article on the website is worthy of an LTBc reward.

    According to the LTBcoin website, LTBcoin is a

    user-defined asset using the Counterparty protocol. Counterparty is built on Bitcoin and is secured by the Bitcoin network. Because of this, LTBcoin addresses are exactly the same as Bitcoin addresses. LTBcoin can be traded on the Counterparty distributed exchange for Bitcoin, XCP or other user-defined assets.

    Ethereum

    Ethereum is a distributed application software platform often referred to as Bitcoin 2.0. While Counterparty works on top of the Bitcoin blockchain, Ethereum is not compatible with Bitcoin (also see Overstock.coms o.info How to issue a cryptosecurity. On June 4th, prior to Ethereums ether sale, Ethereum posted a YouTube video of Chief Communications Officer Stephan Tual entitled What is Ethereum?. This video is the explainer that visitors first encounter when entering the Ethereum website. Tual explains that:

    ...another interesting application of this concept {of distributed application software} is that today on Facebook if you help identify artists that subsequently become successful by pressing the like button that value goes to Facebook advertisers not the content producers, not you. On Ethereum on the other hand both the content creator and the early adopter will be rewarded for identifying that artist. Its a brand new revenue model that never been seen before and it can completely revolutionize the way we think about revenue on the internet today.

    Reddit

    One has to wonder what Reddit has in store for their community after it was disclosed on Reddit to much fanfare (i.e. it made the Bitcoin sub-Reddit front page) that Reddit is hiring a couple of Cryptocurrency Engineers. While it is conjecture on my part, the shift towards users not just participating in the network but creating value based on their interaction with it cannot be dismissed.

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    Categories: General, Columns

    Intro to Decentralized DNS

    August 4th, 2014 by mdw

    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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    Categories: General, LTB News
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    Categories: General, Columns

    Solution to Sybil attacks and 51% attacks in Decentralized Networks

    August 3rd, 2014 by lainfinity
    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 therealtwig
    ## 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 "**hash**tag" 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](https://en.bitcoin.it/wiki/Technical_background_of_version_1_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 ![](http://i.imgur.com/lMJCIxN.gif) 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](http://en.wikipedia.org/wiki/Elliptic_Curve_DSA) 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 ![](http://i.imgur.com/ufNMasb.gif) 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 ![](http://i.imgur.com/ufNMasb.gif) 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](http://www.wolframalpha.com/input/?i=2%5E160), the ![](http://i.imgur.com/ufNMasb.gif) few is actually the number listed below. ![](http://i.imgur.com/3ubKYa3.jpg) I dont think we have any more problems with 33 people in line trying to get an account! Each of these ![](http://i.imgur.com/ufNMasb.gif) 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](http://zimmer.csufresno.edu/~larryc/proofs/proofs.pigeonhole.html). 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: ![](http://i.imgur.com/WSPtXpQ.gif), or ![](http://i.imgur.com/5s4Pgwx.gif) 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 ![](http://i.imgur.com/kwpJ3mj.gif) [grains of sand on the entire earth](http://www.hawaii.edu/suremath/jsand.html). 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](http://www.hashhouseagogo.com/) and watching my Indianapolis Colts play some football! -*Adam Terwilliger* Read More
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    Categories: General, Breaking News, Columns

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

    August 1st, 2014 by Mike
    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 jratcliff63367

    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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    3,708 views
    Categories: Beyond Bitcoin
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    1,690 views

    Uncoinventional Living Tour Day 14 Porcfest Marc De Mesel on NXT

    July 30th, 2014 by SovBTC
    In this podcast, John and Cat are at PorcFest in Lancaster, NH. John sits down to chat with NXT investor and enthusiast Marc De Mesel about all that NXT has to offer to the crypto community. Learn more at: http://nxt.org/ Check out the regular audio updates on the SovereignBTC podcast feed and follow the live blog on Bitcoin Magazine - bitcoinmagazine.com/13694/uncoinventional-tour/ You can contribute to the project in the following ways (all donations will go toward travel and marke... Read More
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  • 42 Comments
    3,822 views
    Categories: General, Guest Blog

    The Evolution of BitShares (Formally ProtoShares)

    July 30th, 2014 by pairmike
    How ProtoShares evolved to become BitShares X and other future DACs.

    Original (dhimmels):

    On October 5, 2013, at the Cryptocurrency Conference, Daniel Larimer, the founder of Invictus Innovations gave a presentation on Decentralized Autonomous Companies (DAC). One idea that he presented was the creation of ProtoShares (PTS). PTS is a mineable cryptocurrency used to raise funds for the development of a suite of DACs sponsored by Invictus Innovations.


    ProtoShares was initially mineable only with CPUs and then eventually with GPUs. They were not pre-mined and quickly rose in value to over $9.00 USD with a market capitalization that exceeded $30 Million Dollars within 45 days of launching. Quite impressive.  


    However, there was one huge problem.  In order to mine PTS, miners spent an enormous amount of money on hardware, software, and cloud services.  This realization caused Invictus Innovations to devise a new means of raising capital for DACs that did not divert funds away from the DACs ecosystem. Mastercoin, a Bitcoin 2.0 protocol, raised funds via a donation crowd sale in August 2013.  This eliminated the need for mining while maximizing the fund raising efficiency.  I believe this served as a pivotal example and encouraged the company to adopt this concept.  

     

    Invictus Innovations introduced some new features to this crowd sale donation concept.  One feature was to create a second asset called AngelShares (AGS) that allowed individuals to fund future DACs and receive a stake in them.  This idea is now commonly referred to as crypto equity. The second feature was to attract individuals in the crypto currency community who have a long term view of DACs concepts and its ecosystem.  A third benefit was for new DAC developers to gain initial community support if they would honor a social consensus contract. This contract stated that a new DAC developer would set aside a minimum 20% stake in their DAC. This stake which would be split equally between AGS and PTS holders in exchange for community support, testing, and promotion of the new DAC.  Also, the developer would gain access to the technology toolkit and support from Invictus Innovations.

     

    The AGS donation period starting Jan 1, 2014 and ended July 19, 2014.  During this time, one could donate Bitcoin (BTC) or PTS and receive a percentage of 5000 AGS distributed daily.  This was a very successful donation campaign.

     

    On Feb 28, 2014, Invictus Innovations conducted a snapshot for BitShares X which grants all holders of PTS and AGS a new allotment in BitShares X when released.  AGS donations after Feb 28, 2014 did not earn any stake in BitShares X or its derivative DACs.  However, the post snapshot donations earned a stake in the following and future DACs (non BitShares X):

     

    Domain Names

    The secure alternative to todays domain name system that eliminates domain name squatting while providing security against government seizures, man-in-the-middle attacks.

     

    Voting

    Transparent-yet-anonymous elections and polling

     

    Charity

    Finding ways to help others with the technology of decentralized autonomous charities.

     

    Gaming

    Honest and transparent gaming of all kinds is now possible.

     

    Insurance

    Get 'insurance' through a Mutual Aid Society with minimal overhead using decentralized autonomous insurance policies.

     

    Lending

    Lending is one of the more difficult systems to decentralize because it generally involves matters of trust and credit worthiness. These things typically require individual judgment and ultimately accountability.

     

    Music

    With the latest technologies that enable transparent decentralized ledgers, it is now possible for artists to sell shares of their songs rather than copies of their songs.

     

    Invictus Innovations renamed ProtoShares to BitShares PTS and AngelShares to BitShares AGS. On July 19, 2014, BitShares X (BTSX), a decentralized bank and exchange was release. AngelShares  holders can claim their shares in this asset.

     

    I hope this was helpful to clarify how ProtoShares has evolved from the beginning. For more information about BitShares click here.

     



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    Categories: General, Columns

    Our Fractious Bitcoin Community

    July 29th, 2014 by mdw
    There are growing divides among the ever increasing numbers of supporters of Bitcoin. These schisms have existed since the very early days of this technology. Yet people were compelled historically by a common vision to band together and push forward as a united movement.
     
    Bitcoiners hold a wide range of views about why Bitcoin specifically, and cryptocurrencies generally, are exciting. Initially these divergent opinions were suppressed in favor of universally supported goals, but as the Bitcoin ecosystem continues to mature that bond grows weaker.

    In the Beginning There Were Techies

    First there were the technophiles. Satoshi and his contemporaries having lofty discussions about how to make digital currency technology work. How specifically to create a system like hashcash or bit-gold without the double-spend problem? It’s not clear that even they realized the import of what resulted from those discussions.
     
    The techies continue to be fascinated by new algorithms for securing the network, experimentation with sidechains or tree chains, meta protocols using Bitcoin’s blockchain as substrate, new approaches to anonymity, next-generation 2.0 metachains, and all the new and shiny advances that come along.
     
    So the techies came first. Who else could understand why this Bitcoin would work where previous iterations had not? Who else would setup machines to "mine" these worthless digital things? Technologists create; if it has value, others may follow.
     
    Geeks soon began to realize this weird idea of a blockchain as a mechanism to achieve consensus across a distributed network had merit. It wasn’t simply an inefficient, sloppy way to do data storage. It was, in fact, a solution to a classic problem in computer science involving ensuring data integrity on a network without requiring the trusting of any specific node. They quickly began to think of other applications, like de-centralized domain name systems and more.
     
    Many of them began mining what would eventually turn into fortunes. This led to the inevitable first exchange of value involving Bitcoin, the famous 10,000 BTC pizzas, which would become a cherished part of Bitcoin history.
     

    And Then Came Progressives

    After living through the financial mess of the previous decade, many young idealists soon began to wonder if this weird digital money could provide some degree of freedom from the encumbrance of the traditional world of finance. An influx of counter-culture advocates flocked to Bitcoin, but were more diverse in their worldview than the original money hackers.
     
    These early adopters included a fair number of Libertarians, who found appeal in the idea of usurping government control over existing, corrupt financial systems. They pointed to the big banks, repeatedly sanctioned for market tamperingmoney launderingrigging ratesfraud and more. They were disgusted that these same institutions could receive billions in public bailouts when their dubious investments went belly up. Worse still, these huge banks and financial firms continued to engage in the same behaviors, merely paying fines every time they got caught.
     
    This group of early adopters also included self-proclaimed agorists, who rallied behind the notion that they could avoid letting governments know anything about their money, and avoid supporting it with their participation, and avoid paying taxes. This contingent included everything from living-off-the-grid isolationists to fiercely independent separatists. 


    Success Has a Downside

     
    Of course as Bitcoin the currency started to be valued in the nascent marketplace, it attracted the attention of criminals. Criminal enterprise is an indicator of success in the case of currencies. The US dollar is going to remain the preferred currency of criminal organizations for now, but new opportunities emerged for the unsavory elements in our midst to conduct business across distances using Bitcoin.
     
    The dark web became filled with Bitcoin scammers. Governments realized they could gain credibility in the eyes of those anxious about technological change by attacking underground Bitcoin enterprises like Silk Road
     
    Fraudsters began to emerge as well, as it became obvious that profits could be made. Some untrustworthy exchanges would repeatedly have trouble and freeze withdrawals, some would simply take deposits and disappear. 
     
    New altcoins would pop up with no hint of utility, engage in marketing campaigns and then dump everything as soon as the coin gained value. Some had no programmers, some had hidden pre-minesDaFuqcoin even deployed a trojan.
     
    And so there came to pass an uneasy alliance between many technologists, believing that algorithms can solve problems better than laws, and criminals looking for anonymity, and privacy advocates bemoaning the increasingly intrusive nature of online surveillance. This ushered in new tech like ZerocashDarkcoincoin mixing services, and Darkwallet.


    Enter the Entrepreneurs

     
    We then started to see a new class of technologists flocking to Bitcoin. Not the early pioneers, but more practical entrepreneurs. Some blended in perfectly, understanding the tech well at a sufficient level to bring it to main street. The result was friendlier wallets, exchanges, and tutorials.
     
    But the entrepreneurs working in the financial services space quickly realized they needed what others in the growing community were stridently opposed to. To build real exchanges in the post-Gox era, for example, required quantifying legal and regulatory risk. Business opportunities depend on predictability.
     
    Uncertainty is the worst environment for financial services; clearly spelled out governmental policies, even problematic ones, would bring opportunities. So how to make others in the community understand? Broad, sweeping regulation appeals to nobody. But the intersection of fiat and crypto is the domain of those governments who control the old currencies.


    The View From Main Street

     
    Bitcoin has survived MT Gox, Silk Road busts, repeated faux-banning in China and much more without sustaining any lasting damage, and that has vindicated those who truly believed. This has ushered in still more folks from main street, who have started to call for regulation, and to ask about those safeguards to which they’ve become accustomed in life. 
     
    Now they ask about services to insure deposits. They worry about the complexity, they worry about making mistakes. They wonder if the free-for-all altcoin markets would ever get some oversight. They talk about all those things that so many early adopters are so adamantly opposed to.
     
    Beyond the need for simplicity of design and function, the newly intrigued would like to participate more broadly. For that to happen requires fewer scammers and fraudsters, a wider variety of wallets and online account options, and the ability to scrutinize and audit services like online exchanges.


    The Inevitable Fragmentation

     
    The ever broadening base of Bitcoin supporters is highly democratic, and growing more diverse with each passing day. Entrepreneurs versus Agorists? Libertarians vs. Venture Capitalists? The plurality that is the Bitcoin community grows further apart with each new on boarding of users. Perhaps that’s not a bad thing.
     
    Isn’t this really what most of us wanted? Bitcoin’s becoming mainstream. So many different voices are speaking up. Did we expect dogma from a self-appointed group of thought leaders to be promulgated throughout the user base like an ancient religion? No, it only makes sense to expect a messy competition of ideas and aspirations. 
     
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    Categories: General, Guest Blog

    Bitcoin vs. Ponzi

    July 28th, 2014 by Tron

    “I can’t believe you fell for that Ponzi Scheme!” or “Sounds like a pyramid scheme to me.”  Have you ever heard this when telling someone about Bitcoin?  Don’t worry, it happens all the time.  Let’s take a closer look at why.

     

    We have Charles Ponzi, a 1920s notorious scam artist, to thank for the lending his name “Ponzi” to the practice of ripping people off by promoting a fake investment with huge returns, then not really investing the money, but rather siphoning funds while paying the original investors with new investor’s money.

     

    Why would anyone even compare bitcoin to a Ponzi scheme?  There are two reasons.

     

    First reason -- the huge returns.  In a Ponzi scheme the high returns are paid to the original investors so the original investors put in more money, and also to get testimonials to entice new investors (suckers).  With bitcoin, the high returns are simply the increase in market value of a new digital asset class that can’t be counterfeited.  Bitcoin benefits from the network effect in the same way that the telephone, the Internet, and Facebook have benefited. Since the returns for bitcoin, so far, have been massive, those that don’t recognize the sea change, compare it to other “investments” with massive returns -- the dreaded Ponzi scheme.  

     

    The second reason for the comparison is the similarity of the passion of those talking about bitcoin with the fervency of those promoting a Ponzi scheme.  This passion is sometimes described as being cult-like.  For the Ponzi scheme promoter the fervency is a matter of survival.  If new money doesn’t come in, the Ponzi scheme collapses, and there will never be enough to make everyone whole because it has been paid out to early investors or siphoned off.  With Bitcoin, I believe the cult-like passion comes from understanding what this new currency means for the future, and desire to share it with others.  I’m guilty of this.

     

    In the typical Ponzi scheme, the investment opportunity doesn’t really exist, it’s a fictional story used to explain the huge returns promised by the Ponzi scheme promoter.  A Ponzi scheme must promise huge returns because that’s how the promoter gets new money to keep the scheme going.  The new money is paid out to early investors to keep the fiction going, while some of the funds are being siphoned by the Ponzi operator.  For a Ponzi scheme to work, it’s critical that only the Ponzi promoter and co-conspirators know how much has been ‘invested’, because any type of audit or transparency of a Ponzi scheme will collapse it instantly.  

     

    Bitcoin can’t be a Ponzi scheme as it is the ultimate in transparency.  It’s so transparent its like a glass door that you don’t see until it’s too late and you smash your face.  It’s so transparent, that there’s dozens of websites that list every transaction anyone has ever made.  It’s so transparent that every fraction of every bitcoin in existence can be traced from its origination to its ultimate destination address.   The only thing we don’t know is who owns the keys to these addresses, and we should keep it that way.

     

    But beware, bitcoin can be used in Ponzi schemes, in the same way scammers might use Dollars, Yen, Euros, or gold.  The tell-tale signs of a Ponzi scheme will be large percentage returns, and you’ll have to send your bitcoin to someone else to get these spectacular returns.  Thankfully, if you remain the sole holder of the private keys for your bitcoin you will be safe from any Ponzi scheme.

     

    Does Bitcoin need more people using it to continue its increase in value?  Sure, but Coca-Cola (NYSE:KO), Apple (NASDAQ:AAPL), and Amazon (NASDAQ:AMZN) also need more customers.  Increased demand or usage translating into increased value is shared with almost every company, stock, bond, commodity, and currency in existence.

     

    Some curmudgeons complain that the early adopters did really well.  Yes, similar to the way Venture Capital firms that recognized the early potential of Facebook (NASDAQ:FB), and Twitter (NYSE:TWTR) did really well.  

     

    Sadly though, most residents of the US are not allowed to invest in early stage companies because they’re not accredited investors.  Yep, even if you use your own money, early stage companies can’t let you be a part of their growth and success unless you’re quite literally a millionaire.  Bitcoin has no such restriction because unlike its earlier centralized predecessors like eCash, DigiCash, and Cybercash, Bitcoin can’t be intimidated, bribed, fined, or arrested.

     

    Bitcoin is a revolutionary global payment network that sprang into existence on January 3rd, 2009 with no promoter, and nobody robbing from Peter to pay Paul.  The verdict is in -- Bitcoin is no more a Ponzi scheme than politicians are honest.

     
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